GST applicability on both parties

This query is : Resolved

Sanjeev (Querist)
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07 August 2024 As per SL No.- (v) of MoF Notification 13/2017- “Services supplied by the Central Government, State Government, Union territory or local authority to a business entity, GST should be paid by the such business entity located in the taxable territory. The state Government has accorded (12th April 2018) to PSU its principal approval for supplying of 50 Cusec of non-potable water in bulk to from Upper River Canal through pipe line for use of its Thermal Power Plant at Gwalior. The Irrigation Department of the state Government was prepared (September 2018) the project estimate for providing 50 Cusecs water supply to thermal plant of ₹ 400.67 crore including GST (@ 12 per cent.
PSU and Irrigation department of state Govt. were entered 20th September 2020 into the Memorandum of Understating (MoU) for above work. Clause No. 2 (g) of the MoU stated that- “The consumer i.e. PSU shall pay to the Irrigation Department 6 per cent centage charges and in addition 1 per cent cess and income tax & GST as per current rates on the actual cost of works executed by the Irrigation Department at the rates that may be decided by the Government from time to time. Irrigation department of state Govt. has further awarded above work to private contractor.
PSU was released to Irrigation department of state Govt. of ₹ 200 crore as an advance during the period July 2020 to January 2024 for above works. The Irrigation department of state Govt. has submitted UCs to the Unit of ₹ 170 crore towards utilization of funds for above work so far. The Finance Department of the PSU deposited GST of ₹ 32.02 crore (@ of 18 per cent of bill value) on each demand raised by the Irrigation department of state Govt. to the GST authorities so far under RCM on advance payment of ₹ 200 crore which was provided by the Unit to Irrigation department of state Govt. for execution of above works. The Irrigation department of state Govt. and its work-executing Contractors were also deposited of GST of ₹ 30.48 crore the GST authorities (reimbursed by PSU to Irrigation department of state Govt. as per terms of MoU) for execution of above work since beginning of the above work to till date.
Kindly clarified:-
(1) Whether PSU and contractors of Irrigation department of state Govt. (both the parties) are required to deposit GST in above case.
(2) As the contractors are already deposited GST for above service. Whether, PSU also required depositing GST for above service under RCM?
(3) Whether any GST exemption available for PSU for above case.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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13 August 2025 Your query involves a complex GST structure with a three-tiered arrangement:
PSU
Irrigation Department of State Government
Private Contractors executing the work
Let’s address your questions one by one with legal and procedural clarity, based on Notification No. 13/2017 – Central Tax (Rate) and related GST provisions.
🟢 1. Are both PSU and contractors of Irrigation Department required to pay GST?
✅ Yes, both parties are liable to GST, but for different supplies and under different mechanisms:
🔹 (A) Contractor → Irrigation Department (Govt. Department)
This is a taxable supply of works contract services
Private contractor raises invoice to Irrigation Department
GST is collected and paid by the contractor under forward charge
Irrigation Department reimbursed this GST through the PSU
✅ So, contractors must pay GST, and they have done so (₹30.48 crore)
🔹 (B) Irrigation Department (Govt.) → PSU
As per Sl. No. 5 of Notification No. 13/2017 – Central Tax (Rate):
Services provided by Government to a business entity (other than renting of immovable property) are taxable under RCM.
Supply of non-potable water for industrial use (via pipeline to a power plant) is a service
So, the PSU must pay GST under Reverse Charge (RCM) on this service
✅ Yes, PSU must pay GST under RCM, and they have paid ₹32.02 crore under RCM.

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