18% GST applicable on EPC Contract in respect of Power distribution and Transmission to Govt. Entity: AAR

The Telangana Authority of Advance Ruling (AAR) ruled that 18% GST is applicable on EPC contracts in respect of power distribution and transmission to the government entity.

The Applicant, M/s. Vishwanath Projects Limited is providing services viz., Supply, Erection. Testing & Commissioning of 51 Nos. 33/11kV Substations with Associated Lines to M/s Odisha Power Transmission Corporation Limited, Janapath, Bhubaneswar (OPTCL).

According to the applicant, the power distribution and transmission companies are treated as Government Entity and the applicable GST rate is 12%.

The applicant sought the advance ruling on the issue of whether EPC Contract in respect of power distribution and Transmission company falls under the category of “Government Entity” as per GST notification number 1/2018 Central Tax(Rate) if so the rate of GST applicable.

The Authority consist of the Additional Commissioner of State Tax, J. Laxminarayana, and the Joint Commissioner of Central Tax, B. Raghukiran ruled that Services Rendered to M/s OPTCL falls under services provided to a government entity. So, the applicable rate of tax is 18% (9% CGST and 9% SGST) for the services referred to by the applicant.

The Authority found out that the contractee is not rendering any non-commercial services as the structure arising out of works contract services will be used by M/s OPTCL for the purpose of commerce, and even in situations where it “appears” that the structure is predominantly meant for non-commercial purposes, it turns out that they get reimbursed for their activity on behalf of their customers from the State Government, which by no stretch of imagination can be called as “Non-commercial”.

“Since the works are used for commercial / business purpose the benefit of Concessional Rate of 12% (6% under Central tax and 6% State tax) or any other concessional rate is NOT available to the applicant,” the AAR observed.