GST Rate and Taxable Value for Electrification Contracts
Electrification work for state-owned power companies is taxed at 18% and includes material costs in the total taxable value.
- Ruling
- AAR No.33/AP/GST/2019 dated: 31.10.2019
- Authority
- 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
- APSPDCL and APEPDCL are classified as Government Entities.
- Electrification contracts do not qualify for the concessional 12% GST rate.
- The standard 18% GST rate applies to these works.
- Material costs recovered from bills must be included in the taxable value.
In short
GVS Projects Private Limited asked the Authority for Advance Ruling (AAR) how to tax their electrification contracts with Andhra Pradesh power distribution companies. The main questions were whether these companies are government entities, what GST rate applies, and how to handle material costs deducted from their payments.
What has changed
How it worked before
Many contractors assumed that working for state-owned power companies might qualify for lower concessional tax rates or that material cost recoveries were separate transactions subject to reverse charge.
What has changed
The AAR ruled that these power companies are Government Entities, but the work performed is for business purposes, meaning the standard 18% GST rate applies. Additionally, the value of materials recovered from the contractor's bills must be added to the total taxable value of the contract, as these are considered part of the supply cost.
Who this affects
Construction and infrastructure companies performing electrification or utility works for state-owned power distribution companies.
An example
A contractor, ABC Infrastructure, builds a sub-station for a state-owned power utility. They previously charged 12% GST, thinking it was a concessional rate for government work. Based on this ruling, they should be charging 18% and must include the value of any materials the utility provided and later deducted from their payment in their total taxable invoice amount.
What you should do
Review your current contracts and tax filings to ensure you are applying the 18% rate and including all material cost recoveries in your taxable value. Remember that an Advance Ruling only binds the specific business that asked and its own tax office; it is not a general law that automatically applies to your business.
If you do nothing
If you apply a lower tax rate or exclude material costs without a specific ruling for your own business, you risk a tax demand notice. A tax officer may charge you the difference in tax, plus interest and penalties, if they disagree with your interpretation during an audit.
The terms explained
- Government Entity
- An authority or board set up by an Act of Parliament or State Legislature, or established by the government, with 90% or more government ownership.
- Reverse Charge
- A system where the person receiving the service, rather than the person providing it, is responsible for paying the GST to the government.
- Taxable Value
- The total amount on which GST is calculated, which includes the price of the service and any other costs incurred by the recipient that the supplier is liable to pay.
The ruling in detail
Authority for Advance Ruling
M/s GVS Projects Private Limited
AAR No.33/AP/GST/2019 dated: 31.10.2019 · Madhya Pradesh
Questions before the authority
- Whether APSPDCL & APEPDCL is a Government authority/ Government Entity or not?
- What is the applicable rate of GST on work agreement entered into with the APSPDCL & APEPDCL as mentioned in the Annexures.
- Under which Notification the work would fall, for discharging the GST liability?
- Whether for the value of materials recovered from RA bills issued on cost recovery basis by APSPDCL & APEPDCL is liable to tax under RCM as per Notification No.13/2017 Central Tax (Rate) dated 28.06.2017 or not?
Facts
The applicant is engaged in electrification works, including the construction of indoor sub-stations and erection of lines, under contracts with APSPDCL and APEPDCL. The applicant receives certain materials from these contractees, the cost of which is recovered from the applicant's running account bills. The applicant sought a ruling on the status of the contractees, the applicable GST rate, and the taxability of the cost-recovered materials under reverse charge.
Ruling
| Question | What the authority ruled |
|---|---|
| Status of APSPDCL & APEPDCL | They are Government Entities. Based on 100% share capital held by the Government of Andhra Pradesh. |
| Applicable GST rate | 18% (9% Central tax and 9% State tax). Concessional rate of 12% is not available. |
| Applicable Notification | Entry no. (ii) of S.No.3 of the table of Notification No.11/2017 - Central Tax (Rate), dated: 28th June 2017. As amended from time to time. |
| Taxability of cost-recovered materials | Includible in the taxable value of supply. Not liable under RCM; governed by Section 15(2)(b) of the CGST Act. |
The Authority held that APSPDCL and APEPDCL qualify as Government Entities. It ruled that the applicant is not entitled to the concessional GST rate of 12% and is instead liable to pay 18% GST. Furthermore, the value of materials recovered on a cost-recovery basis must be included in the taxable value of the supply.
Reasoning
The Authority determined that the contractees are Government Entities because they are wholly owned by the Government of Andhra Pradesh. It concluded that the works performed are for business purposes, thereby disqualifying the applicant from the concessional 12% rate. Regarding cost recoveries, the Authority relied on Section 15(2)(b) of the CGST Act, 2017, which mandates the inclusion of amounts incurred by the recipient in the taxable value of the supply. It clarified that reverse charge under Notification No.13/2017 is not applicable to these cost recoveries.
Provisions relied on
- Section 2(119) of the CGST Act, 2017
- Section 15(2)(b) of the CGST Act, 2017
- Notification No.11/2017 - Central Tax (Rate) dated 28.06.2017
- Notification No.13/2017 - Central Tax (Rate) dated 28.06.2017
- Notification No.31/2017 - Central Tax (Rate) dated 13.10.2017
For the practitioner
This ruling confirms that electrification works for state-owned power distribution companies are subject to the **standard 18% GST rate** rather than concessional rates. It also provides clarity that material costs recovered from contractors are **part of the taxable value** of the supply under Section 15(2)(b), rather than being subject to reverse charge.
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/AAR/ap_aar_33_2019_31.10.2019_gvsppl.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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