MAHARASHTRA AUTHORITY FOR ADVANCE RULING

(constituted under section 96 of the Maharashtra Goods and Services Tax Act, 2017)

BEFORE THE BENCH OF

(1) Shri B. Timothy, Joint Commissioner of Central Tax (Member)

(2) Shri B. V. Borhade, Joint Commissioner of State Tax (Member)

PROCEEDINGS

(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as "the CGST Act and MGST Act"] by M/s. TEJAS CONSTRUCTIONS & INFRASTRUCTURE PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the following

1. Whether the contractor can charge GST on the value of material supplied by the recipient of service?

2. What should be the mechanism to calculate the taxable value as per section 15 of the Act?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act.

FACTS AND CONTENTION - AS PER THE APPLICANT

The submissions, as reproduced verbatim, could be seen thus-

> "Tejas Constructions & Infrastructure Private Limited (herein after referred as "contractor") is providing construction service to Shri Gajanan Sahakari Soot Girni Maryadit (herein after referred as "contractee").

> Work order was issued by contractee on 16/03/2013 with No. Gajanan/wo out no/238/ 2013 & the agreement for work was entered on 25.03.2013. The time limit for completion of work was 15 months from the date of agreement. However, the agreement was extended with further 6 months vide letter dated 11/09/2017 with. Ref no. 102/17-18 (Work Order, Agreement & Extension Letter are attached herewith as Ann 1,2 & 3)

> Contractee, desirous of constructing 25000 Spindle Spinning Mills Building Construction of Main Factory Building) has caused Drawing and Specifications describing the work to be done. The said drawings, specifications and the price schedule of quantities have been signed and the contractor has agreed to execute the same as per the conditions set forth.

> The consideration will be paid to the contractor subject to the said conditions executed & completion of the work shown as per the drawings, specifications & priced schedule of quantities.

> As per Para (2 (h)) of the agreement and as per Para (3) of the Work Order, Cement, Mild Steel, Tor Steel and Structural Steel required for the work will be supplied by the contractee as per the rate decided.

> Value of contract as per agreement is Rs. 600 lakhs which is inclusive of material & labour.

> As per the certificate issued by the Architect (RA Bill) for the invoice to be issued, GST is calculated on the percentage completion for the amount of work done deducting the previous RA Bill and adding any other claims.

Later, the value of Cement, Mild Steel, Tor Steel and Structural Steel provided by the contractee are deducted. (Certificate copies are attached herewith for your reference under Annexure 4)

3A. Relevant Provision of GST Law:

> Section 15 of CGST Act, 2017: Value of taxable supply.

"(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where: the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include --

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the SGST Act; the UTGST Act and the GST (Compensation to States) Act, if charged separately by the supplier;

(b) any amount that the supplier is liable to nav 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;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services .............

> As per Circular No. 47/21/2018-GST issued on 08th June, 2018, certain issues were clarified, under sr.no 1 under clarification, it is clarified under serial no 1.2, "It is further clarified that while calculating the value of the supply made by the component manufacturer, the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of such supply because the cost of moulds/dies was not to be incurred by the component manufacturer and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) of the Central Goods and Services Tax Act, 2017".

Analysis:

After perusing above provisions & on the basis of agreement, we are of the view that:

1. While issuing the certificate to issue the Invoice the Architect is deducting the value of material supplied after charging GST on the contract value as per the percentage of work completion.

The value of material is not deducted from the contract value but after charging GST on the contract price.

2. As per section 15 of the CGST Act, 2017, the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply, and the transaction value shall include 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.

Thus, GST is required to be levied on the value inclusive of steel, cement and other material supplied/ expense incurred by the recipient of supply as per the contract terms.

3. The material is used by the contractor in providing the service. There is no question that the cost of the material is being excluded from the transaction price as per section 15 of the CGST Act, 2017

4. Also as per Circular. 47/21/2018-GST, if the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of such supply because the cost of moulds/dies was not to be incurred by the component manufacturer and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) of the Central Goods and Services Tax Act, 2017.

Under works contract service it's the contractor cost to include the steel, cement and other material. These are essential components for supply of works contract service. If the steel cement and other material were not supplied by the contractee, still they would have been procured by the contractor and would have been part of contract value. Hence, supply from contractee or not will not affect the value of taxable supply under section 15 of CGST Act, 2017,

CONTENTION - AS PER THE CONCERNED OFFICER

The submission, as reproduced verbatim, could be seen thus-

The application has been examined and the submission/comments are as under:

Clarification asked for by M/s Tejas Construction and Infrastructure Pvt. Ltd.

1) Whether the contractor can charge GST on the value of material supplied by the recipient of service?

Ans- As per the Work Order dated 16/03/2013, agreement dated 25.03.2013 & further extended Work Order Ref. No. 102/77-18 dated 11.09.2017, it is observed that M/s Tejas Construction and Infrastructure Pvt. Ltd. is providing "Works Contract Service" to M/s Shri Gajanan Sahakari Soot Girni Maryadit Yeat (Pimpalner).

As per Para 2 (h) of the agreement and as per Para (3) of the Work Order, M/s Shri Gajanan Sahakari Soot Girni Maryadit Yeat (Pimpalner) is required to supply Cement, Mild Steel, Tor Steel and Structural Steel to M/s Tejas Construction and Infrastructure Pvt. Ltd. for the contract work at the rate prescribed.

The materials supplied to M/s Tejas Construction and Infrastructure Pvt. Ltd. by the contractee are essential components for supply of "Works Contract Service". Irrespective of whether the materials supplied if actually free of cost or not, the value necessarily needs to be added to determine the taxable base for the construction contractor. Also, the FOC supply of materials by the contractee to the contractor, appears to be liable to be treated as "supply without consideration", and thus, leviable to GST. In this regard, reliance is placed on Section 15(2)(b) of the CGST Act, 2017 which provides for inclusion of FOC supply in the transaction value, without any exception. The above relevant section is as follows:

Section 15(2): The transaction value under sub-section (1) shall include -

(a) .....................

(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;

2) What should be the mechanism to calculate the taxable value as per section 15 of the Act?

Ans - As per Section 15(2)(b) of the CGST Act, 2017, for calculating the taxable value in the instant case, the value of the materials supplied free of cost by the contractee to the contractor needs to be included in the contract value.

04. HEARING

Preliminary hearing in the matter was held on 02.05.2019. Sh. Pranav Mehta, C.A. & Sh. Prakash Mehta, Advocate appeared & requested for admission of their application. Jurisdictional Officer Ms. Sumangla Sharma, Asstt. Commr. of CGST, Division-I, Pune-II appeared and made written submissions.

The application was admitted and called for final hearing on 02.08.2019, Sh. Pranav , Mehta C.A. appeared made oral and written submissions. Jurisdictional Officer Sh. B. P. Singh, Supt. appeared and made oral submissions.

05.OBSERVATIONS

We have gone through the facts of the case, documents on record and submissions made by both, the applicant as well as the jurisdictional office.

Applicant is providing construction service to Shri Gajanan Sahakari Soot Girni Maryadit (contractee), and consideration for the same will be paid to applicant subject to said conditions executed & completion of work shown as per the drawings, specifications & priced schedule of quantities. As per the agreement and Work Order, Cement, Mild Steel, Tor Steel and Structural Steel required for the work will be supplied by the contractee as per the rate decided. The applicant has submitted that the value of contract as per agreement is Rs. 600 lakhs which is inclusive of material and labour. They will be paid GST on the entire value of the contract and after payment of GST, the value of the materials supplied by the contractee would be deducted and the balance amount will be paid to the applicant. On the basis of these facts submitted by the applicant, we now address the questions raised by them in the subject application.

Question No. 1 Whether the contractor can charge GST on the value of material supplied by the recipient of service?

Section 15 of CGST Act, 2017 contains provisions with respect to Valuation of taxable supply. The said Section has been reproduced by the applicant and is mentioned above. As per clause 2 (b) of Section 15, 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.

We find that the concerned materials are essential components for supply of construction service by the applicant to the contractee. Section 15 (2) (b) very clearly states that the supplier i.e the applicant in this case, is liable to pay in relation to such supply (supply of concerned materials by the contractee in this case) if the cost of the same has been incurred by the recipient of the supply (the contractee in this case) and the cost is not included in the price actually paid or payable for the goods or services or both. We find that the cost the materials supplied by the contractee is included in the value of the entire contract and GST is being paid on the entire value of contract and hence the applicant is discharging GST on the value of materials supplied by the contractee.

In the subject case, the material is supplied by the contractee and therefore the question raised by the applicant as to whether they can charge GST on the same is irrelevant. The applicant, on this issue of supply of concerned materials, is not a supplier of goods/services and as per the provisions of Section 95 of the CGST Act, they cannot raise this question. Hence the question is not answered.

Question No. 2 What should be the mechanism to calculate the taxable value as per section 15 of the Act?

The provisions of Section 15 of the CGST Act, are very clear. In the subject case, we find that the value of outward supply of Construction services and GST will be paid on the total value of contrac as per agreement, which is inclusive of material and labour. Further we find that, the certificate issued by the Architect (i.e. RA Bill) for the invoice to be issued contains total contract value and from that, the value of Cement, Mild Steel, Tor Steel and Structural Steel provided by the contractee is deducted. From the terms of the contract as submitted in this proceedings, we draw a conclusion that the supply by the contractee to the applicant is not a free supply. To arrive at this conclusion, we may draw support from the decision of Supreme Court of India in case of M/s. N.M. Goel & Co vs Sales Tax Officer, Rajnandgaon & ... on 28 October, 1988 Equivalent citations: 1989 AIR 285, 1988 SCR Supl. (3) 657. The facts of the case in brief were as follows-The appellant-company, a building contractor and registered as a dealer under the Madhya Pradesh General Sales Tax Act, entered into a Works Contract with the P.W.D. for construction of food grains godown and ancillary buildings. It was on item rate basis. In the tender submitted by the appellant, the prices of the materials to be used for construction including cost of iron, steel and cement were included. The P.W.D. had agreed to supply from its stores the iron, steel and cement for the construction work and to deduct the prices of materials so supplied and consumed in the said construction work from and out of the final bill of the appellant. On this set of fact the court has held that by use or consumption of materials in the work of construction, there was passing of the property in the goods to the Assessee from the PWD. By appropriation and by the agreement, there was a sale as envisaged in terms of clause (10) of the contract, and consequently such sale was liable to tax.

As observed above, the concerned material supplied by the contractee are essential components for supply of Construction service i.e. Construction of Main Factory Building. As per section 15- 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 shall be included in the value of taxable supply.

In this view of the matter, the amount certified by the architect for the invoice to be issued before deducting the value of Cement, Mild Steel, Tor Steel and Structural Steel shall be the value of supply for the purpose of Levy of tax as per section 15 of the Act.

05. In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.GST-ARA- 03/2019-20/B- 90 Mumbai, dt. 20/08/2019

For reasons as discussed in the body of the order, the questions are answered thus -

Question 1 : Whether the contractor can charge GST on the value of material supplied by the recipient of service?

Answer : Not answered in view of discussions made above.

Question 2:- What should be the mechanism to calculate the taxable value as per section 15 of the Act?

Answer : As per the provisions of section of GST Act, tax is payable on the entire contract value as per certificate issued by the Architect i.e. R A Bill without deducting the value of Cement, Mild Steel, Tor Steel and Structural Steel provided by the contractee.

Note:- An Appeal against this advance ruling order shall be made before The Maharashtra Appellate Authority for Advance Ruling for Goods and Services Tax, 15th floor, Air India building, Nariman Point, Mumbai - 400021.