EPC contract for electrical cable supply and laying work, fall under works contract service and taxable at 18% GST: AAR of Maharashtra

Categories: Advance Ruling
No Comments

Facts: M/S. Yogiraj Powertech Private Limited (“the Applicant”) received order from Nagpur Metro Rail Corporation (“NMRCL”) for “Shifting LT, HT O/H lines crossing and providing LT, HT U/G cables for Nagpur Metro Rail Project”. NMRCL Is a Special Purpose Vehicle (SPV) created for the smooth implementation and operations of the Nagpur Metro Rail Project and is a joint venture of Government of India & Government of Maharashtra, with 50:50 equity. After going through documents provided it is evident that work is awarded through the work involves various activities vis. Supply, erection, testing and commissioning including transport, loading, unloading, insurance etc. of transformer substation, HT & LT Overhead Line & Cable Through Underground which is awarded to applicant in single bunch of contract at a single price tendering process thus it is also evident that applicant has no option to quote different prices for each individual items and has to accept entire work and do not have option to accept part activities and refuse rest activities.

Issue Involved: The applicant has sought advance ruling in respect of the following questions:

  1. Whether EPC Contract for electrical cable supply and laying work can be classified as contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract?
  2. Whether these contracts can be classified as works contracts as per GST Law and whether notification no. 11/2017-Central Tax (Rate) dated 28th June 2017 as amended by notification no.01/2018-Central Tax (Rate) dated 25th Jan 2018 is applicable to the present case?

Applicant’s Interpretation of law:  The applicant has submitted that they have received order from NMRCL for “Shifting of LT, HT O/H Iines crossing and providing LT, HT U/G cables. They have also submitted that the work involves Supply, Erection, testing and commissioning including transport, loading, unloading, insurance etc of transformer substation, HT & LT Overhead Line & Cable through Underground, for the Metro Rail Project. In the tender/work order, the work schedule separately describes each activity to be carried out to complete the work and also rate for each activity is separately mentioned, by adding amount of each activity total estimated tender cost is derived and they have quoted in percent % above or below of the estimated cost.

Thus, they had no option to quote the individual prices for each activity and the tender had to be accepted as a whole and they could not accept part activities. They have further stated that NMRCL department is insisting them to charge 12% GST as per Notification No. No. 11/2017-C. T. (Rate) dated June 28, 2017 as amended by Notification No.01 /2018-C.T. (Rate) dated January 25, 2018, treating above work as Composite supply of works contract as defined in clause (119) of Sec. 2 of the CGST Act, 2017.

Held: The Hon’ble AAR Maharashtra vide its Advance Ruling NO.GST-ARA-47/2018-19/B-120 dated September 25, 2018 stated with reference to definition of ‘original work’ which means that all new constructions; all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise, etc. In view of the extensive deliberations as held herein, we pass an order as follows:

  1. In the present case the work done by the applicant does not appear to be original works. The work is not construction of metro rail project, but this is shifting of existing utilities obstructing metro railway path and providing supplying and installation of new underground along with its accessories.
  2. The contract is not related to any original work and is in the nature of composite supply of works contract. The activity of the applicant in the present case is nothing but a composite supply of Works Contract, not being original works and they will be covered under Sr. No. 3, item No. (ii) Of Notification No. 11/2017 dated June 28, 2017 as amended by Notification No. 1/2018 dated January 25, 2018 and attract 18% GST (9% each of CGST and SGST).

Citation: [2019] 102 taxmann.com 45 (AAR – MAHARASHTRA)