Maharashtra AAAR upholds 12 percent GST on supply of services to BSNL

Maharashtra AAAR upholds 12 percent GST on supply of services to BSNL

Cites the amended notification on specific works contract

According to a decision made by the Maharashtra Appellate Authority for Advance Ruling (MAAAR), the delivery made in accordance with the contract from April 2019 to December 2021 falls under entry at serial number 3(vi)(a) of Notification No. 1/2017-Central Tax (Rate) June 2017 and is taxed at 6 percent under the Central Goods and Services Tax (CGST), 6 percent under the State Goods and Services Tax (SGST), or 12 percent under the Integrated Goods and Services Tax (IGST) Act.

The appellant Sterlite Technologies Limited, a company registered under the GST Acts, manufactures telecom products including optical fibre, optical fibre cable, and services related to setting up control centres, installing equipment, and commissioning networks. It performs other ancillary tasks required to build a network infrastructure for its clients.

The appellant has a contract with Bharat Sanchar Nigam Limited (BSNL), a government authority. It maintained that the development of the network satisfied all ancillary requirements for an activity considered a works contract.

Additionally, it made reference to Notification No.11/2017-Central Tax (rate), issued in June 2017, claiming that the works contract was covered by Entry No. 3(vi)(a), intended to be subject to GST at a rate of 12 percent.

The notification mentioned the concessional rate of 12 percent for specific works contract services provided to the government authority. However, the provision was withdrawn in another amendment to the notification in December 2021 (effective 1 January 2022), and also entry 3(vi) omitted.

The bench comprising Dr. DK Srinivas (Central Tax) and Rajeev Kumar Mital (State Tax) observed that the supply of goods or services for 'setting up of network' would qualify as a composite supply of works contract as defined in the CGST.

On the other hand, the authorities determined that the appellant's operations would come under entry 3(xii) and be subject to GST at 18 percent. But, the appellant was upset that Entry No. Central 3(vi(a)) of Notification No. 11/2017- Central Tax (Rate) did not apply.

Hence, the appellant approached the appellate tribunal.

The bench observed that the first order of the MAAR denied a concessional rate of 12 percent under entry 3(vi)(a) on the grounds that the contract did not envisage original works. Also, the contract was not of a civil structure.

The word 'original works' was defined in the notification in order to qualify for the 12 percent concession rate. However, the only item classified as original works were 'all new constructions, erection, commissioning or installation of plant & machinery equipment or buildings.'

Further, the second order of the MAAR relied on its earlier order and ruled that on the deletion of entry 3 (ii) of Notification the impugned activity was covered under respective residual entry i.e. Sr. No. 3 (xii) of Notification as amended by Notification No. 03/2019 CGST (Rate) dated 29 March 2019.

Thus, the tribunal ruled that the MAAR applicable tax rate on the impugned activity would be 18 percent. It observed that the ruling of the 18 percent GST rate was binding till 1 March 2019. However, as per the notification, the supply under the contracts from April 2019 to December 2021 was 12 percent.