Activities Carried Out by Sub-Contractor For Shifting Electrical Utilities Can't be Regarded as Composite Supply of Works Contract: AAR

The West Bengal Authority for Advance Ruling (AAR) has held that activities carried out by subcontractors for the shifting of electrical utilities for the construction of roads cannot be regarded as a composite supply of works contracts.

The two-member bench of Brajesh Kumar Singh and Joyjit Banik has observed that providing services of shifting electrical utilities alone cannot be regarded as providing services by way of road construction.

The applicant is in the business of rendering various "works contract" services related to the modification, construction, renovation, and maintenance of roads and highway projects, as well as works connected with and incidental thereto. The applicant has been awarded a sub-contract from M/s KCC Buildcon Private Limited for the shifting of electrical utilities for the construction of the proposed 4-Laning of the Barasat Krishnagar Section of the NH-34 Project in EPC mode.

The applicant sought an advance ruling on the issue of whether the activity of shifting electrical utilities falls under Heading 9954, Entry No. 3(iv)(a), of Notification No. 11/2017-CT(R) and is liable for 12% GST.

The applicant submitted that the activity proposed to be undertaken by the applicant will be in the nature of a "works contract" in terms of Section 2(119) of the CGST Act 2017 since the supply involves the transfer of goods along with construction services and supply is resulting in the formation of immovable property.

The AAR noted that the services provided by the applicant, for their very limited scope towards shifting of electrical utilities, cannot be regarded as supply by way of road construction. The terms and conditions of the agreement made between NHAI and the contractor stipulate that the cost of shifting shall be reimbursed by the authority to the contractor, which also indicates the independent nature of the work.

The AAR observed that since the cost of the activity will be borne by the Authority or by the entity owning such utility, payment of the activity is not part of the main contract, i.e., the construction of roads, as awarded to the main contractor by NHAI. Thus, there is no nexus between the main contract awarded for the construction of roads by the NHAI and the work proposed to be undertaken by the applicant.

Applicant's Name: Shree Powertech

Date: 21/10/2022

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