Public Road Construction for IALA Taxable at 12%, not 18%; Assessee's Classification Upheld

Public Road Construction for IALA Taxable at 12%, not 18%; Assessee’s Classification Upheld

Issue

Whether the construction of internal roads within an Industrial Area, executed for a Local Authority (IALA), falls under the category of “Non-commercial civil structure for use by general public” taxable at 12%, or constitutes a general infrastructure work taxable at 18%, especially when the roads are used by the public.

Facts

The Work: The petitioner-assessee executed works contracts for the construction of internal roads and infrastructure development.
The Dispute:
- The assessee paid GST at 12% (6% CGST + 6% SGST), classifying the work under Entry No. 3 (iv) of Notification No. 11/2017-CT (Rate) (as amended), which covers civil structures for use by the general public.
- After an audit for 2021-22 and 2022-23, the Revenue issued a Show Cause Notice and subsequently an order under Section 73, demanding the differential tax. They argued the applicable rate was 18%.
The Evidence: The assessee produced a certificate from the Executive Officer, Industrial Area Local Authority (IALA). This certificate confirmed that:
- The roads were laid to facilitate industrial activity and the movement of the general public, vehicles, and goods.
- These roads are treated as public roads and are maintained for the benefit of all stakeholders, including the general public.

Decision

Nature of Structure: The High Court relied heavily on the IALA Executive Officer’s certificate. Since the roads are “treated as public roads” and used by the general public (not exclusively for private commercial use), they fit the description of a non-commercial civil structure.
Applicable Entry: The Court held that the work falls under Entry No. 3 (vi) of Notification No. 11/2017 (or the specific entry cited as amended by Notfn 24/2017). This entry prescribes a concessional tax rate of 12% for works provided to a Central/State Government or Local Authority for a structure meant predominantly for use other than for commerce/industry or for a civil structure meant for use by the general public.
Redoing Assessment: The impugned adjudication order (demanding 18%) was set aside. The Revenue was directed to redo the assessment specifically taking into account the IALA certificate proving the “public road” status.

Key Takeaways

12% vs 18% Debate: Construction services provided to Government/Local Authorities generally attract 12% GST if the structure is meant for a public purpose (e.g., roads, bridges, educational institutions). If it is meant for a commercial purpose (e.g., building a complex for sale), it attracts 18%.
Role of Certificates: A certificate from the service recipient (Government body/IALA) clarifying the “end-use” (Public vs. Commercial) is a critical piece of evidence. It can override the Audit party’s assumptions.
IALA is a Local Authority: Industrial Area Local Authorities usually qualify as “Local Authorities” under GST. Services provided to them are eligible for concessional rates provided the specific notification conditions are met.

HIGH COURT OF ANDHRA PRADESH

RK Infracorp (P.) Ltd.

Assistant Commissioner State Tax^*

R RAGHUNANDAN RAO and T.C.D. Sekhar, JJ.

WRIT PETITION NO. 32737 OF 2025

DECEMBER 31, 2025

Karthik Ramana Puttamreddy for the Petitioner. Santhi Chandra, SC for the Respondent.

ORDER

T.C.D. Sekhar, J. – The petitioner is a registered dealer under GST Act bearing Registration No.GSTIN 37AAECR0071P1Z2 having engaged in the business of Works Contract. The 1^st respondent conduct audit in respect of petitioners books of accounts for the year 2021-22 and 2022-23. After the audit the petitioner was issued with show cause notice in Form DRC-01 proposing to levy differential rate of tax @ 6% on the ground that the petitioner has wrongly paid output tax @ 12% instead of 18% on the Infrastructure Development Works (laying of internal roads) as per the Work Order and Agreements dated 25.02.2019 and 08.03.2019 entered into with the 2^nd respondent.

2. The 1^st respondent in pursuance of the show cause notice, taken up the assessment and passed adjudication order dated 14.08.2025 whereby and whereunder levied tax for a sum of Rs.1,65,52,848/- each under SGST and CGST i.e., tax @ 18% in respect of works executed by the petitioner for the 2^nd respondent. Apart from the same, the 1^st respondent also levied interest under Section 50 of the Act and also penalty @ 10% which was quantified as Rs.69,14,102/- each under SGST and CGST and Rs.16,55,285/- each under SGST and CGST respectively.

3. It is further case of the petitioner that since the 2^nd respondent had paid only 12% of tax in respect of works executed by the petitioner, it approached the 2^nd respondent for payment of differential rate of tax @ 6% so as to pay the same to the 1^st respondent. After series of communications between the petitioner and the 2^nd respondent, it refused to reimburse the differential rate of tax on the ground that, for the works executed by the petitioner the applicable rate of tax @ 12% and not 18%.

4. As the 2^nd respondent denied to pay the differential rate of tax, the petitioner initially prayed to direct the 2^nd respondent to pay an amount of Rs.1,65,52,848/- each under SGST and CGST along with interest and penalty levied under Assessment Order dt.14.08.2025 passed by the 1^st respondent, so as to enable the petitioner to pass on the same to the 1^st respondent. Pending the writ petition the petitioner filed I.A.No.2 of 2025 seeking to amend the prayer in the following manner.

“To issue writ of mandamus or any other appropriate writ or order or direction setting aside the adjudication order dated 14.08.2025 passed by the 1^st respondent under Section 73 of the GST Act for the years 2021-22 and 2022-23 levying higher rate of tax of 18% on the infrastructure/road works executed by the petitioner as being contrary to the facts on record and the Judgment of this Hon’ble Court in SJ Constructions v. The Assistant Commissioner and other [2025(9) TMI 1215] and consequently direct the 1^st respondent to re-do the assessment year-wise in light of the clarifications issued by the Industrial Area Local Authority regarding the public nature and the infrastructure works executed under contracts dated 25.02.2019 & 08.03.2019 and pass”.

5. Along with the amendment application, the petitioner also filed certificates dt.11.12.2025 issued by the Executive Officer, Industrial Area Local Authority (IALA) IP-Gudipalli, stating that the roads laid by the petitioners for facilitating Industrial Activity and the movement of general public, vehicles and goods in and around the Gudipalli Industrial Area. The said certificate further states that the roads are treated as public roads and maintained for the benefit of all stakeholders including the general public, industries and transport service providers.

6. The application for amendment was allowed by order dated 20.12.2025.

7. During the course of hearing, the counsel for the petitioner would submit that in view of the fact that the certificate dated 11.12.2025 issued by the Executive Officer, IALA, IP-Guidpalli, the roads laid by it fall under Entry-3 of Notification No.24 of 2017, dt.21.09.2017. He would further submit that as per the said entry, the applicable rate of tax is 12% and not 18% as held by the 1^st respondent in its impugned order dt.14.08.2025.

8. Having considered the submissions made by the counsel for the petitioner and the learned Government Pleader appearing for Commercial Taxes and Standing Counsel for the 2^nd respondent, this Court feels that the petitioner has made out a case for consideration based on the certificate issued by the Executive Officer, IALA, so as to decide the rate of tax in respective of works executed by it to be decided by the 1^st respondent afresh.

9. Accordingly, the impugned order dt.14.08.2025 passed by the 1^st respondent is set aside only to the extent of levying tax @ 18% for the works executed by the petitioner in relation to laying of roads. The 1^st respondent is further directed to redo the assessment by taking into consideration of the certificate dated 11.12.2025 issued by the Executive Officer, IALA, IP-Gudipalli.

10. It is further made clear that the Assessment Order in respect of levying tax on other components do not require interference of this Court. Needless to mention the 1^st respondent is directed to pass separate orders in relation to each financial year.

11. Accordingly, the writ petition is disposed to the extent indicated as above.

There shall be no order as to costs. As a sequel, pending applications, if any shall stand closed.