Works of modification/ additions facilitated by a Transmission licensee constitutes ‘supply’ to attract GST: AAR

Categories: Advance Ruling
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Facts:

M/s Rajasthan Rajya Vidyut Prasaran Nigam Limited (“the Applicant” or “RVPN”) is a company established on July 19, 2000 by Government of Rajasthan under the provisions of the Rajasthan Power Sector Reforms Act, 1999, as the successor company of erstwhile Rajasthan State Electricity Board (RSEB).

Under the provisions of the Electricity Act, 2003, RVPN has been declared as State Transmission Utility by the Government of Rajasthan. As RVPN is a transmission licensee and being the owner of its transmission system, the exclusive right of modification/ augmentation/ shifting/ additions to its transmission system (“deposit work”) remains with RVPN.

In addition to the principal activity of providing services of transmission of electricity, the Applicant is also providing services in the form of deposit works to various consumers/ intending agencies.

Issues involved:

  • Whether facilitating the execution of deposit work at the specific request of the consumer/intending agency is a ‘Supply’ in terms of Section 7 of the CGST Act, 2017 (“CGST Act”)?
  • If the deposit work as aforesaid is a ‘Supply’, what shall be the value of the supply in terms of Section 15 of the CGST Act in the event of:
  1. Work executed by RVPN itself.
  2. Work executed by the consumer/ intending agency under supervision of RVPN.
  • What would be the applicable GST tax rate on the above supply?

Held:

The Hon’ble AAR, Rajasthan vide Advance Ruling No. RAJ/AAR/2019-20/16 dated July 29, 2019, held as under:

  • In the instant case, the transaction of facilitating the execution of deposit works to the Applicant’s transmission system at the specific request of the consumer/ intending agency is included under the ‘scope of supply’ in terms of Section 7 of CGST Act as the same fulfils all the essential ingredients of ‘supply’.
  • It is a supply of service in the form of facilitation, further there is a consideration as the construction activities carried out by the customer / intending agency will ultimately be the property of the Applicant. Thus, all the ingredients of Section 7(1)(a) of CGST Act are present for the transaction to be categorized as supply of services.
  • Considering the fact that the ownership of asset remains with the Applicant, it is evident that the execution of works requiring deposit works is a facilitation for the access/ use of such transmission system and thus such facilitation is a ‘supply’ of services.
  • When the Applicant incurred such cost, then GST would automatically be leviable on total transaction value without any recourse to Section 15(2)(b) of CGST Act. Accordingly, even when the cost of deposit work to the Applicant’s transmission system is incurred by the consumer/ intending agency itself, such cost is also required to be included in the transaction value and to be considered as value of supply for the purpose of levy of GST in terms of Section 15(2)(b) of the CGST Act.
  • In the present case where the deposit work is undertaken by the consumer/ intending agency under supervision of the Applicant, the cost is directly incurred by the consumer/ intending agency, still the Applicant is exclusively liable and responsible for modification/ alteration of the transmission infrastructure as per Electricity Act, 2003 so as to comply with the grid standards and that’s why the work is mandatorily to be executed under the supervision of Applicant.
  • Thus, since the Applicant is liable and responsible for such work, therefore, according to Section 15(2)(b) of CGST Act, the cost of such asset/ infrastructure incurred by the consumer/ intending agency is to be included in the value of supply – in addition to supervision/ shutdown charges, by virtue of Section 15(2) (b) of CGST Act, the cost incurred by the consumer/ intending agency, for creating the infrastructure is also required to be included in the transaction value and to be considered as value of supply for the purpose of levy of GST.
  • Services provided by the Applicant to the consumer/ intending agency falls under HSN/SAC 998631 and will attract GST @ 18%, as per Annexure to Notification No. 11/2017 – Central Tax (Rate) dated June 28, 2017 (as amended).

Relevant Provisions:

Section 7(1)(a) of CGST Act:

“7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;”

Section 15(2)(b) of CGST Act:

“(2) The value of supply shall include–––

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;”