GST Rate and Taxability for Electrification Works in Andhra Pradesh
The Authority for Advance Ruling confirmed that electrification works for state power companies are taxable at 18% and include cost-recovered materials in 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 works are taxable at 18%, not the concessional 12% rate.
- Materials recovered from bills must be included in the total taxable value.
- Reverse Charge Mechanism does not apply to these specific cost recoveries.
In short
A company asked if its electrification work for Andhra Pradesh power distribution companies qualified for a lower GST rate and how to handle material costs deducted from their payments.
What has changed
How it worked before
Businesses were uncertain if state-owned power companies qualified for specific tax concessions and whether material costs recovered from bills were subject to the Reverse Charge Mechanism.
What has changed
The Authority ruled that these works are subject to the standard 18% GST rate. It also clarified that material costs recovered from bills are part of the taxable supply value, meaning you must pay tax on the full contract amount.
Who this affects
Contractors performing electrification or infrastructure works for state-owned power distribution companies in Andhra Pradesh.
An example
Imagine a contractor builds a substation for a state power utility. They assume they qualify for a 12% tax rate and exclude material costs recovered from their bills. Based on this ruling, they should instead charge 18% GST on the entire contract value, including those recovered costs.
What you should do
Review your current tax filings to ensure you are applying the 18% rate and including all recovered material costs in your taxable value. Remember that an Advance Ruling only binds the company that asked and its specific tax officer; it is not a general law for all businesses.
If you do nothing
If you apply the wrong tax rate or exclude taxable components, you risk a tax demand notice during an audit. You may be required to pay the shortfall in tax plus interest and potential penalties for under-reporting your liability.
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 Mechanism
- A system where the person receiving the service pays the tax directly to the government instead of the person providing the service.
- Works Contract
- A contract for construction, fabrication, or improvement of immovable property where both goods and services are transferred.
The ruling in detail
Authority for Advance Ruling
M/s GVS projects Private limited.
AAR No.33/AP/GST/2019 dated: 31.10.2019 · Andhra 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. These contractees recover the cost of certain materials supplied to the applicant from the Running Account (RA) bills. The applicant sought clarification on the status of the contractees, the applicable GST rate, and the taxability of the cost-recovered materials under Reverse Charge Mechanism (RCM).
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% CGST + 9% SGST). 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 12% GST rate and must discharge tax at 18%. Furthermore, it determined that the value of materials recovered on a cost-recovery basis must be included in the taxable value of the supply.
Reasoning
The Authority concluded that APSPDCL and APEPDCL are Government Entities because they are wholly owned by the Government of Andhra Pradesh. It determined that the works contract services provided do not qualify for the concessional 12% rate under Notification No. 24/2017-Central Tax (Rate) and are instead taxable at 18% under Notification No. 11/2017. Regarding cost recoveries, the Authority relied on Section 15(2)(b) of the CGST Act, 2017, stating that amounts incurred by the recipient but not included in the price must be added to the taxable value. It clarified that RCM is not applicable to these specific cost recoveries.
Provisions relied on
- Section 2(119) of the CGST Act, 2017
- Section 15(2)(b) of the CGST Act, 2017
- Section 97 of the CGST Act, 2017
- Section 98 of the CGST Act, 2017
- Notification No. 11/2017 - Central Tax (Rate)
- Notification No. 24/2017 - Central Tax (Rate)
- Notification No. 31/2017 - Central Tax (Rate)
- Notification No. 13/2017 - Central Tax (Rate)
For the practitioner
This ruling confirms that state-owned power distribution companies in Andhra Pradesh are **Government Entities**. It serves as a precedent that cost-recovered materials in works contracts are **includible in the taxable value** under Section 15(2)(b) rather than being subject to RCM. Practitioners should note that the **concessional 12% rate** is strictly limited and not applicable to these specific electrification works.
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/aar_no.33-2019_gvs_projects.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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