Case Details:

M/s Tirupati Construction

Appeal No.:

Advance Ruling No. GUJ/GAAR/R/19/2021

Ruling pronounced by:

GST AAR Gujarat

Date of Ruling:

30-06-2021

The applicant entered into a construction contract with Panchayat Vibhag for the construction of ‘Fish Market Building’ and the said contract is labor plus material basis. The applicant stated that the principal, after completion of the construction of the said Fish market, shall allot space to the farmers to sell their fish produce in the said market.

The applicant submitted as below in respect of its question:

• The said contract for the construction of fish market involves the supply of goods along with labor on the part of the applicant and is thus a works contract within the meaning of Section 2(119) of the CGST Act, 2017. The said activity of construction of fish market is being provided to the State Government i.e. Government of Gujarat.
• Since, the fish market is proposed to be constructed under the Matsya Udhyog Yojana, of the Government of Gujarat and the recipient of service i.e. Panchayat Vibhag, Government of Gujarat has given a written clarification as to the no profit motive in respect of the said fish market, the applicant firm is of the opinion that the said fish market cannot be deemed to be meant predominantly for business or profession.

• Also, as per entry number 5 of the eleventh schedule to the Constitution of India read with Article 243G thereto, the implementation of schemes for economic development for ‘Fisheries’ is entrusted to a Panchayat. Thus, the Panchayat is a public authority in this regard.
• In view of the above submission, the applicant is of the opinion that the said service of ‘Construction of Fish Market’ for the Government of Gujarat merits classification under the Entry at Sr. No. 3(vi) of the Notification No. 11/2017- Central Tax (Rate) dated 28-06-2017 and the applicable GST rate is 12%.

In order to be eligible to avail entry no. 3(vi)(a) of the said notification, the ‘Fish Market’ must predominantly be meant for use other than for commerce, industry, or any other business or profession. The word ‘Business’ has a wide inclusive definition vide section 2(17) of CGST Act which includes any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is for a pecuniary benefit.  We note that an explanation is inserted w.e.f. 27-07-2018 to Serial No. 3(vi) of the said Notification, the said explanation reads as ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government, or any local authority in which they are engaged as public authorities.

We agree with the applicant that Panchayat is a ‘Public Authority’. We, Suo, moto, draw our attention to Article 243G of the constitution and we note that ‘Market and Fairs’ is a function entrusted and placed within the purview of the Panchayats.

Article 243G in the Constitution of India (Powers, authority and responsibilities of Panchayats) reads as follows:

“Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Panchayats at the appropriate level, subject to such conditions as may be specified therein, with respect to-

(a) The preparation of plans for economic development and social justice;
(b) The implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule”.

The Eleventh Schedule of our Constitution contains the following functional items placed within the purview of the Panchayats:

(Entry-5) Fisheries….

(Entry 22) Markets and Fairs….

• In view of the above observations, ‘Fish Market’ being a market is covered under Entry 22 ‘Markets and Fairs’. Therefore, the supply of Fish Market (composite works contract) to the Panchayat (engaged as a public authority) squarely falls under entry no. 22- ‘Markets and Fairs’ of the Eleventh Schedule of the Constitution.   
• In light of the explanation inserted w.e.f. 27-07-2018 to Serial No. 3(vi) of the said Notification, which reads: ‘business’ shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, we hold that the subject matter falls within the ambit of ‘predominantly for use other than for commerce, industry, or any other business or profession’.
• Hence, the subject supply is eligible for 12% GST (6% CGST and 6% SGST) vide serial number 3(vi)(a) of the said Notification (as amended from time to time).