Supply by Project Implementing Agency to the State Govt. Department is required to issue tax invoice on the contract value

The AAR, West Bengal in the matter of M/s West Bengal Agro Industries Corporation Limited [Advance Ruling No. WBAAR 15 of 2022 dated December 22, 2022] has ruled that assessee acting as Project Implementing Agency, making supplies to the State Government Department is required to issue tax invoice on the contract value as determined by the Department in spite of the fact that there is no value addition in the supply. 

Facts

M/s West Bengal Agro Industries Corporation Limited ("the Applicant") is a Government Undertaking under the administrative control of Water Resources Investigation & Development Department, Government of West Bengal, wherein, the Applicant under the Agri Engineering Division, undertakes civil works as ‟Executive Agency or Project Implementing Agency" entrusted by various Administrative Departments of Government of West Bengal in the development of rural infrastructure, which is done by the Applicant through various suppliers/contractors.

The Applicant submitted that while submitting utilisation certificate to the concerned Administrative Department to the extent of the value of the bill of contractor, no monetary value is being added by them and accordingly, no further Goods and Services Tax ("GST") liability should accrue on them except the value of work executed by the contractor who issues tax invoice to the Applicant. 

Further, the Applicant performs the functions as equivalent to works department of the State Government. Although, the property in goods used in the execution of works is directly transferred from contractor to concerned Department through principle of accretion, accession or blending and the Applicant neither holds, nor in a position to transfer the property in goods used thereon. Hence, the contract between the concerned Department and the Applicant should not be treated as "works contract" as defined in Section 2(119) of the Central Goods and Services Tax Act, 2017 ("the CGST Act"). Thus, the Applicant is not required to submit tax invoice to concerned department, for the works done by the Applicant as a Project Implementing Agency and is required to issue tax invoice only for agency fees along with the summary bill of the works done with the required certificate.

Issue

Whether the Applicant is required to issue tax invoice to State Government Department/ Directorate on the contract value as determined by the department where the Applicant is working as a "Project Implementing Agency"?

Held

The AAR, West Bengal in the matter of Advance Ruling No. WBAAR 15 of 2022 held as under:

• Noted that, the Applicant entered into a contract with the contractor and is liable to pay the consideration to the contractor. 
• Further noted that, as per the definition of ‘recipient’ under Section 2(93) of the CGST Act, the Applicant is the recipient of supply provided by the contractor, meaning thereby the contractor doesn’t make any supply to the concerned department.
• Observed that, as a project implementing agency engaged by the concerned departments, the Applicant merely acts as an ‘agent’ of the such administrative department to execute the work. Therefore, the agent shall also be treated as recipient of supply of goods or services or both.
• Opined that, two separate supplies take place, the first one is made by the contractor to the Applicant and thereafter, another supply is made by the Applicant to the concerned department, in spite of the fact as stated by the Applicant that there is no value addition in respect of the second supply.
• Held that, the Applicant while working as a "Project Implementing Agency" is making supplies to State Government Department/ Directorate and therefore, is required to issue tax invoice on the contract value as determined by the concerned department.

Relevant Provisions

Section 2(93) of the CGST Act

"recipient of supply of goods or services or both, means–

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,

and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;"

Section 2(119) of the CGST Act

"works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;"