Facts of the case:
- The applicant is engaged in the business of executing Greenfield street lighting project. The Government of Odisha, through the Housing and Urban Development Department, the Urban Infrastructure Development Fund and the Directorate of Municipal Administration has decided to develop an energy efficient street lighting system covering new and upcoming road stretches in Greenfield areas of Odisha on a Public Private Partnership basis.
- The Applicant has made a successful bid for the said tender and has consequently entered into an agreement on 29.12.2018 for design, supply, installation, operation,
maintenance and transfer of the energy efficient Greenfield Public Street Lighting System and the Centralized Control&Monitoring System with the Government of Odisha represented by the Directorate of Municipal Administration (“the Authority”) and the ULBs.
- The Agreement provides that the initial term of the Agreement shall be 7 years. Under the Agreement, the Applicant undertakes to supply and install equipment such as LED Luminaire, feeder panels, poles, outreach arms, cables/wires with holding arrangement for overhead supply cables, in respect of both, the Greenfield Public Street Lighting System as well as the Centralized Control & Monitoring System.
- It was submitted that for such installation, the Applicant is entitled to receive a consideration, in the form of Capital Subsidy, being 90% of the total capital expenditure incurred by the Applicant in supplying, installing and commissioning of the equipment. The balance 10% of the total capital expenditure along-with O&M fees is receivable as ‘Annuity fees’, and is recovered by the Applicant by raising quarterly invoices on the ULBs The Applicant submitted that they are not liable to pay GST on capital subsidy (90 % of the total capital expenditure) amount received in terms of SIOM Agreement and Escrow Agreement as per the discussion held with the authority which awarded the work.
It was also submitted that the applicant has fulfilled all the conditions of works contract service (WCSs). Further, it was submitted that the Greenfield Street Lighting System along with the Centralized Control & Monitoring System is an immovable property.
The applicant has submitted that the entire contract shall be treated as a contract for the composite supply of works contract involving a supply of goods and services. In support of its claim, the applicant cited the decision of (i) Super Wealth Financial Enterprises (P) Ltd. reported in 2019 (20) GSTL 505 (AAR-GST).
As regards determination of time of supply under GST, it has been submitted that as per Section 9(1) of the Act, GST is leviable on the value of supply as determined by Section 15 of the Act. Time of supply of Services as per Section 13 is the earlier of the following dates, namely the date of issue of invoice by the supplier, if the invoices are issued within the period prescribed under sub-section (1) of section 31, or the date of receiving of payment whichever is earlier. The applicant submitted that the timing for raising of GST Invoice of Annuity fee shall be at the time of sending Bill for claiming the payment to the Authority/ ULB.
The applicant submitted that its supply is a Composite Supply of Works Contract as defined in sub section (119) of section 2 of the Central Goods and Services Tax Act, 2017, and applicant submitted that the rate of tax on the supplies by the sub-contractor to the Applicant shall be 12 % GST ( 6% CGST and 6 % SGST).
The ODISHA AUTHORITY FOR ADVANCE RULING replied to the questions of the applicant as follows:
- Whether Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant as per SIOM Agreement and Escrow Agreement from Odisha Government / ULBs for the Green Field Public Street Lighting System in the State of Odisha is not liable to GST and if liable to GST, then at what rate of GST?
A. Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant is liable to GST. The GST will have to be paid on the goods at the appropriate rate after classification under the appropriate heading.
- What shall be the GST rate for the balance 10% of the Project Capital Expenditure and O&M Fees received as Annuity Fee over the period of 7 years by the Applicant as per SIOM Agreement?
A. The supply being undertaken or proposed to be undertaken by the
applicant would qualify to be a supply of ‘composite supply’ in terms of definition under Section 2(119) of the Central Goods and Services Tax Act, 2017, where the principal supply is ‘ supply of goods’ not supply of service’. The GST will have to be paid on the goods at the appropriate rate after classification under the appropriate heading.
- What shall be the time for raising GST Invoices for Capital Subsidy and Annuity Fee (consisting of 10% of Project Capital Expenditure and
0&M Fee) payable in 7 years?
A. Since in the subject case there is a ‘composite supply’ where the
Predominant supply/principal supply is ‘supply of goods’, we are of the opinion that the applicant should raise invoice as per the provisions of Section 31 of the CGST Act, 2017.
- Whether the rate of tax on the supplies by the sub-contractor to the Applicant shall be 12 % GST (6% CGST and 6 % SGST).
A. In the instant case, the supply being undertaken or proposed to be undertaken by the applicant would qualify to be a supply of “composite supply’ in terms of definition under Section 2(119) of the Central Goods and Services Tax Act, 2017, where the principal supply is supply of goods’ not supply of service.