GST Not Payable On Consideration against 'Works Contract ' Executed In Maldives: Telangana High Court

The Telangana High Court has held that GST is not payable on consideration received towards 'works contract service of construction' executed in the Maldives.

The bench of Justice Sujoy Paul and Justice Namavarapu Rajeshwar Rao has observed that the location of immovable property is located in the Maldives or outside India. Hence, the place of supply shall determine the 'location of the recipient'. The place of supply of services is Addu, Maldives. The 'location of recipient' is already interpreted by holding that, as per Section 2(14)(b), it will be the 'fixed establishment' of National Buildings Construction Corporation Ltd. (NBCCL), which will be the location of the recipient.

The Government of India (GoI) entered into a Memorandum of Understanding (MoU) with the Government of the Maldives to construct a police academy funded by the GoI. In turn, the GoI appointed National Buildings Construction Corporation Ltd. (NBCCL) to execute the construction of the Police Academy by itself or through a contractor. NBCCL awarded the contract to the petitioner.

In order to complete the work in the Republic of the Maldives (Maldives), the NBCCL set up an office, and in turn, the petitioner also set up their office in Addu City, Maldives. The Authorised Dealer Bank, which is acting on behalf of the Reserve Bank of India, approved the establishment of a branch office for petitioners in the Maldives.

The petitioner contended that it exported various goods to its Maldives office. The turnover of goods was declared under the GST as 'zero rate supplies'. The petitioner treated the consideration received towards 'works contract service of construction' which was completely executed in the territory of the Maldives through their Maldives establishment as outside the scope of the GST laws of India. The NBCC did not pay GST on the construction to the petitioner and also opined that supplies rendered outside India are beyond the purview of GST.

The petitioner filed the application for the advance ruling since a huge amount of Rs. 29.85 crores is involved in respect of GST. The AAAR gave an advance ruling against the petitioner.

The petitioner contended that even assuming that the petitioner is covered under the GST law of India and he is required to pay tax based on it, in view of the terms of contracts dated March 11, 2015 and another filed with the rejoinder, the tax amount is required to be reimbursed by the GoI to NBCCL and in turn by NBCCL to the petitioner. Thus, it is an arrangement because of which money will go from one pocket to another pocket of the government. The petitioner cannot be made to suffer and pay the tax under the GST law of India for the activity carried out in the Maldives.

The department argued that, as per Section 2 (105) of the CGST Act, the petitioner is a 'supplier'. Similarly, Section 2 (93) of the CGST Act, which defines 'recipient', makes it clear that where a consideration is payable for supply of goods or services or both, the person who is liable to pay that consideration is the 'recipient'. No doubt the work performed by the petitioner in the Maldives is based on a 'works contract' as per Section 2(119) of the CGST Act and relates to a contract of services, yet a 'works contract' is essentially a contract. The contract was between the petitioner and NBCCL. The contract was entered into between two parties located in India, which means the location of 'supplier' and 'recipient' both is in India.

The court held that since the supply of service and location of recipient and supplier is outside India, the question of levy and collection of tax in the teeth of Section 9 of the CGST Act or Section 5 of IGST Act does not arise.

The court, while allowing the petition and quashing the advance ruling, directed the department to reimburse the amount of GST, interest, and penalty deposited by the petitioner to him in respect of construction services provided in the Maldives as per contract within 90 days.

Counsel For Petitioner: C. V. Narasimham

Counsel For Respondent: Dominic Fernandes

Case Title: Sri Avantika Contractors (I) Limited Versus Appellate Authority for Advance Ruling (GST) and others

Case No.: Writ Petition No.8405 Of 2023

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