Non-commercial construction in education institutions to draw less GST

Construction of buildings, such as hostels, principal’s bungalow and staff quarters, in educational institutions is taxable at lower rate of goods and services tax (GST), if the structures are not used for commercial activities than those for normal business purposes, ruled Gujarat Authority for Advance Rulings (AAR).

The court ruled that such buildings would draw 12 percent GST, and not 18 percent levied for other construction activities. It should be noted that education draws zero GST, while construction work and the iputs used therein attract tax.

The applicant, Tirupati Construction, approached AAR to find out about the applicability og GST on these activities. The company was awarded a works contract for constructing a hostel and staff quarters at a village in Surat by the Road and Building Department of the Gujarat government.

While the company argued for a 12 percent GST rate, the revenue department opposed it on the ground that the company is silent on the use of these structures.

However, the Gujarat government did not buy the argument of the revenue department, saying that the activity or transaction undertaken by the state government does not fall under the business activities.

Amit Maheshwari, a tax partner at AKM Global, said the AAR has rightly noted that the award of the contract was by the Gujarat government and is sufficient to constitute a non-commercial purpose.

“Only on the basis of apprehension of the revenue that the building may be used for commercial purposes without any tangible evidence is not enough to deny the benefit of the lower GST,” he said.

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