GST Payable on Composite Supply of Work Contracts ruled by Advanced Ruling

Seep Gupta
Seep Gupta at January 25, 2023

Background of the Case

In the present scenario, the Appellant M/S Mahalaxmi BT Patil Honai Construction is a GST registered company, involved in the business of construction of infrastructure projects. It was formed to undertake the construction of the tunnel under Krishna Marathawada Irrigation Project. This work is allotted by the Godavari Marathwada Irrigation Development Corporation (GMIDC) Aurangabad.

Issues Raised

91% of the work included earthwork such as excavation stuff, removing excavated stuff, fabrication, transporting, fabrication, rock bolting, providing steel support, fixing of chain link, providing drainage arrangement etc. While construction work was only around 9% which involved the transfer of property. 

Now the issue arises whether the contract which includes earthwork is exempted under the provisions of GST or not?

Submissions by the Appellant

The appellant sought out an advanced order dating back to 2017 which states that if the value of goods and services constitutes not more than the 25% of the value of the composite work supplied to the central, state government or local panchayat or any municipality that comes under the Article 243W of the Indian constitution comes under the garb of composite work. Therefore it should be exempted from the GST tax under the said above order.

The appellant also submitted that the work order consists of earthwork such as excavation, digging of tunnels, fixing of chain link, drainage arrangement, providing steel support etc. Since the present activity consists of 91% of earthwork and only 9% of construction work, it will come under the garb of composite supply of work contracts where such supply is made to any governmental entity or governmental organisation.


Work contracts are defined in clause 119 of section 2 of the CGST Act, 2017. In this section, it is given that,

“Work Contract” can be defined as a contract for construction, building, fabrication, completion, erection, fitting out, installation, improvement, modification, renovation, repair, maintenance, 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.”

The ruling of the Court

The Maharashtra Authority of Advanced Ruling has ruled that the primary requirement under order No. 3A is that the work should be in the form of a composite supply of goods and services. While in the present scenario, the activity is the composite supply of work contracts as defined in section 2(119) of the CGST Act, hence it will not be covered by the said order and will not be exempted from the GST regulations.

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