GST Treatment of KIIFB-Funded Project Management Services: Analysis of In re Kerala Road Fund Board (GST AAR Kerala)

1. Background and Context

The ruling in In re Kerala Road Fund Board (GST AAR Kerala) deals with how Goods and Services Tax (GST) applies to centage/consultancy charges received in connection with infrastructure projects funded by Kerala Infrastructure Investment Fund Board (KIIFB) and implemented through M/s. Kerala Road Fund Board (KRFB) acting as a Special Purpose Vehicle (SPV).

KRFB was constituted by the Government of Kerala in 2001 as a body corporate to act as a funding-cum-implementation agency for transport infrastructure projects within the State. Subsequently, the Government designated KRFB as an SPV to execute KIIFB-funded infrastructure projects.

The Kerala Authority for Advance Ruling (AAR) was asked to clarify:

  1. Whether the SPV (KRFB) is required to issue tax invoices in the name of the concerned Administrative Department (AD) of the Government of Kerala, which is the project owner.
  2. Whether the centage charges paid by KIIFB to KRFB (on behalf of the Government) attract GST and, if yes, at what rate.

The AAR examined both the substantive taxability of centage charges and the proper identification of the recipient of the services for invoicing purposes, by analysing the relevant provisions of the CGST Act, 2017, the Kerala SGST Act, Government Orders, and the tripartite project implementation framework.

2. Scope of Advance Ruling and Maintainability

2.1 Statutory framework

The AAR first looked into whether the application was maintainable under the CGST Act:

  • Section 95(a) defines “advance ruling” as a decision of the Authority on questions specified in Section 97(2) in relation to a supply undertaken or proposed to be undertaken by the applicant.
  • Section 97(2) restricts advance ruling questions to specific issues such as:
    • Classification of goods or services
    • Applicability of notifications
    • Time and value of supply
    • Input tax credit eligibility
    • Liability to pay tax
    • Requirement of registration
    • Whether an activity constitutes a “supply”

The binding effect of an advance ruling is defined in Section 103, which makes it binding only:

  • On the assessee who sought it, and
  • On the concerned/jurisdictional officer of that assessee.

2.2 Question on invoicing – treated as ancillary

On a standalone reading, the first issue—whether the SPV should raise invoices in favour of the Administrative Department—does not fall squarely within any clause of Section 97(2) and is therefore prima facie outside the standard scope of advance ruling.

However, the AAR noted:

  • A “tax invoice” under Section 2(66) read with Section 31 must be issued when there is a taxable supply.
  • Therefore, deciding who the recipient is and in whose name the invoice should be raised is integrally linked to determining:
    • Whether centage charges are taxable, and
    • Who is the recipient of that taxable service.

As a result, the AAR treated the invoicing issue as an ancillary question necessary for deciding the second, substantive issue of GST liability on centage charges.

2.3 Question on GST liability and rate – clearly admissible

The second question—GST liability and applicable rate on centage charges—was found to be squarely covered by:

  • Section 97(2)(a) – classification of services
  • Section 97(2)(b) – applicability of exemption notifications
  • Section 97(2)(e) – determination of liability to pay tax

Accordingly, this question was held to be admissible and was taken up on merits.

3. Factual Matrix: Tripartite Structure and Centage Charges

3.1 KIIFB project implementation model

Under the KIIFB model:

  • The Government of Kerala identifies infrastructure projects and designates:
    • An Administrative Department (such as Public Works Department) as project owner.
    • An SPV (here, KRFB) as implementing agency.
  • A Tripartite Agreement is executed among:
    1. KIIFB – funding agency;
    2. KRFB – SPV/implementing agency;
    3. The concerned Government Administrative Department – project owner.

3.2 Role and obligations of KRFB as SPV

Under the Tripartite Agreement and Government Orders, KRFB’s obligations include, inter alia:

  • Preparation of Detailed Project Reports (DPRs).
  • Securing technical sanctions.
  • Conducting tendering and competitive bidding.
  • Executing works contract agreements with contractors.
  • Monitoring progress (physical and financial).
  • Supervising execution, ensuring quality and timelines.
  • Overall project management and coordination until completion and handover.

KRFB does not itself execute the civil works; instead, it manages and oversees contractors engaged for construction.

3.3 Nature and basis of centage charges

The centage charges are paid to KRFB to cover expenditures linked to project implementation. The legal framework is mainly drawn from:

  • G.O.(P) No.408/07/Fin dated 07.09.2007
  • G.O.(P) No.311/14/Fin dated 30.07.2014
  • G.O.(P) No.61/2017/Fin dated 09.05.2017
  • G.O.(P) No.11/2018/Fin dated 18.01.2018

Key points from these Government Orders: