The subject appeal is filed under Section 100(1) of the Tamilnadu Goods & Services Tax Act 2017/Central Goods & Services Tax Act 2017 (hereinafter referred to ‘the Act’) by PSK Engineering Construction & co. (hereinafter referred to as ‘Appellant’). The appellant is registered under GST vide GSTIN 33AAGFP24B3EIZF. The appeal is filed against the Order No.08/ARA/2021 dated 25.03.2021 passed by the Tamilnadu State Authority for Advance ruling on the application for advance ruling filed by the appellant.
2. The Appellant has stated that they are engaged in construction activities including retro fitting, restoration etc. of civil structures predominantly for Government, Public Sector Undertakings and Government entities. They had filed an application before Hon’ble Authority for Advance Ruling, seeking clarification on the following questions:-
1. What is the rate of GST to be charged on providing works contract services to TANGEDCO for carrying out retrofitting work for strengthening the NPKRR Maaligai against seismic and wind effect and modification of elevation in TNEB headquarters building at Chennai.
2. Whether the entry in Sl.No.3 item (vi) of the Notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended is applicable to the appellant in instant case.
3. The Original Authority has ruled as under:-
1. The rate of GST to be charged on the services provided by the applicant to TANGEDCO for carrying out retrofitting work for strengthening the NPKRR Maaligai against seismic and wind effect and modification of elevation in TNEB headquarters building at Chennai is 18% ((9%CGST + 9% SGST) as per SL.No.3(xii) of Notification 11/2017-CT (Rate) dated 28.06.2017 as amended.
2. The entry in SI.No.3 item (vi) of the notification 11/2017 -Central Tax (Rate) dated 28.06.2017 as amended is not applicable to the applicant in the instant case for the reasons discussed in Para 8 of the ARA order.
4.1 Aggrieved by the above decision, the Appellant has filed the present appeal. On the timeline for filing appeal, they stated that CBIC vide Circular No. 157/13/2021-GST dated 20th July 2021 in the context of extension of timelines vide Supreme Court Order on Extension of Limitation has clarified that the Order of Supreme Court shall be applicable for applications before ‘Appellate authority for Advance Ruling’; Supreme Court vide its Order dated 23 September 2021 had withdrawn the order with the direction that ‘notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 03.10.2021’. Therefore, the appeal is filed within the prescribed timelines mentioned in law.
4.2 On merits of the issue, the grounds of appeal are as follows:-
Condition 3 – Supply must be 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
Condition 4 – In the case of supplies to a Government Entity, there is a condition prescribed in proviso that the supplies should have been procured by the said Government 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.
Explanation– For the purposes of this item, the term ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.
5. Personal Hearing;
The Appellant was granted personal hearing through Digital mode (Virtually) on the consent of the appellant, as required under law before this Appellate Authority on 28.01.2022. Shri. S. MuthuVenkataraman, Advocate & the Authorised representative, appeared for the hearing virtually. He stated that the notification requires satisfying four conditions of which two conditions have been held to be satisfied. He stated that reference to the order of Kerala Appellate Authority for Advance Ruling is not valid as the ruling is specific to the applicant. The AR stated that as per Sec 61 of Electricity Act, the tariff is to be fixed considering the consumer interest and are to be reasonably fixed. He also referred to the explanation appended to the entry of the Notification and stated that the applicant is a Public Authority considering the definition of Public Authority under RTI Act. He stated that he will furnish the letter of TANGEDCO referred in their submissions and also a written submission. To the query that ‘Are you denying that TANGEDCO being a body corporate (company) do not have “Commercial Purpose”, the AR stated that the Principal activity is to provide service and the element of ‘Commercial purpose’ is secondary.
6. The Appellant submitted the following details on 04.02.2022;
In their written submission the Appellant has submitted the following:-
i. Commissioner of LT vs Sutlej Cotton mills supply agency (SC) 1975 (100) ITR 706(SC)
ii. Commissioner of I.T Madras Vs PKN company (SC) 1966 (60) ITR 65(SC)
iii. Rajputana textiles vs The Commissioner of LT 1961 (42) ITR 743(SC)
iv. collector of central excise vs Rajasthan State Chemical Works) 1991 (55) E.L.T. 444 (S.C.)]
v. Lloyd Electric and Engineering Limited versus State of Himachal Pradesh and others 2015 (9) TMI 370 – supreme court
Discussion and Findings:
7. We have gone through the entire facts of the case, documents placed on record, Order of the Lower Authority & submissions made by the appellant before us. The appeal is against the Order No. 08/ARA/2021 dated 25.03.2021 and is filed beyond the statutory period for filing appeal as per Section 100 of the GST Act. The appellant citing CBIC Circular dated 20th July 2021 on applicability of timelines for filing of the appeal and Order of Hon’ble Supreme Court dated 23rd September 2021 issued in Suo Moto W.P. (C ) No. 3 of 2020, owing to the prevailing pandemic situations, has stated that appeal is filed within the timeline for filing appeal. We find Hon’ble Supreme Court vide Order dated 10.01.2022, has modified its Order dated 23rd September 2021 relied by the appellant and has held that the period from 15th March 2020 to 28th February 2022 would stand excluded for the purpose of Limitation in Mise. Appeal No. 21 of 2022 of Suo Moto W.P.(C) No. 3 of 2020. Therefore, the appeal is to be considered as filed within the timeline and admitted for consideration on merits.
8.1 From the submissions we find that the appellant provides ‘works Contract’ services to TANGEDCO for carrying out retrofitting works and strengthening of the NPKRR Maaligai against seismic and wind effect and modification of elevation of NPKRR Maaligai in TNEB Headquarters complex, Chennai-2 as per the Tender Specifications(hereinafter referred to as Works’). They had sought clarification on the applicability of the concessional rate of GST as per entry No. 3(vi) of Notification no. 11/2017-C.T.(Rate) dated 28.06.2017 as amended for providing such services to TANGEDCO. The LA has found that
(1) the supply made is a composite supply;
(2) TANGEDCO is a Government Entity;
(3) the supply cannot be considered as that meant predominantly for use other than commerce, industry, or any other business or professional purposes and
(4) the said works are not of ‘Generation and Distribution’ of Electricity which is the entrusted work for TANGEDCO and therefore, as the appellant has not satisfied the conditions at (3) and (4) above, the concessional rate as per entry no. 3(vi) is not applicable to them and the services are chargeable to 18% GST.
8.2 Before taking up the contentions, the relevant entry is examined:
Chapter, Section, Heading, Group or Service Code (Tariff)
Description of Services
Rate (per cent.)
Heading 9954 (Construction services)
(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 a 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;
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
From the above, it is evident that the entry is available when the Composite supply of Works contract are made to ‘Government entity’ by way of fitting out, 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 and when such supply is made to a ‘Government entity’, they should have been procured in relation to a work entrusted to it by the Central/State Government or the Local Authority as the case maybe.
9.1 The appellant contends that they have satisfied the condition at (3) i.e., the supply was made for use other than for business or commerce, in as much as,-
9.2 We find that, NPKRR Maaligai on which the retrofitting work for strengthening against seismic and wind effect & Modification of elevation undertaken houses the headquarters of TANGEDCO. TANGEDCO undertakes generation and distribution of electricity in the State of Tamilnadu. On the Generation front, they extend license to various applicants seeking permission for generation of electricity for a ‘licence fee’ and as the distribution utility, undertakes sale of electricity to residential and commercial units after extending the necessary infrastructure (for charge) and fixing of Meters to monitor the consumption for collection of tariff for such usage of electricity. Thus, the activities of TANGEDCO are commercial in nature and for fixed tariff. The contention that the tariff is fixed as per Section 61 of the Electricity Act 2003 considering the ‘consumer interest’ and to ‘recover the cost of electricity in a reasonable manner’ does not establish that TANGEDCO LTD, is not a ‘commercial concern’. Further, while ‘Commerce’ is not defined in the GST Act, Business is defined under Section 2(17) of the Act and it includes any trade, commerce, etc, whether or not, it is for pecuniary benefit i.e., the necessity to have a profit motive is not the criteria to be considered as business/commercial.
9.3 The appellant has referred to the Explanation to Notification No. 11/2017 and has stated that as per the Explanation, ‘business’ shall not include activity or transaction undertaken by Public Authorities and have claimed themselves as ‘Public Authorities’ as per the definitions under the Rights to Information Act, 2005. Adopting the definition from a different Act which is not pari-materia with the provisions under discussion is not safe as the purposes and intent are entirely different between the ‘GST Act’ and the ‘RTI Act’. Further, Explanation to the Notification No. 11/2017 relied on by the appellant is applicable only to ‘Central Government, State Government or any local authority’ and is not applicable to the case at hand as TANGEDCO is not a State Government or any local authority but a Government entity. The said Explanation is as under:-
Explanation.- For the purposes of this item, the term ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”.
9.4 In the case at hand, the works are undertaken by the appellant to the Headquarters of TANGEDCO Ltd, a commercial company in as much as TANGEDCO is involved in Generation and Distribution of Electricity against fixed Tariff. The words of the entry is clear and excludes the works supplied to Government entity, in respect of a Civil Structure or any other original works meant predominantly for commerce, industry or any other business or profession. Therefore, we don’t find any reason to disagree with the findings of the LA that the supply cannot be considered as that meant predominantly for use other than commerce, industry, or any other business or professional purposes.
10.1 The appellant has further contended that they have satisfied the conditions at (4) in as much as,-
10.2 The factual Matrix of the constitution of TANGEDCO is, TANGEDCO Ltd is established by Government of Tamil Nadu vide G.O. Ms. No. 94 Energy (B2) Department dated 16.11.2009 with the primary object to function as generation and distribution utility in terms of the provisions of Electricity Act 2003; It is a public company wherein 99 percent shares are held by TNEB, the Holding Company established by Government of Tamil Nadu with more than 90 percent equity shares and control; The appointments of the directors to TANGEDCO are by the Government and TANGEDCO is a ‘Government entity’ for the purposes of GST as has been held by the LA. From the letter CFC/GL/ACCTS/DFC/AO/TAX/ EGST/ D.No.22/2019 dated 25.04.2019 of TANGEDCO, it is seen that TANGEDCO has sought clarification as to whether, they are ‘Government Entity’ under GST, considering the Equity share pattern by TNEB Ltd, the holding company which is 100% owned by Government of Tamilnadu and the Government of Tamilnadu has clarified vide Energy (B2) Dept Lr. No. 4155/B2/2018 dated 25.03.2019, that,-
Tamilnadu Generation and Distribution Corporation Ltd qualifies to be treated as “Government Entity” in view of the control exercised by Government of Tamilnadu through TNEB Ltd.
In the case at hand, it has been held by the LA that TANGEDCO is a ‘Government Entity’ and therefore there is no difference in the clarification issued by the State Government and the stand held by the LA and the claim that the State Government cannot speak in two voice is void. Based on the clarification received from the Government to the status that TANGEDCO is a Government Entity, the Finance Director has addressed, the Chief Engineers & others to take action to absorb the benefits of GST concessions to ‘Government entity’, which is their own interpretations and not clarification of the State Government and therefore, this contention fails.
10.3 The appellant relying on the decision in the case of CCE Vs. Rajasthan State Chemical Works, has stated that the phrase ‘in relation to’ is to be given a wide connotation and therefore the work undertaken by them to the TANGEDCO Headquarters should be considered as works in relation to the work entrusted to TANGEDCO. In the cited decision, the Apex Court has considered ‘what activity amounts to process in or in relation to manufacture’ and has held that processing of the raw materials even though are stages prior to the commencement of manufacture, are process in relation to manufacture, since they are integral to ‘manufacture’. In the present case, TANGEDCO is established with the primary object to function as ‘Generation and Distribution Utility’ and the work undertaken by the appellant, i.e., retrofitting work for strengthening against seismic and wind effect & Modification of elevation of NPKRR Maaligai, cannot be in any way said to be in relation to the said work entrusted to TANGEDCO by the State Government. It is worth mentioning that it is not the proportionality of the activity which determines whether an activity is ‘in relation to’ the work entrusted but the implications of the legislative assessment of the term ‘in relation to’ is more tilted towards nexus, inseparability and identity of the activities involved with the work entrusted and not merely on other parameters. It is also pertinent to mention that the Constitution Bench of the Hon’ble Supreme Court in the case of Commissioner of Customs(Import) Mumbai Vs. M/s. Dilip Kumar And Co. & others in C.A. No.3327 of 2007 [2018 (361) E.L.T. 577 (S.C.)], after a detailed analysis of various decision of the Apex Court in the context of interpretation of exemption has held that,-
(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.
10.4 In the case at hand, the condition imposed for availing the concessional rate at the said entry is unambiguous in as much as it says that the services should have been procured by the Government entity, in relation to a work entrusted to it and the strengthening of the Headquarters building of TANGEDCO is definitely not an activity ‘in relation to’ Generation and Distribution of Electricity’, the work entrusted to it. Therefore, the contentions of the appellant in this regard are rejected.
11. In view of the above, we rule as under:
For reasons discussed above, we do not find any reason to interfere with the Order of the Advance Ruling Authority in this matter. The subject appeal is disposed of accordingly.