Fact of the case
M/S Kababhai Popatbhai Savalia (Shreeji Earth Movers) (“the Applicant”) is a registered firm having is engaged in providing works contract service directly to sub-contractors who execute the contract with the main contractor for original contract work with the irrigation department (State of Gujarat).
The Government Irrigation Division awarded work contract to main Contractor M/s JSIW for EPC of a
pumping station. Subsequently, the main contractor awarded the work to sub-contractor MIS Radhe
Construction, who awarded the said work to the Applicant, who is now a sub-sub-contractor.
Gujarat Authority for Advance Ruling, Ahmedabad on dated 11.08.2021 gave the following ruling:
“GST rate on subject supply is 18% for services supplied by the sub-sub-contractor to sub-contractor M/s Radhe and supply merits entry at Heading 9954, Entry No. 3(ii) of Notification No. 11/2017-CT(R) dated 28.06.2017”.
Aggrieved by the above decision of the GAAR, the appellant has filed this appeal.
The appellant had filed application with the Authority for Advance Ruling, Gujarat seeking ruling on the following:
a) At what rate of tax the liability should be determined on services provided by appellant (sub contractors) to the main contractor pertaining to the irrigation, construction and maintenance works to the irrigation department, State of Gujarat?
b) Under which head we should classify our services to execute irrigation, construction and maintenance work supplied to the irrigation department, State of Gujarat?
c) Whether to charge a tax rate of 12% GST or 18% GST’?
Grounds of Applicant:
The appellant is works contractor and executes and undertake composite supply of works contract as defined in clause 119 of Section 2 of CGST, 2017 and was awarded a sub-contract by another works contractor to execute the original work of civil construction works supply to the Irrigation department of Gujarat.
Contractor and sub-contractor are not defined under the CGST Act, 2017 but as per the general definition Contractor means-a person or firm that undertakes a contract from the employer to provide materials or labour to perform a service or do job at a specified price and a sub-contractor means a person who is hired by a general contractor (or prime contractor-or main contractor) to perform a specific task as part of the overall project or the total project at a specified price for services provided to the project by the originating employer.
When the contractor awards either wholly or partially the contractual obligation to a sub-contractor, the contract remains the same and the work to be performed by the contractor as well as sub-contractors remains same and identical to what is specified in the contract between the main contractor and the employer. It can be seen from this definition that the subcontractor is not doing anything other than what is specified in the contract between the main contractor and the employer.
As the work get transferred directly to the employer by the sub-contractor, the works contract remains the same and therefore leads to the conclusion that there is only one contract which is undertaken by the contractor as well as sub-contractors. Since the appellant is only an agent of the contractor and the property in goods passes directly from him to the employer, it can be concluded that there is only one contract between the irrigation department and contractor as well as sub-contractor.
Contention of applicants and finding of the department for below mention points:
| Serial No. | Relevant Notification | Applicant Contention | Department’s observations and findings |
| 1 | Notification No. 20/2017-CT (R) dated 22.08.2017 | Rate of GST is 12% for composite supply of works contracts supplied by way of construction, erection commission or installation of original works pertaining to the irrigation and construction works supply to the Irrigation Department, State of Gujarat. | Appellant has not received any work order from any of the Governmental authorities in their favor. Hence 12% rate cannot be taken. |
| 2 | Sr. No 12 in press release of 25th meeting of GST council held on 18.01.2018 | The rate of GST applicable to the main contractor should be levied by sub-contractors. | Appellant was not engaged directly as a contractor, or as a sub- contractor of the main contractor, by the State Government of Gujarat for supply of the works contract pertaining to the Irrigation Department. There is no direct nexus between the appellant and the Governmental authority (Irrigation Department) since the documents reveal that the appellant is supplying the service on the basis of the work order of a sub- contractor |
| 3 | Definition of Agent | sub-contractors can be called as an agent who is also undertaking the same supply of service for the main contractor. It can also be said that the sub-contractor is only an agent of the contractor and the works undertaken by applicant passes directly from the subcontractors to the employer. | There is only one contract that is between the Irrigation Department (State Government) and contractor as well as sub- contractor. These contentions of the appellant is without any basis. |
Ruling:
In view of the above, department do not agree with the contention of the appellant that they are eligible for the concessional rate of GST @12%.
In view of the foregoing, department rejected the appeal filed by appellant M/s. Shreeji Earth Movers and uphold the decision of Gujarat Advance Ruling Authority. GAAAR ruled that the services provided by a sub-sub-contractor to sub-contractor are subject to 18% GST.
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