The Telangana Authority of Advance Ruling (AAR) in the case of M/s Shree Constructions in TSAAR Order No. 56/2022 dated 08.12.2022, has ruled that 18% GST is payable on work contract services for constructing warehouses and cold storage godowns for Telangana State Industrial Infrastructure Corporation Limited (TSIICL), which will rent out the facilities.

In this case, the applicant is in the business of working on contracts. The applicant is executing the construction of the building on the land provided by the TSIICL. The applicant is constructing warehouses and cold storage at the primary processing center. It is submitted that the TSIICL will be letting out godowns for rent, which amounts to business activity.

The TSIICL is wholly owned by the Government of Telangana, and therefore, the supply of contract services by them is to a government entity. The applicant sought an advance ruling in respect of the rate applicable for the work contract service provided to the TSIICL, which is wholly owned by the Government of Telangana State, by way of construction of buildings on their land.

The AAR ruled that since the godowns will be rented by TSIICL, the concessional rate of tax is not applicable to the transaction, and the tax payable will be 9% CGST and SGST each. The entry was amended in November 2021, vide Notification No. 15/2021 dated November 18, 2021, and the phrases “government entity” and “government authority” were deleted from the entry at S.No. 3(vi) of Notification No. 11/2017 with effect from January 1, 2022. Thus, the works executed even for the “government entity” or “government authority” will be taxable at the rate of 9% CGST and SGST each.

The AAR has observed that TSIICL is a government entity. However, the original notification No. 11/2017 applied a concessional rate of tax to government entities and government authorities at the rate of 12% only if the construction is predominantly for use other than commerce, industry, or any other business or profession.