M/s. Gowri Infra Engineers Private Limited, (called as the ‘Applicant’ hereinafter), having GSTIN number 29AADCG9044N1ZO, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 & GST Act 2017 read with Rule 104 of the CGST Rules, 2017 & KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.

2. The Applicant is a Private Limited Company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:

a) Whether the activity undertaken by the applicant is covered under section 2(119) of the CGST Act, 2018 read with point 6 Schedule II of the CGST Act, 2017 read with the Karnataka GST Act, 2017 and the IGST Act, 2017?

b) Whether Bangalore Development Authority is a Government Authority as per the provisions of GST Law?

c) Whether the transaction covered under point 3(ii) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as amended?

d) Whether the transaction covered under point 3(iv) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as amended?

e) Whether transaction covered under point 3(v) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as amended?

f) Whether transaction covered under point 3(vi) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 as amended?

3. The applicant furnishes some facts relevant to the stated activity:

a. The applicant states that he is engaged in the business of Civil Construction and Works Contract Services. The applicant has applied for the civil construction work tender with Bangalore Development Authority (BDA) with respect to construction of residential complexes / row of residential houses in the following location:

b. The said project is allotted to the applicant and the same has been executed by the Company through appointing various contractors. The activity of construction of residential complexes and residential houses are work in progress from last 3 years. In this regard, prior to introduction of Goods and Services Tax (GST) with effect from 01.07.2017, the Value Added Tax as per the provision of Karnataka VAT Act, 2003 and Service Tax as per the provision of the Finance Act, 1994 (as amended) was applicable and the applicant was discharging the respective taxes as and when due to the respective governments.

c. From 01.07.2017 onwards, the existing VAT and Service Tax is merged as single indirect tax structure called as GST with single rate of tax (generally 18%) on works contract services. However, as per Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended) the different rates of GST is introduced for different categories of activities which is undertaken by or on behalf of Central Government, State Government, Union Territory, Government Authority, Local Authority or Government Entities. The concessional rate of GST is applicable only when the service recipient or service provider satisfies the conditions stipulated under Notification No. 11/2017 – Central Tax (Rate) dated: 28.06.2017 as amended.

4. Regarding the questions, the applicant states that the definition of supply as per section 7 (1) of the CGST Act, 2017 is inclusive definition, where it covers transaction of sale, exchange, barter, licence, rental, lease, or disposal like activities. The independent transaction of supply of goods or services can be charged to GST based on the nature of activity undertaken for supply of such goods/ services. However, in certain transaction there will be supply of both goods and services, which cannot be bifurcated/ indivisible from each other due to nature of work / contract. In general, when more than one supply of goods or services or both are involved one of such supply of goods or services or both may act as an ancillary activity. In such cases, the provision of GST considers such activity as ‘composite supply’ and tax liability will be discharged based on the nature of the principal activity of such composite supply.

4.1 The applicant highlights that in the given case, the activity of construction of residential complex / residential houses undertaking on behalf of BDA, which is ‘Government Authority’. The Bangalore Development Authority was established by the BDA Act, 1976, which was passed by Government of Karnataka with effect from 6th January 1976. In the given case, the recipient of service is “Government Authority” as per the para 4 of the Notification No. 11/2017 – Central Tax (Rate) as amended.

4.2 On combined reading of Section 2(119), Section 2(90), Section 7 and 8 and Point 6 of Schedule II of the CGST Act, 2017, it is submitted by the applicant that their activity of construction of residential house and residential complex with respect to following BDA projects (to Government Authority) are squarely covered under the definition of Works Contract and their activity will be considered as supply of services.

5. With reference to the levy and collection, the applicant submits that the GST levy on any supply is determinable based on the rate as notified by the Government with recommendation of the GST Council from time to time. In relation to this relevant portion of section 9 of the CGST Act, 2017 is reproduced by the applicant

Section 9(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent, as may be notified by the Government on the recommendation of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.”

5.1 In the light of the above provision, the applicant states that the Central Government notified rate of GST for supply of various services along with SEC Code by vide Notification No. 11/2017 – Central Tax (Rate). In this regard, the applicant reproduced the rate of GST applicable for supply of service in the form of construction along with amended details made to the said Notification.

6. The applicant submits that the Central Government is empowered to specify the rate of GST, on the recommendation of the GST Council, for the supply of goods and supply of services with or without conditions. In this regard, the Central Government issued Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended) to specify the effective rate of GST for different categories of supply of services. In the said notification, the Chapter Heading 9954 notifies the rate of GST on Construction Services. The three rates of GST are applicable, i.e. 2.5%, 6% and 9%.

7. The applicant submits that as per the above analysis of Notification No. 11/2017 – Central Tax (Rate), it is submitted that the activity undertaken by the applicant to BDA i.e., Government Authority is liable for GST at 6% CGST and 6% SGST. The reasons are as follows:

7.1 The activity undertaken by the applicant is construction of residential complex or residential houses to Government Authority. Hence, it is the submission of the applicant that the said activity is not covered under point 3(ii) of the said Notification.

7.2 The activity undertaken by the applicant is also not covered under any of the schemes of the entry no.3(iv) or 3(v) of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended) and hence is not liable to charge concessional rate of GST.

7.3 The applicant submits that the construction of civil structure and any other original work to Government Authority is liable for GST at 12% subject to the satisfaction of the following conditions:

(a) Execution of Construction Activity as per section 2(119) of the CGST Act, 2017: In the given case, the activity undertaken by the applicant is construction of residential complexes and residential houses. Therefore, it is our submission that the said activity is covered under the definition of Works Contract;

(b) The activity should be a civil structure or any other original work: In the given case, the activity undertaken by your applicant is construction of residential complexes and residential houses, which is a civil structure;

(c) Such original work / civil structure for use other than for commerce, industry or any other business or profession: In this regard, the applicant states that BDA is formed under the BDA Act, 1976 which is Government Authority as per the GST Law. The BDA was established to provide high quality infrastructure, better quality of life and provide the affordable houses to public at large of Bengaluru City. There is no profit motive involved in the activity undertaken by the BDA. The Section 40 of the Bangalore Development Authority Act, 1976 (Annexure V) specifically mentions that all the earnings of BDA should be credited to the fund called ‘the Bangalore Development Fund’. Further, the applicant states that the said earnings are meant only to achieve the objects entrusted to BDA by the BDA Act, 1976, which is sovereign activity. This is clearly stated in the Section 41 of the BDA Act which reads as under:

“41. Application of the Bangalore Development Fund:- (1) The said fund shall be held by the Authority in trust and shall be applied by it, subject to the general or special orders of the Government, in payment of the charges incidental to the carrying out of the purposes of this Act including the cost of maintaining, keeping in repair, lighting and cleansing of streets and the cost of maintaining drainage and sanitary arrangement and water supply, under section 28A.”

8. The applicant states that in the back drop of the above submissions, and in the absence of profit motive in the transaction undertaken by BDA, the sale of construction of residential complexes and residential houses are not meant for commerce, industry, or any other business or profession but it is a sovereign function, Therefore, the activity of construction of residential complexes and residential houses are liable for GST at 12% (CGST @ 6% and SGST @ 6%) as per entry 3(vi) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 (as amended).

PERSONAL HEARING: / PROCEEDINGS HELD ON 21.05.2018

9. Sri Rajesh Kumar and Kiran Kumar, CA and authorised representatives of the applicant appeared for personal hearing proceedings held on 21.05.2018 & reiterated the facts narrated in their application.

10. FINDINGS & DISCUSSION:

10.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by Sri Rajesh Kumar and Kiran Kumar, CA, authorized representatives, during personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.

10.2 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

10.3 The transaction of the applicant is verified and found that the main issue is the rate of tax applicable to the transaction of the applicant and more so whether the transactions are covered under entry 3(vi) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended). The applicant himself has clearly stated that his transactions are not covered under entry no.3(ii) or 3(iv) or 3(v) of the said notification and hence they are not considered as the same is also agreed by this Authority.

10.4 The Entry No.3(vi) of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended by Notification No.46/2017- Central Tax (Rate) dated 14.11.2017) reads as under:

“(vi) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of-

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a structure meant predominantly for use as (i) an educational, (ii) clinical, or (iii) an art or cultural establishment; or

(c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of Schedule 111 of the Central Goods and Services Tax Act, 2017.”

and the condition stated in the Column (5) of the Notification is “Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union Territory or local authority, as the case may be.”

10.5 The Government Entity is defined in clause (zfa) of paragraph 2 of the Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 (as amended) and the same is as under:

“(zfa) “Government Entity” means an authority or a board or any other body including a society, trust, corporation,

(i) set up by an Act of Parliament or State Legislature; or

(ii) established by any Government, with 90 per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.”

10.6 For a works contract to be covered under this entry, the following conditions needs to be satisfied:

(a) The recipient of services must be a Government Entity and in this case, Bangalore Development Authority;

(b) The works contract services supplied by the applicant must be in relation to the works covered under (a), (b) or (c);

(c) The recipient of such services must have procured these services in relation to a work entrusted to it by the Central Government, State Government, Union Territory or local authority

10.7 Regarding the first question, Bangalore Development Authority is an authority established by the State Government under the Bangalore Development Authority Act, 1976 and it is entrusted with the activity of development of the City of Bangalore and areas adjacent thereto and for matters connected therewith.

Section 3(3) of the BDA Act states as under:

“(3) The Authority shall consist of the following members, namely:

(a) the Chairman ;

(b) one person to be called the Finance Member possessing qualifications in accounts and audit;

(c) an engineer who shall be an officer of the Karnataka Engineering Service or an officer employed in any undertaking owned or controlled by the State Government not below the rank of a Chief Engineer;

(d) a town planner who shall be a person with experience in town planning,

(e) a person with experience in architecture;

(f) the Commissioner, Corporation of the City of Bangalore, ex-officio;

(ff) an officer of the Secretariat Department incharge of urban development, not below the rank of a Deputy Secretary to Government.

(g) two persons who are members of the Karnataka State Legislature;

(gg) two persons of whom one shall be woman and one shall be a person belonging to the Scheduled Castes or the Scheduled Tribes;

(h) four others of whom one shall represent the labour;

(i) a representative of the Bangalore Water Supply and Sewerage Board;

(j) a representative of the Karnataka Electricity Board;

(k) a representative of the Karnataka State Road Transport Corporation;

(l) two persons elected by the councillors of the Bangalore City Corporation from among themselves in the prescribed manner:

Provided that during the period of supersession of the Corporation or where any Administrator has been appointed, the two persons shall be nominated by the Administrator from among the officers of the Corporations.

(m) the Commissioner, ex-officio;

(n) the Secretary of the Authority, who shall be an ex-officio member.

(4) The persons referred to in clauses (a) to (e) and (ff) to (h) of subsection (3) (both inclusive) shall be appointed by the Government and the persons referred to in clauses (i), (j) and (k) thereof shall be nominated by the respective bodies:”

10.8 It is very clear from the above that the control over the entity rests with the Government of Karnataka and hence the Bangalore Development Authority satisfies both the conditions and hence is considered as a Government Entity within the meaning of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

10.9 Regarding the second question, whether the services provided by the applicant are covered under clauses (a), (b) or (c) of the entry no.3(vi) of the said Notification, the following are noticed:

10.9.1 The applicant is constructing a Housing Project at two places in and around Bangalore. The Bangalore Development Authority in its tender has stated that it has taken up construction of housing in and around Bangalore City as designed by the Government of Karnataka. Since this is a residential project for general public, the same is not covered under clause (b) or (c).

10.9.2 Conjoint reading of the entry with reference to the applicability of clause (a) of the said entry reads as under:

“Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act provided to the Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession,

Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union Territory or local authority, as the case may be.”

The projects of the applicant are involving the supply of both goods and services and is in relation to an immovable property and hence is a “works contract” within the meaning of section 2(119) of CGST Act. This works contract is for a construction of a civil structure and since it is a residential real estate project, the works is predominantly for use other than commerce, industry or any other business or profession and hence it is covered under clause (a) of the entry 3(vi) of the Notification, subject to the conditions.

10.9.3 Regarding the issue as to whether the recipient has procured the said services in relation to a work entrusted to it by the State Government, it is observed that the Bangalore Development Authority Act, which is passed by the State Legislature, has entrusted the activity of development of the City of Bangalore and areas adjacent thereto and for matters connected therewith to the BDA and the Authority has to obtain the sanction of the Government of Karnataka for every scheme they propose to implement. Hence, the condition is also satisfied.

10.9.4 Hence for the reasons stated above, the services provided by the applicant to the Bangalore Development Authority in relation to the construction of two housing complexes referred to in the application are covered under entry no.3(vi)(a) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 (as amended) and is liable to tax at 6% under the CGST Act, 2017. Similarly, the services provided is covered under entry of Notification (11/2017) No. FD 48 CSL 2017 dated 29.06.2017 (as amended) and is liable to tax at 6% under the Karnataka Goods and Services Tax Act, 2017.

11. In view of the foregoing, we pass the following

RULING

1. The activity undertaken by the applicant as enumerated in the application is covered under section 2(119) of the Central Goods and Services Tax Act and is a works contract services.

2. Bangalore Development Authority is a Government Entity as per the provisions of the GST Law.

3. The transaction of the applicant would be a supply of works contract services covered under clause (a) of entry no.3(vi) of the Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 (as amended) and not under entry no. 3(ii) or 3(iv) or 3(v) of the said notification.