School building constructed for State Government for education cannot be considered a commercial building: AAR

The applicant M/s. Tirupati Construction had been awarded a works contract for Construction by the Road and Building Department in the Government of Gujarat. The said construction contract was labour plus material and it was an ongoing activity as of the date of filing this advance ruling application.

The question on which advance ruling was sought by the applicant is whether the activity of composite supply of works contract service by way of construction for the Road and Building Department in the Government of Gujarat entered into by the applicant supplier and the said State Government, merits classification at Serial Number 3(vi)(a) and (b) of Notification Number 11/2017 – Central Tax (Rate).

The authority held that for the subject supply to be taxed under entry at Sr. No. 3(vi) of said NT, should be a composite work contract service. In the given case the subject contract is for the construction of immovable property wherein the transfer of property in goods is involved in the execution of the subject contract and the subject supply is a composite supply of Works Contract Service. The supply comprises the supply school building, school hostel, college hostel, Principal’s bungalow, and staff quarters and the service recipient is the Government of Gujarat.

The authority noted that the Explanation to Serial No 3(vi) of said NT, ‘business’ shall not include any activity or transaction undertaken by the State Government in which they are engaged as public authorities. Thereby this activity undertaken by GoG is under the purview of business, as described in serial no. 3(vi)(a) of said NT. Also, the school building is a structure meant for use as an educational establishment as described at entry at Sr no 3(vi)(b)(i) of said NT; and the supply of Staff Quarters is covered at 3(vi)(c) of said NT.

It was noted that Revenue submits that said civil structure may be used for commerce or business. The authority held that a school building will be used by State Government for education and cannot be considered a commercial building. Further, with the explanation of term business incorporated into Sr no 3(vi) of said, NT and nothing of contrary vide a specific intelligence report submitted by Revenue that the structure supplied is for business/ commerce purpose, no merit found in Revenue’s submission. Therefore, the subject supply merits entry at Sr. No. 3(vi) of said NT.

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