The West Bengal Authority for Advance Ruling (WBAAR) has ruled that works involving the construction of a new main water pipeline and revamping of an existing water pipeline distribution network for IIT Kharagpur constitute taxable works contract services. The Authority rejected classification under SAC 995479 and held that the activities fall under the 99542 group covering general construction services of civil engineering works.
For the new water pipeline, the specific classification was held to be SAC 995422, while the revamping work was classified under SAC 995429, treating it essentially as repair and maintenance work. The Authority further held that the supplies would attract 9% CGST + 9% SGST, i.e. an effective GST rate of 18%.
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Background of the Case
The applicant is engaged in a civil works contractor registered under GST. The applicant had undertaken two works contracts awarded by the Indian Institute of Technology, Kharagpur (IIT Kharagpur).
The first work order concerned the revamping of the water pipeline distribution network in the Hall Area, while the second involved the setting up of a new main water pipeline for the upcoming South East Campus of IIT Kharagpur. The two work orders were dated February 5, 2024 and June 6, 2025 respectively.
According to the applicant, execution of the contracts involved both goods and services. The material component constituted approximately 75% of the total contract value, while the service component accounted for approximately 25%.
The applicant had treated the activities as composite works contract services and was discharging GST at 18%, classifying the services under SAC 995479. It approached the WBAAR seeking a determination of the correct SAC and applicable GST rate.
Questions Before the Authority
The applicant essentially sought rulings on two questions:
- What is the appropriate SAC for the work involving construction of the new main water pipeline and revamping of the existing water pipeline distribution network at IIT Kharagpur?
- What is the applicable GST rate on these works?
The Authority admitted the application after noting that the questions fell within the scope of Section 97(2)(a) of the GST Act and that the Revenue had raised no objection to its admission.
Applicant’s Claim of Works Contract
The applicant submitted that the contracts required deployment of both goods and services and that the goods supplied during execution would become permanently embedded in the pipeline network, resulting in the creation of immovable property.
On this basis, the applicant treated the activities as composite works contract services.
The applicant relied upon the GST rate notifications, particularly Notification No. 11/2017-Central Tax (Rate), as amended, as well as exemption provisions contained in Notification No. 12/2017-Central Tax (Rate).
It also examined the exemption entries relating to pure services, composite supplies involving a limited goods component and specified services relating to water supply.
WBAAR Confirms That the Activities Are Works Contract
The Authority first examined the actual nature and scope of the work orders.
The revamping work included activities such as excavation of trenches for pipes and cables, ramming of bottoms, filling with sand, brick work, RCC structures, masonry chambers, dismantling of existing C.I. pipes and valves, cutting holes in walls, floors and roofs for installation of drain pipes and placing water storage tanks.
The work also involved supply of materials including C.I. sluice valves, ductile iron pipes, PVC pipes, ball cocks, water storage tank parts and accessories, brass ferrules and gate valves.
According to the Authority, these materials would become part of immovable property. The second work order also involved similar civil engineering activities involving both labour and materials.
The Authority referred to Section 2(119) of the CGST Act, 2017, which defines “works contract” as a contract relating to building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of immovable property where transfer of property in goods is involved in execution of the contract.
Applying this definition to the work orders, the WBAAR concluded that the applicant was indeed undertaking works contract services.
SAC 995479 Rejected
A significant issue before the Authority was the applicant’s classification under SAC 995479.
The Authority disagreed with this classification.
It noted that Group 99547 relates to building completion and finishing services, whereas the work undertaken by Jaypee Projects was essentially related to construction services.
Accordingly, the Authority held that the appropriate heading was 9954, with the relevant group being 99542 – General construction services of civil engineering works.
New Water Pipeline Classified Under SAC 995422
For the construction of the new main water pipeline for the South East Campus, the Authority identified the specific service code as SAC 995422.
SAC 995422 covers general construction services of harbours, waterways, dams, water mains and lines, irrigation and other waterworks.
Thus, the construction of the new main water pipeline was specifically classified under SAC 995422.
Revamping of Existing Pipeline Classified Under SAC 995429
The Authority adopted a different specific classification for the revamping work.
It observed that the revamping of the existing water pipeline distribution network was essentially a repair and maintenance service.
Consequently, the activity was classified under SAC 995429, covering services involving repair, alterations, additions, replacements, renovation, maintenance or remodelling of constructions covered under Group 99542.
Claim of GST Exemption Under Entry 3 Rejected
The applicant had also examined the possibility of exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate).
This entry provides exemption for specified pure services, excluding works contract services and other composite supplies involving goods, provided to specified Government recipients in relation to functions entrusted to Panchayats or Municipalities under Articles 243G and 243W of the Constitution.
The Authority identified three cumulative requirements for the exemption:
- The supply must be a pure service;
- It must be supplied to the Central Government, State Government, Union Territory or local authority; and
- It must relate to a function entrusted to a Panchayat or Municipality.
The Authority found that the first condition itself was not satisfied because the applicant’s works involved substantial supply of goods. It also held that IIT Kharagpur would not fall within the category of Central Government, State Government, Union Territory or local authority contemplated under the entry.
Therefore, the exemption under Sl. No. 3 was unavailable.
25% Goods Threshold Under Entry 3A Not Satisfied
The Authority also examined Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate).
This exemption applies to composite supplies of goods and services where the value of goods does not exceed 25% of the total value of the composite supply, subject to the other prescribed conditions.
In the present case, the goods component was more than 75% of the contract value.
Consequently, the applicant failed to satisfy the basic goods-value threshold under Entry 3A. The Authority therefore ruled out the possibility of exemption under this entry as well.
Crucial Finding on Entry 3B: “By Way Of” Does Not Cover Pipeline Construction
The more substantial exemption issue arose under Sl. No. 3B of Notification No. 12/2017-Central Tax (Rate).
Entry 3B provides exemption for services supplied to a Governmental Authority by way of:
- water supply;
- public health;
- sanitation conservancy;
- solid waste management; and
- slum improvement and upgradation.
The Authority first considered whether the applicant’s works could qualify as services for this purpose.
It noted that although a works contract is treated as a supply of services under Schedule II of the CGST Act, the specific conditions of Entry 3B still had to be satisfied.
IIT Kharagpur Held to Be a Governmental Authority
An important aspect of the ruling is the Authority’s finding regarding the status of IIT Kharagpur.
The definition of “Governmental Authority” under Notification No. 12/2017-Central Tax (Rate) includes an authority, board or other body set up by an Act of Parliament or State Legislature, or established by Government with the prescribed degree of government participation and functions.
The Authority relied upon the Supreme Court’s decision in Commissioner, Customs, Central Excise and Service Tax, Patna v. Shapoorji Pallonji and Company Pvt. Ltd. (2023).
The Supreme Court had clarified that the two limbs of the definition are independent and disjunctive. The requirement concerning 90% government participation and specified constitutional functions applies to the second limb and not to a body that is itself set up by an Act of Parliament or State Legislature.
The WBAAR found this principle applicable to the GST regime as well.
The Authority noted that IIT Kharagpur was established under the Indian Institute of Technology (Kharagpur) Act, 1956, enacted by Parliament, and was subsequently brought within the framework of the Institutes of Technology Act, 1961.
It further noted that Section 4 of the 1956 Act declared IIT Kharagpur to be a body corporate.
On this basis, the Authority held that IIT Kharagpur qualifies as a “Governmental Authority” under the relevant notification.
However, Governmental Authority Status Alone Was Not Enough
Despite holding IIT Kharagpur to be a Governmental Authority, the Authority declined to extend the exemption.
The critical issue was the precise scope of the phrase “by way of” appearing in Entry 3B.
The Authority contrasted this phrase with the expression “in relation to” used in Entries 3 and 3A.
According to the WBAAR, where legislation uses the expression “in relation to”, the scope can extend to secondary, indirect or ancillary activities connected with the principal activity.
However, the expression “by way of” narrows the scope of the exemption. It requires the service itself to be directly in one of the specified categories.
Pipeline Construction Is Not Actual “Water Supply”
Applying this interpretation, the Authority held that the activities undertaken by Jaypee Projects did not constitute actual water supply.
The applicant was engaged in:
- revamping the water pipeline distribution network; and
- setting up a new main water pipeline.
According to the Authority, these were civil engineering, construction, repair or maintenance activities connected with water supply, rather than the actual supply of water.
Therefore, neither the construction of the new pipeline nor the revamping of the existing pipeline fulfilled the third condition of Entry 3B.
This became the decisive reason why the exemption was denied.
Exemption Notifications Must Be Strictly Construed
The WBAAR further relied upon the Supreme Court’s ruling in Commissioner of Customs (Mumbai) v. Dilip Kumar & Co. (2018).
The Authority reiterated the principle that a person claiming an exemption must establish that the case falls squarely within the parameters of the exemption notification.
The Authority held that exemption provisions are required to be interpreted strictly and according to their clear statutory language. Unless the notification itself provides flexibility, an activity cannot be brought within the exemption merely because it is indirectly or incidentally connected with the specified exempt activity.
Final Ruling: 18% GST on Both Works
Having rejected the exemption claims under Entries 3, 3A and 3B, the Authority concluded that the services were taxable.
It held that both works would attract 9% CGST + 9% SGST, resulting in an effective GST rate of 18%, under Serial No. 3(ii) of Notification No. 11/2017-Central Tax (Rate), as amended.
The final classification and rate were summarised as follows:
| Nature of Work | SAC | GST Rate |
| Setting up new main water pipeline | 995422 | 9% CGST + 9% SGST |
| Revamping of existing water pipeline distribution network | 995429 | 9% CGST + 9% SGST |
The Authority specifically rejected the applicant’s proposed SAC 995479 and classified both activities under the 99542 group – General construction services of civil engineering works.
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