GST on Sand Excavation and Transportation Contracts in Telangana
The Appellate Authority for Advance Ruling decided that sand excavation and road transport services are a composite supply taxed at 18%.
- Ruling
- ORDER-IN-APPEAL NO. AAAR/02/2018 (A.R.) dated 04 September, 2018
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if their sand mining contract was a works contract.
- The authority ruled it is a composite supply of services.
- Transportation of goods by road is the principal supply.
- The applicable GST rate is 18%.
In short
The company asked the Appellate Authority for Advance Ruling (AAAR) in Telangana to clarify the GST treatment for a contract involving sand excavation, loading, and road transportation. They wanted to know if this was a works contract or a composite supply and what tax rate applied. The authority determined that because the activities are naturally bundled, they form a composite supply where the main service is transporting goods by road.
What has changed
How it worked before
Businesses were uncertain whether these integrated sand mining and transport contracts qualified as works contracts or composite supplies, often hoping for lower tax rates associated with specific transport exemptions.
What has changed
The authority ruled that road transport is the main service, which is taxed at 18%. It also clarified that trucks and lorries are not 'vessels,' meaning businesses cannot claim lower tax rates intended for water-based transport.
Who this affects
Mining firms and contractors who handle the excavation, loading, and road transport of sand or other minerals.
An example
A construction firm in another district signs a similar contract to excavate and move sand by truck. They might wonder if they can pay a lower tax rate by claiming their service is a works contract. Based on this ruling, they should expect that their service will likely be treated as a composite supply of road transport, attracting an 18% GST rate.
What you should do
This ruling only applies to the specific company that asked the question. If you have a similar contract, do not assume this tax rate applies to you automatically. Consult with your tax advisor to review your specific agreement, as your tax officer may take a different view based on your contract terms.
If you do nothing
If you apply this ruling to your business without professional advice, you risk underpaying your GST. If a tax officer disagrees with your classification during an audit, you may face demands for the unpaid tax, interest, and potential penalties. Relying on a ruling that does not legally bind your specific case is a significant compliance risk.
The terms explained
- Composite supply
- A package of two or more goods or services that are naturally bundled together and sold as a single price, where one item is the main service.
- Works contract
- A contract primarily for construction, fabrication, or improvement of immovable property where the transfer of goods is involved.
- Vessel
- A watercraft used for transportation on water, which is distinct from road vehicles like trucks or lorries.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. R. Vidyasagar Rao Constructions
ORDER-IN-APPEAL NO. AAAR/02/2018 (A.R.) dated 04 September, 2018 · Telangana
Questions before the authority
- The combination of services of excavation of sand including loading with machinery at reach, Formation of Ramps and Maintenance of Roads, Transportation charges for the tractors/tippers of sand from reach to stockyard and Loading cost at sand from stockyard to lorries, whether is "Works Contract" or "Composite Supply" and what is the rate of tax on the consideration received therefor?
Facts
The applicant is a registered partnership firm engaged in mining business that entered into an agreement with Telangana State Mineral Development Corporation (TSMDC) for the excavation, transportation, and loading of sand. The scope of work involves excavating sand from a submergence area, transporting it to a nearby stockyard, and loading it onto lorries. The applicant sought an advance ruling on whether these activities constitute a 'Works Contract' or a 'Composite Supply' and the applicable tax rate.
Ruling
| Question | What the authority ruled |
|---|---|
| Classification and tax rate for the composite supply of sand excavation, transport, and loading | Classifiable as 'transport of goods by road' under Service Code 996511, taxable at 18% (9% CGST + 9% SGST) The authority determined the principal supply is transportation of goods by road, not excavation of sand or transport by vessel |
The Appellate Authority held that the services provided by the applicant constitute a 'composite supply' where the principal supply is 'transportation of goods by road'. Consequently, the services are classifiable under Service Code 996511 and are subject to GST at the rate of 18% (9% CGST + 9% SGST). The authority rejected the applicant's contention that the services fell under the category of 'transport of goods in a vessel'.
Reasoning
The authority determined that the activities are naturally bundled and constitute a composite supply under Section 2(30) of the CGST Act, with the principal supply being the transportation of sand. It relied on the principle that when two different expressions are used in a statute, they must be construed to carry different meanings, thereby excluding 'trucks/lorries' from the definition of 'vessel' used in the relevant notification. The authority concluded that the services fall under the residual entry for goods transport services other than those specifically enumerated, attracting a 18% tax rate. It specifically referenced Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017.
Provisions relied on
- Section 2(30) of the CGST Act, 2017
- Section 2(119) of the CGST Act, 2017
- Section 98(5) of the CGST Act, 2017
- Section 101(1) of the CGST Act, 2017
- Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017
For the practitioner
This ruling clarifies that sand excavation and transportation contracts involving road transport are **composite supplies** where the principal supply is transportation by road, not excavation. It settles that vehicles like lorries or trucks do not qualify as 'vessels' for the purpose of concessional tax rates under the cited notification. Practitioners should note that this decision **excludes road transport** from the lower tax rates applicable to water-based transport of goods.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/aaar-02-2018-r_vidyasagar_rao.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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