Fact: M/s. SHREEJI INFRASTRUCTURE INDIA P.LTD. (“the applicant”)is engaged in carrying out the works contract in relation to construction of road, bridges, buildings, civil structures of government, semi government and private undertakings, secured through tenders in the case of government undertakings, and through personal negotiations in case of private undertakings. The Madhya Pradesh Power Generating Co. Ltd. (“MPPGCL”), a company owned by the Government of Madhya Pradesh, floated a tender through e-tending process, for General Civil Work Package of 2*660 MW Shri Singaji Thermal Power Project Stage-ll, near village Dongalia, distt. Khandwa (MP) India (Tender Spn. No. MPPGCL/CIVIL ENGINEERING/SSTPP-I/CB/01) (Online Tender Spn. No. 3497). The applicant company filled the tender and the same was allotted to it by MPPGCL, as per the scope of work mentioned below:
Scope of Work:– Construction of building and structure for colony at village Siveria on lumpsum turnkey basis, which includes approximately 599 staff quarters for plant personnel, all internal connecting roads and drains, necessary geotechnical investigations, complete site clearance & site development work, complete water supply system, overhead tanks & underground sump, complete sanitary & sewage works system including Sewage treatment plant, rain water harvesting system, complete electrification system, etc. The contractor shall carry out all other miscellaneous work that will be necessary for completing this package on turnkey basis.
Issue Involved: The following questions have been posted before the Authority:
1. Whether Madhya Pradesh Power Generation Company Limited is a ‘Government Entity’?
2. If yes, whether the work contract service of construction of 599 residential quarters allotted to the Applicant company under the tender, will be charged under the GST rate of 12% (6+6) [as per entry 3(vi)(c)] or 18% (9+9) [under entry 3(ii)].
3. Or otherwise if the works contract service is not covered under entry 3(vi)(c), in the facts and circumstances of the Applicant company, then what is the applicable rate of GST?
Applicant’s Interpretation of law: The applicant is of the view that, work entrusted to the government entity means the work of sovereign nature. For eg. If construction of road is directly allotted to the applicant company by the government, then the applicable rate of GST would be 12%. And in the same line, if the work is allotted through medium of government entity, then also the rate shall be 12%. However in the impugned case, MPPGCL, has allotted the work contract of construction of 599 residential quarters to the applicant company, and by any stretch of imagination, it cannot be said that this work has been entrusted to MPPGCL by the MP government which thereafter allotted the same to the applicant company.
Therefore the riddle of the proviso clause has remained intact. And thus, the work contract does not become entitled to the concessional rate of 12(6+6)%. However, MPPGCL claimed that, it has been established by the Madhya Pradesh government, and 100% shareholding and control is being carried out by the MP state government. Further, this company has been exclusively formed to carry out the work of power generation. Therefore, it is an entity unequivocally covered under the purview of “Government Entity”.
MPPGCL further claimed that, the construction of 599 residential quarters for its staff is also covered under the condition prescribed under entry 3(vi)(c) of the notification (supra). The condition prescribes that, the concessional rate of 12 (6+6)% is applicable on fulfilment of the following: “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 CG, SG or the Union Territory or local authority, as the case may be.”.
Held: The Hon’ble AAR of MADHYA PRADESH vide Advance Ruling Order No. 15/2018, No.12/2018/A.A.R./R-28/39 dated October 18, 2018 stated as follows:
1. As per Notification No. 31/2017 – Central Tax (Rate), Dated – October 13, 2017 issued under CGST Act, 2017 and corresponding notification under MPGST Act, 2017. Government Entity is defined as “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 90per cent, or more participation by way of eguity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.” MPPGCL has been established by the Government of Madhya Pradesh and the Government of Madhya Pradesh has a 100% shareholding in the company. The State Government is also exercising full control over the activities of the said company. Therefore, M/s. Madhya Pradesh Power Generation Company Limited is a Government Entity as defined under Notification No.31/2017-Central tax (Rate) for the purpose of GST law.
2. The activity in question definitely does not have any relation to the principal work of power generation entrusted by the state government to MPPGCL, and therefore the works contract service of construction of 599 residential quarters allotted to the applicant by MPPGCL will merit classification under SAC 9954 and would attract GST @ 18% (9% CGST + 9% SGST).
Citation: http://insta.instavat.in/PDF/MP_ADVANCE-RULING-Shreeji-Infrastructure.pdf