In Advance Ruling No. UP ADRG -23/2023 -AAR- AAR (Uttar Pradesh) rules that supervision work by Purvanchal Vidyut Vitran Nigam Limited attracts GST
Members Rajendra Kumar (Central Tax) & Harilal Prajapati (State Tax) [21-04-2023]

Read Order: In Re: Purvanchal Vidyut Vitran Nigam Limited

Chahat Varma

New Delhi, August 23, 2023: The Uttar Pradesh bench of the Authority for Advance Rulings has ruled that Purvanchal Vidyut Vitran Nigam Limited’s (applicant) supply involves supervision work and the determination of taxable value should be based on the supervision charges collected from customers.

The applicant, an electricity distribution company, presented a case where they oversee the installation of electricity lines for their customers. The lines were installed either with materials provided by the customers and contracted installation or with both materials and installation executed by the company under their supervision. The entire expense was borne by the customers. They sought an advance ruling on whether the value of materials and installation costs would be included in the taxable value under GST when their supply involves only supervision charges. In both scenarios, where the costs are reimbursed by the customers or borne by them directly, the applicant questioned whether these expenses would factor into the determination of taxable value under GST.

The two-member bench of Rajendra Kumar (Central Tax) and Harilal Prajapati (State Tax) clarified that the responsibility for the installation of the electricity lines rested with the customers. Within this context, the bench pointed out that one aspect of this overall work was the supervision of the installation process. Therefore, in all cases, the service being supplied by the applicant was the supervision work. The value of this service was determined by the amount received by the applicant in the form of supervision charges. As a result, GST on their supply of service, specifically the supervision work, was deemed to be payable.

The bench held that the applicant was responsible for overseeing both the work and the cost of materials involved in the installation of electricity lines. Therefore, the GST charged on both the cost of materials and the supervision charges was considered valid and permissible. In situations where the applicant also provided the materials along with supervision, the bench held that the GST would be charged through a single invoice issued by the applicant.

In the scenario where the customers of the applicant purchased the materials themselves and managed the installation work, with the applicant being engaged solely for supervision, the bench stated that the taxable value of supply for the applicant was limited to the supervision work. The GST would be applicable and payable based on the transaction value, specifically the supervision charge that the applicant levies on the overall cost of work and materials.