State Department Cannot Alter GST Rate Through Administrative Directions On Contract Price: GSTAT Pune

The Goods and Services Tax Appellate Tribunal (GSTAT), Pune, has held that a State Government department cannot alter the statutory GST rate through administrative directions fixing the tax component of a construction contract.

It observed that deciding how much tax a co-operative society would bear within an approved contract price is a matter of pricing, not a determination of the applicable GST rate.

However, this finding did not help the contractor in the case. The tribunal dismissed its appeal and upheld the 18% GST demand, holding that the four co-operative spinning mills for which it had executed construction works were not eligible for the concessional 12% rate.

A bench of Judicial Member Shridhar Mahadeo Bhosale and Technical Member Dr. Nirmal Kumar Soren observed:

“A decision on how much tax a co-operative society would bear within an approved contract price is a decision on price, not a determination of the rate at which the supply is exigible to tax. That rate is fixed by notification issued under Section 9(1) of the CGST Act on the recommendations of the GST Council; no department of the State can alter it by administrative decision, and the minutes do not purport to examine whether the supply fell within Sl. No. 3(vi).”

The tribunal was hearing an appeal by Reliant Buildup, a partnership firm that executed works contracts for four co-operative spinning mills during 2018-19 and charged 12% GST, treating the societies as “Government Entities” eligible for the concession under Notification No. 11/2017-Central Tax (Rate).

The tribunal found that the societies, and not the State-level Monitoring Committee or the Directorate of Textiles, were the recipients of the construction services. The societies had invited the tenders, entered into agreements as owners and were invoiced for the works. The State authorities had sanctioned and supervised the projects and provided budgetary support, but had not received the services.

It further held that the societies were not shown to qualify as “Government Entities” under the notification. Their registration under the Maharashtra Co-operative Societies Act did not mean they were set up by a State Legislature. The contractor had also not established that they were established by the Government. The tribunal left open whether government participation by way of equity or control met the separate 90% threshold, as the parties had not addressed the issue.

Independently, the tribunal found that the factory buildings were meant for industrial and commercial use because the mills spun cotton into yarn for sale. The contracts, therefore, did not meet the requirement that the works be meant predominantly for use other than commerce, industry or any other business or profession.

The tribunal upheld the differential GST demand of ₹65,43,016, interest of ₹60,25,718 and penalty of ₹6,96,250. It also sustained the disallowance of input tax credit of ₹4,19,476 and interest of ₹4,80,160 on that credit.

It accordingly dismissed the appeal and upheld the first appellate authority's order.

For Appellant: Prashant Kumar Chipare, GST Practitioner

For Respondent(s): Prakash V. Kulkarni, Deputy Commissioner