IC November 2018 (for web)

BUILDERS’ ASSOCIATION OF INDIA INDIAN
CONSTRUCTION
G-1/G-20, Commerce Centre,
J. Dadajee Road, Tardeo, Mumbai-34. Journal for the Indian Architecture, Building and Construction Industry
Tel. : 23514134, 23514802, 23520507
Vol. 08 November 2018 No. 11
Fax : (91-22) 23521328
Website : http://www.baionline.in
E-mail : [email protected]

Office Bearers 2018-19 CONTENTS
President
Page No.
A. Puhazhendi
Editorial ..................................................................................................................... 7
Imm. Past President
H. N. Vijaya Raghava Reddy Brain Vita by P. R. Mundle ........................................................................................ 8

Vice-Presidents Presidential Communiqué . . . .................................................................................. 11
Ch. Ramakotaiah
Construction Equipment in India ............................................................................. 13
M. Thirusangu – Compiled by : BAI Secretariat
O. P. Sharma
Pratap B. Salunkhe Barriers to Mechanisation and Automation in Indian Construction Industry ........... 23
Rajendra Singh Kamboh – Ashna Sadique and Gangadhar Mahesh

Hon. Gen. Secretary Small Testing Laboratory ........................................................................................ 27
Neerav Parmar – Kaushal Kishore

Hon. Gen. Treasurer Advance Loss of Profit / Delay in Start-up Insurance (ALOP / DSU) ..................... 30
Pradeep G. Nagawekar – By Dev Chomal

‘Indian Construction’ GST on Re-development of Society Building, SRA and JDA – Part II .................... 33
Committee 2018-19 – CA Rajkamal Shah
Chairman
Neerav Parmar Photo Gallery .......................................................................................................... 37

Members BAI News ................................................................................................................ 41
Mohanlal S. Katariya
Product Profile - Surshakti TMT bars ...................................................................... 43
Narendra Kumar
IC - 52 - 11 Anti-Profiteering Law – a big setback for the construction industry ........................ 44
– CA Gaurav Goyal and CA Sandesh Mundra

BAI continues to tackle contentious GST issues . . . .............................................. 48

Interview - Bhupinder Singh, CEO, bC Expo India Pvt. Ltd. ................................... 59

Announcement – All India Meetings of BAI ............................................................. 61

Product Launch – Schwing Stetter launches 'Super Six' with Mahindra Powerol .. 62

Legal Corner ........................................................................................................... 63

BAI Communications . . . ........................................................................................ 70

Single copy : ` 100 The Builders’ Association of India as an organisation is not responsible
Annual Subscription for the statements made by the individual authors in this Journal.

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INDIAN CONSTRUCTION

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INDIAN CONSTRUCTION 6 November 2018

Editorial

Industry 4.0 is a name given to the current trend of automation and data exchange in
manufacturing technologies. It includes cyber-physical systems, the Internet of things, cloud
computing and cognitive computing. Industry 4.0 is commonly referred to as the fourth
industrial revolution.

Industry 4.0 is blurring the boundaries between the physical and virtual world. From driver-
less vehicles, drones and connected homes to intelligent robots and 3D printing, technological
change is happening at an unprecedented pace. The applicability of such exponential
technologies presents enormous opportunities for the infrastructure sector. The dawn of
blockchain, artificial intelligence, robotics and cognitive automation technologies are propelling
the infrastructure space in the next direction. Just like flying cars and autonomous vehicles are becoming a reality,
it is not unrealistic anymore to predict railway track breakdown in advance, or create hyperloops with direct
connectivity to destinations, or fast-track creation of multi-lane highways. From building automation to virtual
reality and the use of 3D printing for construction, technology is likely to transform the infrastructure sector.

These applications seek to drive greater efficiencies and enhance user experience. There is immense scope for use of
exponential technologies in the infrastructure landscape. According to the World Economic Forum, penetration of
technology is expected to result in almost 20% reduction in life-cycle costs of a project, along with substantial
improvements in completion time, quality, and safety. Virtual reality and augmented reality have the potential to
enable government officials to digitally tour in-progress roads and highways projects. Robots could facilitate
construction tasks such as demolitions, the laying of bricks, and excavations. Blockchain-based systems could ease
the process of a number of services such as land registration, customs duty payment, supply chain traceability, and
so on. IT based tools could also be deployed to monitor large projects, and present hi-tech dashboards based on data
analytics. Apart from physical infrastructure, technology could improve infrastructure delivery as well. For instance,
unmanned aerial vehicles/drones could cut down delivery times in the logistics sector, and developing 3D maps of
underground pipelines (of water, sewer, electricity, gas, broadband, etc.). It has the potential to reduce the amount
of time it takes maintenance workers to detect and repair faults. Drones could also be deployed to provide
implementation support in difficult areas or in large projects, and help with aerial surveys and project monitoring.
Apart from delivering time/cost savings, technology could be used for extracting multiple uses from the same
infrastructure. Modelling the impact of natural calamities on infrastructure could help better preparation, while
assessing the impact of infrastructure on environment and incorporating these in the planning processes, and thus,
potentially, helping minimise environmental impacts. Construction aid in high-risk areas, emergency response for
disaster-hit regions, and remote health monitoring are some other areas where advanced technology tools may be
used. Applications for management of commercial spaces, airports, railway stations, and other infrastructure facilities
with high footfalls are also being explored and could smoothen consumer transitions and benefit operators and
businesses alike.

While all this may sound achievable, governments generally aren’t traditionally known to be early adopters of
technology or innovation. Most government departments are cautious in adopting new technologies or processes in
government functions, even on a pilot basis, owing to limited skillsets, involvement of public money and lengthy
decision-making processes, amongst others.

Government departments, businesses and citizens should concur on the potential of exponential technologies in
improving the infrastructure base. The ecosystem is ripe and the time is now for harnessing the power of these
technologies in infrastructure.

INDIAN CONSTRUCTION NEERAV PARMAR

7 November 2018

SUBSCRIPTION FORM Agency: " Sir, we found
3 candidates as per your
To, requirements, now how
Circulation Department, do you want their
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Builders’ Association of India
M.D: "Put about 100
G-1/G-20, Commerce Centre,
J. Dadajee Road, Tardeo, Mumbai-400034. bricks in a closed room.

Dear Sir, Then send the By P. R. Mundle
Please enrol me/us as a subscriber OR renew candidates into the Past President, BAI
my/our subscription to ‘Indian Construction
Journal for the Indian Architecture, Building and room & close the door,
Construction Industry’, for the 12-month period
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11-2018

INDIAN CONSTRUCTION 8 November 2018





Presidential Communiqué . . .

A. Puhazhendi Dear Friends,

My this communication to you is virtually in the middle of my tenure. I am
penning down my thoughts gathered during my interaction over the last seven
months in my travels across the length and breadth of the country.

While the basic aim of BAI is to safeguard the interest of the constituents of the
Indian building and construction industry, by continuously engaging with the
Central and State Governments, I was happy to see the multifarious activities
being carried out by many of our Centres, which go well beyond BAI’s basic aim.
Skill upgradation, workers health welfare, tree plantation, rural upliftment,
education impartment and many other other similar social activities are being
carried out by many of our Centres. Here in particular I would like to mention
the recent training programme conducted by Coimbatore Centre, wherein they
had a week long training programme for construction industry artisans like,
mason, carpenter, plumber, electrician, bar bender, etc. Other Centres should
take a leaf out of such Centres and replicate them.

BAI has now a enviable network across the length and breadth of India, but there
is ample scope for further growth. BAI’s representation in some regions and States
needs to improved upon. Apart from infrastructure construction contractors and
real estate builders, other stakeholders in the building and construction industry
need to be brought under the umbrella of BAI. This will enable BAI to understand
the problems of the forward and backward linkage agencies. BAI can then involve
them in its efforts and petition the Central and State Governments in a more
comprehensive way.

Last two or three years have been trying times for the real estate and infrastructure
construction industry – with stressed assets, high interest burden and lower
volume, with resultant losses during the period. Newly introduced taxation
regulatory framework and environmental issues added to the problem. This period
is expected to be overcome in the near future. In the meantime, the best way the
constituents of the Indian building and construction industry can combat the
problems is by arming themselves with more and more information as to latest
method of doing business. It can be financial planning, managing personnel, use
of latest technology, etc. Many BAI Centres have been conducting crash courses
on these topics. But more needs to be done.

During the last seven months as President of BAI, I had the opportunity to meet,
interact some Central Ministers and Central Government Secretaries and present
BAI’s viewpoint on the problems of Indian building and construction industry.
This effort of BAI in engaging the Central government in continuous dialogue is
in addition to BAI efforts of seeking judicial remedy. I am happy to say that

INDIAN CONSTRUCTION 11 November 2018

recently BAI has had success in two major judicial efforts in Supreme Court.
One is vindication of BAI’s stand in the cement cartel matter and another is
obtaining stay in the matter of applicability of ESIC provisions on casual and
temporary construction site workers.

Speaking on use of latest technology, I am happy to inform you that ‘bauma
CONEXPO INDIA 2018’, the 5th International Trade Fair for Construction
Machinery, Building Material Machines, Mining Machines and Construction
Vehicles, will be held between 11th and 14th December, 2018 in Gurgaon, NCR,
Haryana. BAI is the Joint Organiser of ‘bauma CONEXPO INDIA 2018’.
Constituents of the Indian building and construction industry should take
advantage of this event.

Before I sign off, I would like to once again assure you all that BAI will continuously
follow-up on the various efforts it has undertaken and I am sure BAI will achieve
success.

A. Puhazhendi

Builders' Association of India

(All India Association of Engineering Construction Contractors and Builders)

&

Journal for the Indian Architecture, Building and
Construction Industry

wishes all
Members, Readers, Authors, Advertisers and

Well Wishers
a

Very Happy and Prosperous Diwali and New Year

www.baionline.in

INDIAN CONSTRUCTION 12 November 2018

Construction Equipment in India

Compiled by : BAI Secretariat

It is an accepted fact that civil engineering will be a Construction equipment industry in India is
predominant requisite for infrastructure expected to reach USD 5 billion by FY 20 from USD
development in India. It covers a wide field from 3 billion in FY 16, in value terms. While, volume sale
designing and construction of heavy structures to of construction equipment is expected to grow to
soil and rock mechanics, surveying, material science 96,730 units by 2018 from 76,000 units in FY 16. This
and environmental science. Civil engineering alone is due to rising infrastructure investments. The NITI
cannot carry out this responsibility. It would need Aayog estimates total infrastructure spending to be
to partner with technology which means better about 9% of GDP by 2017, up from 7.2% during the
construction equipment, better construction material 11th Five year plan (2007-12). Increasing private
and more advanced heavy equipment. With better sector involvement, in which they are emerging as a
technological equipment cost and lead time will be key player across various infrastructure segments,
brought down thus making the whole construction ranging from roads & communications to power and
process efficient and optimized. Construction airports is also a factor for increase in demand for
equipment market is under intense research and construction equipment. The growth in real estate
development with many major players in the market sector, wherein the real estate market is estimated
trying to reform the industry. to grow to USD 180 billion by 2020 from USD 126
billion in 2015, driven by demand mainly from
Robust Demand residential sector is another factor. Construction
equipment forms around 7% to 8% of GDP and is
• Significant allocation for the infrastructure expected to give employment to more than 3.0
sector in the 12th Five - Year Plan and million people in the country by 2020. It also accounts
investment requirement of 1 trillion USD is for more than 60% in total infrastructural investment.
expected to create huge demand for
construction equipment. Major segments of the Indian construction
equipment industry are : earth-moving equipment,
• Revenue from construction equipments is road building equipment, material handling &
expected to grow at a CAGR of 2.34% during cranes and concrete equipment.
FY07-FY20 & reach to USD5 billion by FY20
Earth-moving equipments : Earth – moving
In India construction equipment sector took off in a equipments is the largest segment of the construction
phased manner. Before 1960 domestic necessity for equipment sector in India; these equipments
construction equipment were entirely met by primarily find use in mining & construction.
imports. In 1964, Bharat Earthmovers Ltd, a public Equipments include backhoe leaders, excavators,
sector company, began domestic production of wheeled loaders, dumpers/tippers, skid steer
construction equipment in India and began loaders.
manufacturing dozers, dumpers, scrapers, etc, for
defence requirements. 1969 onwards private sector Material handling and cranes : Material handling
started emerging, led by Hindustan Motors Earth equipments have 4 categories: storage & handling
Moving Equipment Division in technical equipments, engineered systems, industrial trucks
collaboration with Terex, UK followed by L&T, & bulk material handling.There are 50 units in the
Telcon & Escorts JCB. From 2000 most of the organised sector for the manufacture of material
technology leaders like Case, Caterpillar, Hitachi,
Ingersoll-Rand, JCB, John Deere, Joy Mining Competitive Advantages
equipment, Komatsu, Lieberr, Poclain, Terex, Volvo
are present in India as joint venture companies, or • Increasing impetus to develop infrastructure in
have set up their own manufacturing facilities (or the country is attracting the major global
marketing companies). Several Indian firms entered players.
into tie-ups for equipment rental and leasing
business, e.g., tie-up between SREI Infrastructure & • There has been cumulative FDI inflow of
BNP Paribas. USD24.28 billion in earth - moving machinery
between April 2000 & December 2016.

INDIAN CONSTRUCTION 13 November 2018

Attractive Opportunities crawlers are estimated to reach 70% of the total
construction equipment; crawler excavators is
• Equipment rental & leasing business in India anticipated to grow from 23% in 2015 to 35% in 2016.
is small relative to developed markets & has a Crawler excavators is expected to be the fastest
strong growth potential. growing segment by 2018, mainly on demand for
mid –sized crawlers (20T) from the construction
• The after-sales revenue component in India is segment & their versatile usage. Backhoe loaders &
currently low & can be increased considerably. crawlers excavators are expected to account for over
68. 23% of total sales by 2018. Others consist of
• Construction projects worth USD 19.12 million, Asphalt Finishers, Crawler Dozers, Mini Excavators,
won by Larsen & Toubro in January 2017, will Rigid Dump Trucks, etc.
help in creating construction jobs.
One of the notable trends in the Indian construction
handling equipments and many units in the small – equipment industry is of increasing imports from
scale sector as well. China. Chinese equipment manufacturers have a
strong presence in some segments such as wheel
Concrete Equipments : Concrete equipments are
used to mix & transport concrete. They include
equipments such as concrete pumps, aggregate
crushers, transit mixers, asphalt pavers, batching
plants.

Road building equipments : Road building
equipments are used in the various stages of road
construction. Widely used ones are excavators,
diggers, loaders, scrapers, bulldozers etc.

Indian construction equipment revenues is on an loaders, dozers, due to which imports from China
uptrend By FY 20, construction equipment increased in FY 16. Chinese equipment tend to be
industry’s revenue is estimated to reach to USD price competitive, thereby putting downward
5 billion. In FY 16, India construction equipment pressure on prices of domestic equipment
industry grew at a Y-o-Y of around 3.45% over manufacturers. Other notable trends are :
the previous year.
9 Rapidly growing excavator segment, wherein
Construction equipment sale is on an uptrend. With share of crawler excavators is estimated to
infrastructure investment set to go up, demand for increase to 35% in 2016 from the 23% in 2015,
construction equipment will rise further. Sale of mainly on demand for mid – sized crawlers (20
construction equipment in India is estimated to grow tonnes) from the construction segment
at a CAGR of 6.18%, in volume terms & reach to
96,700 units by FY 18 from 50,000 in FY07. With sale 9 As a part of Make in India Initiative, Kobelco
of 76,000 units construction equipments, the industry Construction Equipment India Pvt. Ltd.
has witnessed growth at a AGR of 4.76% during introduced Made-in-India Excavator model (SK
FY07-16. With sales of 21,869 units of construction 140 HDLC) in 2015, suitable for common
equipment, during January 2016 to May 2016, the applications related to construction sector. The
industry recorded increase in sales at a rate of 47.6%, product ensures best of machine productivity
over the same period during the previous year. & return on investments

Earth-moving equipment is the largest segment 9 In March 2017, Volvo Construction Equipment
based on revenues. By 2016, backhoe loaders & completed the 1st edition of Operator’s
Championship. The event lays great emphasis
Policy Supports

• The material handling equipment industry is
de-licensed & 100% FDI is allowed under direct
route.

• ‘Make in India’ pitch to boost investments.

INDIAN CONSTRUCTION 14 November 2018

changing Indian construction industry.

Impeccable provision of after – sales services is
also being assured by construction equipment
manufacturers. Most equipment’s manufactured
in India undergo considerable wear and tear; thus,
maintenance of machinery becomes necessary
after a period of time. Companies are looking
forward to increase their backup of trained
technical professionals to cater to maintenance
demand in addition to focussing on human
resource development, to create a motivated sales
and service force. For instance, Providing on-site
training and spare stock of consumables to
customers.

on training & improvement in skills among Construction equipment manufacturers are
construction equipment drivers & operators, for stepping up their R&D spending to manufacture
ensuring better productivity & efficiency. equipment without foreign assistance. Other aspects
include quality control, enhancing power – to – load
9 In April 2017, Kobelco, a Japan – based ratio, reducing operating costs and use of better
construction equipment producer, launched materials. Britain’s University of Warwick has been
new excavators in the 20 – 24 tonnes segment working with partners JCB & Pektron PLC for
in India. developing a technology that would ensure
improved engine operation thereby, optimising the
9 Several Indian firms are entering into tie-ups fuel economy of vehicles.
for equipment rental & leasing business, e.g.,
tie-up between SREI Infrastructure and BNP Acquisitions in the construction equipment
Paribas. This is expected to drive sales of manufacturing is also on the increase. In April 2017,
equipments in future. Manitou Group finalised the acquisition of Terex
Equipment Pvt. Ltd. (TEPL), a company based in
9 With easy availability of financial schemes and Greater Noida. It will help Manitou Group to handle
increasing use of construction equipment, the as well as expand in the Indian market. To foray into
scope of construction equipment rental industry the construction equipment business, Indian hoses
is growing in India. manufacturer Polyhose Group acquired the
construction equipment manufacturing facility of the
9 There is demand for equipment’s for niche Ashok Leyland – John Deere JV in June 2017. The
applications. The manufacturers have also group will invest US$ 15-18 million in the new
started giving end to end solutions to cater to business.
this demand.
Investments in infrastructure driving the
One of the strategies adopted by Indian construction equipment sector’s growth. India has
manufacturers is, technical tie-up with foreign the world’s 2nd Largest road network – spanning
partners. In order to move up the value chain and 4.7 million kms. The Government intends to increase
become a one-stop shop, companies form JVs with the paved road to total road ratio & build more
international players for technology transfer. In national highways. China has submitted a 5 year
February 2016, Russia’s Uralmash, decided to form trade & cooperation plan to India offering its
a joint venture with India’s SRB International to willingness to finance 30% of government’s USD 1
manufacture heavy equipments in the country, with trillion investment target. Japan has also pledged
50:50 partnership. BEML had a technical tie-up with USD 35 billion investment over the next 5 years.
Vosta to enter into dredging. Japanese construction equipment manufacturer,
Kobelco Construction Machinery Co.’s Indian
Modernising products suiting changing customer subsidiary to double its annual production capacity
trends is also being done by the construction at Sri City – based facility in Andhra Pradesh from
equipment manufacturers. Companies today
emphasise on mechanisation to suit the needs of

INDIAN CONSTRUCTION 15 November 2018

Rising income levels leading to higher
demand for luxury projects. Growing demand
for affordable housing to meet the demand
from lower income groups. Commercial real
estate demand driven by growth in IT/ITeS
sector and organised retail. Real estate market
is expected to grow at a CAGR of 17.2% over
2011-15 to USD 126 billion. India’s real estate
market is anticipated to reach USD 180 billion
by 2020. Increasingly construction is becoming
more oriented toward mechanisation to
reduce project time & control costs – leading
to higher demand for advanced construction
equipment. The government is coming up
with single window clearance facility to
accord speedy approval for construction of
buildings.

1, 200 units per year to 2,500 units per year. The strong demand prospects for construction
equipment in India is attracting global players.
Growing Public-Private-Partnerships (PPPs) in Fundamentals for the sector are set to remain
infrastructure development is also driving up strong on the back of increasing infrastructure
the construction equipment market. India is 2nd investments. Almost all global technology
only to China in terms of the number of Public leaders in the construction equipment sector
Private Partnership (PPP) projects. The Ministry have a presence in India – either as joint
of Roads, Transport & Highways of India has ventures or with their own manufacturing or
plans for constructing 6-lane roads worth marketing companies. Cumulative FDI inflow (since
USD5bn to develop the Golden Quadrilateral. April 2000) into market for earth – moving
Golden Quadrilateral has 4 sections – Section I
is a 1,454 km stretch of National Highway
2(NH2) from Delhi to Kolkata, Section II is a
1,684 km stretch from Kolkata to Chennai,
Section III is a 1,290 km stretch from Chennai
to Mumbai & Section IV is a 1,419 km stretch
between Mumbai & Chennai. Indian
government has planned to build 100 smart
cities. The government has allocated USD 8.29
billion for this project.

Growing housing and construction market has
added to demand for construction equipment.
The burgeoning real estate industry in India
gives a fillip to the demand for concrete and
building construction equipment. The
residential real estate demand is driven by
rising population and growing urbanisation.

INDIAN CONSTRUCTION 16 November 2018

equipment increased to US$ 389.39 million till March the project. Department of Heavy Industries
2017. Joint ventures with global majors have launched Technology Acquisition Fund
provided domestic companies access to advanced Programme (TAFP). The programme will let
technology & a whole gamut of project management heavy industrial enterprises to acquire and
experience. GMR Infrastructure Ltd. has signed develop new and innovative technologies for
MoUs worth USD 1.04 billion with companies manufacturing heavy vehicles to compete
interested in setting up of manufacturing units in with international markets.
Kakinada SEZ in Andhra Pradesh.
Government of India’s focus on
Favourable policies by Government of India are infrastructure development is the biggest
supporting growth of construction equipment sector. driver for the construction equipment
The material handling equipment industry is de- industry. Encouragement of Infrastructure
licensed & Foreign Direct Investment (FDI) of up to Debt Funds (IDFs) by Government of India,
100% under the automatic route as well as which set up the India Infrastructure Finance
technology collaboration was allowed freely. Company (IIFCL) to provide long –term
Government announced its plans of framing a funding for infrastructure projects. Interest
Construction Equipment manufacturing (CEM) payments on borrowings for infrastructure
legislation to introduce a separate regulatory are subject to lower withholding tax rate of
framework & Act for off – highway equipment, 5%, down from a tax rate of 20%. IDF’s
which is similar to the Central Motor Vehicle Rule. income is exempt from tax. Government
The act aims to discourage the use of spurious parts cleared model tripartite pact for infra debt
in construction equipment. The government has funds in ports. Infrastructure Finance
granted sops, including a large number of SEZs, to companies like India Infrastructure Finance
the capital goods industry of which construction Corporation (IIFCL), National Highways Authority
equipment is a part; especially with an impetus to of India (NHAI), Housing & Urban Development
increase exports. The government has removed tariff Corp (Hudco), Power Finance Corporation (PFC) &
protection on capital goods. Custom duties on a Indian Railway Finance Corporation (IRFC) are
range of goods that are used in the manufacturing allowed to issue tax – free bonds.
process have also been lowered. Custom duty
exemption from MAT under 80IA for Infrastructure The renting and leasing of construction equipment
projects was announced. This exemption will help business in India is smaller compared to Japan, USA
in reducing the cash outflow in the initial years of & China and this can be tapped by the Indian
construction equipment manufacturers. Demand for
rental equipment is set to witness strong growth in
the medium term due to large investments in
infrastructure. New players can also explore
opportunities in the equipment finance business.
Higher rate of urbanisation would further push
growth in this sector. It is a way to solve the liquidity
crunch and boost infrastructure.

After-sales services is also an good market for Indian
construction equipment manufacturers. Revenues
from after-sales service in India are 2–8%, lower than
the global average of 12–20%. After-sales market is
set to expand to USD0.5 billion by 2015; players can
offer maintenance contracts with improved pricing
& execution. While these services contribute only
modestly to revenues, they are counter-cyclical & can
also boost spare part sales. Increasing demand for
customised products brings in the opportunity to
develop after sale services like on-site training &
assistance

INDIAN CONSTRUCTION 17 November 2018

Export opportunities for Indian construction components. Opportunities in engineering and
equipment manufacturers is very bright. Export design off shoring and equipment exports may arise
opportunities are abound–both in developed & in the future. Most of the Indian OEMs are cost
emerging economies. Components and aggregates competitive & therefore have a great opportunity in
export is a US $ 1 billion opportunity; local suppliers emerging markets of Asia & Africa.
can gain a decent share of this by exporting
engineering-intensive & basic material based Source : Multiple sources from the internet

On the Rise

Demand for construction equipment from infrastructure sectors

India has announced significant investments for the Demand from transport infrastructure: Roads,
development of its infrastructure sectors in the years railways, aviation and ports
to come. This includes ambitious programmes and
projects such as Bharatmala (under which 35,000 km Transport infrastructure forms the backbone of the
of roads are to be developed at a total cost of Rs 5.35 economy and the government has embarked on a
trillion), the Sagarmala programme (under which 415 journey to accelerate the development of the
projects are to be undertaken to develop ports at an country’s transport infrastructure – roads, railways,
estimated cost of Rs 8 trillion), opening up of the airports and ports. As per government statistics,
coal mining sector to commercial mining from 2018, national highways constitute about 5% of the total
housing development under the Pradhan Mantri road network, but carry about 40% of the total traffic
Awas Yojana, and urban development programmes transported on Indian roads. As per India
such as the Smart Cities Mission. Infrastructure Research, there are a total of 1,236 road
projects under various stages of development. These
These large-scale infrastructure projects entail comprise 798 announced projects, 356 under-
significant construction activities, thus providing a construction projects, 33 projects which are at the
massive opportunity for construction equipment bidding stage and 49 awarded projects. In all, these
players. The sale of construction equipment is projects are expected to add a total of 106,567 km of
therefore expected to rise at a compound annual roads at a total cost of Rs 12,953 billion.
growth rate (CAGR) of 10.26% from 48,883 units in
2015 to 79,645 units in 2020 as per Off-Highway The government has also announced significant
Research estimates. investments for developing port infrastructure in the
country. Under the Sagarmala programme, the
Segment-wise demand trends for construction government aims to develop and modernise the
equipment country’s ports at an estimated cost of Rs 8 trillion.
As per India Infrastructure Research, there are 311
The major demand for construction equipment is port projects under various stages of development.
expected to come from four broad categories of These comprise 127 announced projects, 98 under-
infrastructure segments – transport infrastructure construction projects, 54 projects which are at the
(roads, railways, aviation and ports); the mining bidding stage, 24 awarded projects and eight
sector; the housing and real estate market; and other approved projects. These projects are expected to add
infrastructure segments such as those under the a capacity of 953 million tonnes per annum at a total
Smart Cities Mission and other public works cost of Rs 2,524 billion.
programmes.
Further, there are 95 airport projects under various
As per revised estimates from NITI Aayog, the stages of development. These comprise 63
investment in infrastructure development during the announced projects, 24 under-construction projects,
2012-17 five-year plan is expected to be Rs 38,228 two projects which are at the bidding stage, five
billion. This is 1.6 times the investment of Rs 23,777 awarded projects and one project for which
billion made during the previous five-year plan expression of interest has been received. These
(2007-12) at current prices. For the next two financial projects are expected to be completed at a total cost
years – 2018-19 and 2019-20 – NITI Aayog expects of Rs 1,367 billion.
the total expenditure on infrastructure to be Rs 24,353
billion and Rs 27,936 billion respectively.

INDIAN CONSTRUCTION 18 November 2018

and real estate market is

poised for significant

growth. As per India

Infrastructure Research,

there are over 365

upcoming private

housing projects which

are to be undertaken over

the medium term. This is

expected to attract an

investment of Rs 2.5

trillion-Rs 3 trillion, of

which about Rs 1.8 trillion

is expected to come from

the public sector and Rs

800 billion from the

private sector.

Demand from other
infrastructure sub-
segments

Demand from the mining sector India has announced
significant projects for
India is the third largest producer of coal in the world public works and local infrastructure development.
and produced 554.1 million tonnes (mt) of coal in This includes those under urban schemes such as
2016-17. The government has now decided to allow the Atal Mission for Rejuvenation and Urban
commercial coal mining and has shortlisted 10 mines Transformation, the Smart Cities Mission and urban
to be put up for bidding in the first round of transport development. For the rural sector, the
commercial coal mining auctions. India is also the National Rural Drinking Water Programme and
fourth largest producer of iron ore as per 2014-15 Swachh Bharat Mission (Gramin) have been
numbers. The country produced about 192 mt of iron announced.
ore in 2016-17, an increase of 23.8% from 2015-16.
As per India Infrastructure Research, there are about
The government has now allowed 100% foreign 270 water supply and sanitation projects under
direct investment (FDI) in the mining sector and various stages of development. These are expected
hopes to attract significant investments. Companies to add over 17,425 million litres per day water supply
such as Vedanta and KIOCL Limited are already and sewerage treatment capacity, spanning a
planning to invest $9 billion and Rs 1.5 billion, pipeline network of 8,804 km. This also includes solid
respectively, in the sector. As per India Infrastructure waste management projects with a waste handling
Research, there are about 173 key mining projects capacity of 19,174.75 tonnes per day. These public
under various stages of development which are works programmes are likely to create a substantial
expected to add a total capacity of 928.41 mt at a demand for construction equipment.
total investment of at least Rs 1.22 trillion. This is
expected to create significant demand for Equipment-wise projected sales of construction
construction equipment from the mining sector. equipment

Demand from the housing and real estate market The size of the Indian construction equipment
market was estimated to be Rs 448 billion in 2016.
Under the Pradhan Mantri Awas Yojana – Housing Broadly, the equipment market consists of five
for All, funds worth Rs 40 billion were provided in categories – earthmoving equipment (comprising
Union Budget 2015-16. Going forward, the housing 56% of the market on a revenue basis in 2014),
concrete equipment (19%), material handling
equipment (13%), road construction equipment (9%),

INDIAN CONSTRUCTION 19 November 2018

and material processing equipment (3%). 2022 is expected to reach over 98,000 units.

The period 2012-14 was marked by a declining trend Conclusion
in the sale of construction equipment in the country.
According to Off-Highway Research, the market With a plethora of investments announced in the
declined by 8% in 2012, 16% in 2013 and 14% in 2014 infrastructure sector, the demand for construction
reaching a low of 47,889 units. However, the equipment seems poised for growth and the outlook
declining trend reversed and the market grew by 2% for equipment manufacturers and providers looks
to 48,883 units in 2015. The sale of construction optimistic. Equipment manufacturers need to
equipment was estimated to have increased by 27% streamline their products, integrate new technologies
to 62,065 units in 2016. This recovery is expected to in their offerings, and upskill their after-sales service
have been driven by increased demand from the road and maintenance teams. They can also leverage in-
sector, which created higher sales for equipment house knowledge sharing and hands-on training of
such as backhoe loaders, crawler excavators, motor their high-end equipment so as to bring in higher
graders and mobile compressors. As per the levels of productivity and efficiency in their services.
estimated CAGR (between 2015 and 2020) for key
construction equipment types, the projected sale in Source :- Indian Infrastructure, January 2018

Sound Option

Leasing route to procure construction equipment

The Indian construction equipment rental and leasing bring down the firm’s taxable income.
market is currently sized at about $2 billion with
around 20% of the total construction equipment in Alternatively, the developer can rent or lease the
the country available for hiring annually. At present, equipment. When the equipment is used for a few
renting or leasing of equipment takes place mostly days in a year, a developer might opt for the rental
through brokers on a local basis and the unorganised route. Renting offers the most economical, flexible
segment caters to nearly 70% of the rental and used and risk-free way of trying equipment. However, if
equipment volumes. the developer wants to use the equipment for a longer
period of one-five years, he could prefer leasing the
Globally, renting and leasing of construction equipment. Leasing offers a usage arrangement
equipment is a well-established business. Countries rather than ownership and does not require any
such as the US and China have high penetration of upfront cash payment. The advantage of leasing is
equipment leasing at about 65% and 35% that companies can write off each lease payment as
respectively. Comparatively, India’s rental market is an expense and bring down their tax liability. Also,
immature and has a market penetration of 7-8% only. some lessors pass on the depreciation benefit to the
However, this scenario could change going forward, lessee in the form of a lower lease payment, thus
with the growing demand for construction reducing costs for the lessee.
equipment, and developers trying to increase their
fleet size and access new technologies while Under hire purchase, a developer can purchase the
maintaining lower costs. equipment with a certain portion of the payment as
a down payment, and the remaining paid as regular
Sourcing options: Buying versus leasing fixed payments spread over a given time frame.
Under finance lease, fixed rental payments are made
There are essentially four sourcing options that an over the course of the finance lease contract. At the
infrastructure developer has while procuring end of the agreement, there is an option to extend
construction equipment. These are buying, renting, the lease period or return the equipment.
leasing & others (such as hire purchase and finance lease).
Advantages of leasing
An infrastructure developer can buy construction
equipment directly if he forecasts suitable Leasing offers several advantages over other sourcing
requirement for the equipment. The advantage that methods. First, leasing does not require the procurer
buying offers is that the buyer gets immediate to make any upfront capital investments. This allows
ownership of the equipment and can claim the developer to enter a project at a lower capital cost.
depreciation and interest against the equipment and It also eliminates the storage and maintenance costs

INDIAN CONSTRUCTION 20 November 2018

related to the equipment. In the case of a breakdown, equipment manufacturers, the used equipment and
a lessor is responsible for getting the equipment secondary sales market is also underdeveloped. Thus,
repaired. ownership still remains the preferred option for
Indian developers.
Third, it eliminates the possibility of equipment
becoming obsolete and outdated for the procurer. However, the leasing market is now evolving with
This shields him from market fluctuations. Finally, the entry of major players such as Srei Infrastructure
leasing leads to higher efficiency gains for the Finance Limited through its online construction
procurer who can enjoy the benefits of depreciation equipment leasing platform – iQuippo. The other
and claim lease payments as an expense before tax, major players in the equipment leasing market are
even without owning the equipment. In addition, the Gmmco Limited, Gemini Equipment and Rentals
procurer also gets the freedom to try out various Private Limited, Sanghvi Movers Limited and
types of equipment before he decides to purchase a Tractors India Private Limited.
particular one.
Introduction of online renting platforms: iQuippo
Construction equipment financing market case study

Procuring construction equipment requires iQuippo is India’s first online marketplace for leased
significant capital outflow and financing remains a and rented construction equipment. The platform
good way for procurers to purchase equipment. was launched by Srei Infrastructure Finance Limited
Financing accounts for about 80% of the total in October 2016. It allows construction equipment
domestic equipment purchase and about 90% of the owners to list their assets/ services, negotiate with
total imported equipment purchase. The Indian buyers, finalise terms of the deal, generate digital
construction equipment finance industry is expected contracts/invoices, and receive real-time payments.
to have grown from about Rs 230 billion in 2011 to iQuippo also offers a proprietary asset certification
about Rs 460 billion in 2014 and Rs 620 billion in 2016, programme called iQuippo Certified under which it
a compound annual growth rate of 22%. Banks offers buyers a detailed analysis of the listed
mainly cater to the needs of large players while non- equipment. The platform offers total solutions
banking financial companies cater to all levels of the including listing of new and used equipment,
market including small- and medium-sized players. information on equipment auctions, equipment
finance and equipment valuation. It also offers
Besides financing, there are three types of lease which ancillary services such as equipment shipping,
are offered. Under the fair market value lease, the equipment insurance and manpower solutions. This
procurer can either return the equipment, renew the is expected to offer a timely, transparent and cost-
lease or purchase the equipment at its fair market effective method for trading in construction
value at the end of the lease period. Under a dollar equipment.
buyout lease, a lessee can purchase the equipment at
the end of the lease term for $1. This is very effective Conclusion
for entities that wish to retain the asset after the lease
term, but has the disadvantage of a higher monthly The equipment rental and leasing market forms a
lease price. Under a wrap lease, a developer who small share of the construction equipment industry
requires new equipment on a regular basis can in India. This can be attributed to a number of
consolidate its remaining payments and roll them reasons, such as the lack of regulations, a dearth of
over to a new lease with the additional equipment organised players in the market, and inhibiting tender
that it procures. prerequisites which sometimes require the contractor
to demonstrate equipment ownership. However, this
Major players in equipment leasing scenario seems to be changing with increasing
demand for construction equipment being witnessed,
The construction equipment leasing market in India and developers trying to increase their fleet size and
is highly unregulated. There are only a limited technologies at lower costs. This is also being
number of organised players who have significant facilitated by the introduction of online platforms
rental fleets. These players face high pricing such as iQuippo.
competition from unorganised players, who offer off-
the-book cash transactions and thus much lower There is also a need for several changes such as
rates. In the absence of established trading platforms enabling the easier availability of financing for
and a lack of buyback schemes from original smaller players, improving the regulatory and
taxation scenario to facilitate growth of organised

INDIAN CONSTRUCTION 21 November 2018

players, and reframing tender requirements to tap into the larger latent demand from fringe players
prevent making equipment ownership mandatory. who are unable to participate.
These steps will certainly help in increasing the
penetration of the equipment rental market and help Source:- Indian Infrastructure, January 2018

Advantages of Using Construction Equipment with Latest Technology

Technological advancement is the need of every 6. smoothly in less time.
sector and this holds true for the Construction
Equipment (CE) sector as well. While in the past Ensures environmental friendliness: Generally
decade, lot of technological advancements have CE equipped with latest technology are
taken place in the CE segment in the country, yet environment friendly and highly fuel efficient.
there is a long way to go. Thus, they help in reducing CO2 considerably
and help companies put their greener foot
Need for technological advanced CE forward.

Globally, India has become one of the key potential 7. Reduces maintenance cost: Last but not the
markets for Construction Equipment (CE). Further, least, CE equipped with latest technologies
it is estimated that by 2025, India’s construction require less maintenance. They are designed in
market will emerge as the third largest in the world, such a way that they can work for long without
which would exhibit huge demand for CE equipped major wear and tear.
with latest technology, owing to the advantages
offered by them. In a nutshell

Let’s take a look at the various advantages offered In future, demand for CE is likely to rise as a result
by technological advanced CE: of growth in traditional end-user industries,
including construction and mining. If numbers are
1. Timely completion of projects: Usually we see any truth, then the segment in India is expected to
construction projects witnessing delays in grow by a healthy 20-25 per cent over the next few
execution. The main reason behind project years to reach 330,000 to 450,000 units sold in 2020,
delays is usage of less advanced machines. from current levels of about 76,000 units. This would
Hence, works in construction field can get imply a US$16 billion-$21 billion market, up from
smoother and faster with the help of equipment today’s $3 billion.
fitted with cutting-edge technologies, which can
ensure project completion in given deadline. However, if such numbers are to be maintained and
expectations are to be lived up to, what is needed is
2. Enhances brand value: If projects are completed adoption of latest technology by the CE companies
on time using highly advanced equipment, the in India. Experts believe that in future, increased
brand value of business increases in the market, flexibility and advanced technology of CE will write
which in turn can help in getting new clientele. down their future.

3. Improves quality of work: Employing CE with What more? Productivity and uptime are crucial

latest technology also allows contractors to drivers in the CE industry, where machine downtime

complete work with minimal quality defects. can cost more than $1 million per day. Hence, what

will define a bright future of CE segment is the
4. Cost savings and profitability- Increased adoption of newer intelligent features and increased

productivity and the reliability of the advanced sophistication by the CE manufacturers.
CE also translates into higher profitability from

fewer defect-related claims and the avoidance Realising this importance of technological

of delay penalties. upgradation and innovation, construction

equipment companies in India are increasingly
5. Performs multiple tasks: An old equipment may taking action and the results are fast and efficient

not be capable of doing all the work but machine equipment.
embedded with advanced technology can do

similar work and may be few other tasks as well Source: http://mahindraconstructionequipment.com/blog

INDIAN CONSTRUCTION 22 November 2018

Barriers to Mechanisation and Automation in
Indian Construction Industry

Ashna Sadique* and Gangadhar Mahesh**

The construction industry is a labour intensive industry. The industry also demands high productivity quality and
safety. However, recent studies have shown that productivity of labour is decreasing due to various reasons. Also
the quality of work and safety is given more importance. Therefore mechanization and automation has become an
important factor in construction industry to improve productivity, safety and quality. A developing country like
India is still facing some barriers for implementation of these technologies. Therefore finding out the factors that

acts as barriers is important. This paper identifies barriers to mechanization and automation in Indian
construction industry through a qualitative study.

Introduction different processes like earthwork, concreting,
placement of steel works, etc. Traditionally, these
Over the past few decades, construction industry works were considered as labour intensive and some
demands high productivity. Along with productivity of them used to take place at dangerous situations.
it also gives importance to safety and quality. Along with this, problems like instability in labour
Improvement of these factors in other industries, force supply and increase in labour charges started
especially manufacturing, have attained a new pace to pop up in construction industries. These factors
regarding effective implementation of new leads to the thought of undergoing the construction
technologies. The introduction of new technologies process in much stable and effective way by
in construction industry to fully mechanize or introducing mechanical and fully automated
automate the building processes is limited, especially equipments.
for on-site activities. The construction industry
remains as labour oriented and labour intensive Until the 20th century, mechanization in construction
industry with minimal mechanization and industry was meant to be moving earth with the
automation of tasks. hand shovel. The introduction of earth moving
machines by Benjamin Holt marked the real labour
The scope for mechanization and automation saving method in construction industry. Now
implementation in construction industry can be fairly mechanization equipments are classified into four
broad. This would encompass the use of depending on its application. It includes
mechanization in all sorts of onsite activities. It also earthmoving equipments that can be used for
includes the use of automation technologies in all compaction, clearance of site, etc.; construction
stages of construction from design process through vehicles like dumpers, trailers that can be used
the use of Computer Aided Design, scheduling, loading and unloading; material handling
estimating and project management through various equipments for moving materials which earlier was
softwares to use of fully automated machines for on- labour intensive work and finally construction
site activities. The major benefit of mechanization equipments that can be used to do risky and
and automation is that it helps to increase the dangerous construction works like tunnel boring. As
productivity, at the same time can provide solid the technologies improved the machine started
quality with higher accuracy than that provided by rendering the whole process and this lead to
a skilled labour, occupational safety enhancement, automation.
better safety for dangerous works, the discharge of
workers from uncomfortable zones, etc. (Elattar, According to the range of application of automation
2008). in construction sites the International Association of
Automation and Robotics in Construction (IAARC)
Mechanization and Automation in On-Site categorize robots and automation into three
Construction Works categories: enhancement to existing plant and
equipment; task-specific, dedicated robots and
The construction process of a building includes

*Post Graduate Student, Department of Civil Engineering, N.I.T Surathkal, Manglore, India, [email protected]
** Assistant Professor, Department of Civil Engineering, N.I.T Surathkal, Mangalore, India

INDIAN CONSTRUCTION 23 November 2018

relatively few intelligent machines. Enhancement to concern.
existing plants and equipments is done through
attachment of sensors and navigational aids which Barriers
would help to improve the performance of
traditional equipments and plants. Task-specific or The barriers to construction mechanization and
dedicated robots can be categorized as robots for automation for on-site construction are major when
structural works, finishing works, inspection and comparing to other phases. The use of softwares for
maintenance. These robots are made to perform a designing planning etc has become very common
specific task and adaptation to other task is generally andreadily available when compared to technologies
not possible. The least developed technology in this used for on-site activities.
category is the cognitive machines. Theoretically,
these machines would be hybrid forms of robot that From the literature reviews made, many barriers
are able to solve lot of task specific problems in were identified and some of the major ones are as
construction site. For the better adaptation of these follows:
technologies the construction industry must become
more structured and controlled. Implementation of High Cost in Purchasing and Implementing: The
these technologies can result in producing buildings purchase and implementation of the techniques is
more efficiently with regard to cost, time and quality. costly that the firms with a pretty good turnover and
market competition can only afford these
Background to Research technologies.

When there are no natural resources to exploit we Expensive for Updating: As it is expensive to
are forced to use sophisticated technologies. Studies implement,it is also expensive to update and
strongly suggest that the productivity in construction maintain these technologies especially for on-site
industry is declining in recent decade worldwide (see works as the ground is unpredictable.
Figure 1). Moreover, inappropriate working
conditions, cost overruns, poor management Multiphase Characteristic of Construction Process:
strategies, etc., shows that the conventional Every construction process is unique in character.
construction technologies have reached the possible Thus same technologies cannot be used all the time.
limit. Thus implementation of mechanization and
automation has now become a need to the Limited Resources Available to Medium and Small
construction industry. Sized Firms: Larger companies have enough
investments to inculcate new technologies when
The importance of construction mechanization and compared to small and medium firms. They also lack
automation has rapidly grown in developed skilled labours to handle the new technologies.
countries. Since the introduction of term
‘construction automation’ more than 550 systems of Locally Unavailable: These technologies would suit
automation has been developed in Japan (Thomas the repetitive works like prefabricated works, precast
Bock, 2015). Even though it’s less when compared
to developments in Japan a lot of researches were
done in North America too. But while considering
the developing countries the impact was very less.
Thus this paper is concentrated in finding the causes
that dulls the growth of construction industries in
India through mechanization and automation.

The implementation of mechanization and
automation not only increases the productivity and
quality it also has a lot more advantages. Some of
the advantages include improved safety for workers
and public, uniform quality for the products, less
dependency on direct labour, etc. Thus technologies
play an efficient role in construction industry and
finding out the barriers and removing them is a major

INDIAN CONSTRUCTION 24 November 2018

components but these application has certain limits whether the responders are using mechanization and
as it I not available everywhere. automation.

Technology not Easily Accepted by Worker Union: The responses on the question (Figure 2) related to
As usual as the employment rate decrease there are the use of mechanization at first sight we can
chances of protests from the labour unions and these conclude that most of the firms use mechanization
also acts as one of the facts. regularly (33.33%) in their construction works. In
case of automation it is seen that most of the firms
Methodology and Findings uses automation techniques sometimes (66.67%) only
in the whole onsite processes.
In order to find the significance of the barriers that
was identified through the literature review an The second bar chart (Figure 3) represents the types
analysis was done through survey. It was of work for which firm uses mechanization and
accomplished through questionnaire survey so that automation. The graph clearly shows that
the information is obtained from a sample group. mechanization in used for almost all kind of works
Then the responses were analyzed and brought into by every firm while automation is mainly used for
a conclusion. concreting works by various firms.

The first four questions in the survey included The following barriers for the mechanization and
whether the company is using mechanization for on- automation (Table 1) were made to rate by
site activities, automation for on-site activities, in responders on a five scale basis which included
which area of construction in order to understand insignificant, minor, moderate, major and significant.
The responders were also given chance to offer their
own view point rather than from the given options.
The results show that the most significant (66.67%)
problem that acts as the barrier is the unacceptability
of technologies by labour unions. The multiphase
characteristic of the construction project and local
unavailability of techniques acts as major (25%)
barriers.

INDIAN CONSTRUCTION The high acquiring and maintenance costs also acts
as the one of the main barriers. Also the contractors
are pretty much confident with their repetitive works
and they are not ready to take risks. It was suggested
that the requirements of client is also a major

25 November 2018

deciding factor. If cheap labour force is available then 2. Report, Japan Federation of Construction
they are preferred over mechanization. Contractors, Tokyo.

Conclusion Elattar S M S (2008), “Automation and Robotics
in Construction: Opportunities and Challenges”,
This paper mainly analyzed the barriers to 3. Emirates Journal for Engineering Research, Vol. 13,
mechanization and automation in Indian No. 2, pp. 21-26.
construction industry. The questionnaire developed
has helped to highlight some major barriers Linner T (2013), “Automated and Robotic
regarding the implementation of these technologies. Construction: Integrated Automated Construction
Sites Dr.-Ing”, Dissertation Technische Universität
As regard to the Indian construction industry we can 4. München, Munich.
conclude that the mechanization is taking place in a 5.
much better way when compared to automation. Mahbub R (2012), “Readiness of a Developing
Also in works like excavation and concreting, etc., Nation in Implementing Automation and Robotics
mechanization is used by almost all firms. While Technologies in Construction: A Case Study of
automation technique is used mainly for concreting Malaysia”, Civil Engineering and Architecture, Vol.
and automated robots for finishing and painting 6, No. 7.
works are not even introduced in the industry. The
significant barriers to implementation are presented Siti Syariazulfa Kamaruddin, Mohammad Fadhil
by non acceptance by the labour union. Also the Mohammad, Rohana Mahbub and Khairani Ahmad
multiphase characteristic of the construction project (2015), “Mechanisation and Automation of the IBS
is also a major issue. Construction Approach: A Malaysian Experience”,
Procedia - Social and Behavioral Sciences, Vol. 105,
Finding remedies for these barriers must be also 6. pp. 106-114.
brought into the picture of researches such that these
barriers can be removed. The further researches can Thomas Bock (2015), “The Future of Construction
be done on finding these remedies. Automation: Technological Disruption and the
Upcoming Ubiquity of Robotics”, Automation in
References Construction, Vol. 59, pp. 113-121.

1. Construction Industry Handbook (2012), Source: International Journal of Engineering Research

Construction Industry Handbook 2012 Research and Science & Technology. Vol.3, No.1, April 2016.

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INDIAN CONSTRUCTION 26 November 2018

Small Testing Laboratory

Kaushal Kishore

Designers and builders of construction projects no influence the type of testing required.
longer can consider quality control testing an option Among these factors are size of the
or convenience. In the past decade, testing for the structures, terrain, type of soil and
quality of materials and finished construction has subsurface conditions at the construction site and other
become a necessity that no responsible builder can conditions peculiar to the specific location. The
neglect. expertise of the construction engineers and technical
personnel working on the project will also have an
The truth of this statement is proved not only by influence on the testing and inspection need.
construction delays and cost overruns but also by
catastrophic failures of major structures. Such Testing facilities may range from a simple, inexpensive
catastrophies include dam failures, collapses and test kit carried in a portable chest to a fully equipped
foundation breakdowns in multi-storeyed office and Central Testing Laboratory.
apartment structures; and other failures in stadia,
factories, schools, auditoria, public buildings and A small Field Testing Laboratory, which can perform
bridges. all the required tests can be set up at any construction
site with a small investment of about Rs. 71,300/-. The
Each construction project determines its own equipments of the Laboratory shall be as given below:
individualized testing needs. A variety of factors

Sr. Items Qty Approx. Cost
No. (in Rs.)

1 Hydraulic Compression Testing Mechine, hand operated 100 1 No. 20,000
tonnes capacity. Conform to the requirements of IS: 516-1959, IS :
14858-2000 caliberated to an accuracy of ± 1% indicated load
within range.

2 Cube moulds 150x150x150 mm size conforming to IS : 516-1959, 12 Nos. 5,000
IS : 10086-1982.

3 Slump apparatus conforming to IS: 7320. 1 No. 1,000

4 Test sieve set IS : 460-1972, 30 cm dia frame of size 40mm, 20mm, One set 5,000
12.5mm and 10 mm and 20 cm dia frame of size 4.75mm, 3.35 mm,
2.36mm, 1.18mm, 600 micron, 300 micron, 150 micron, 90 micron
and 75 micron.

5 Bulk density measure 3 and 15 litres capacity as per IS : 2386 One each 2,000
(Part-III)- 1963.

6 Thickness and length gauge as per IS : 2386 (Part-I)- 1963. One each 800

7 15 cm dia aggregate crushing value apparatus as per IS : 2386 1 No. 1,000
(Part-IV)- 1963.

8 Graduated cylinder of glass 100, 250 and 1000 ml capacity. 3 Nos. each 300

9 Balances 1 kg, 5kg and 15 kg capacity. One each 6,000

10 Electric oven, thermostatically controlled upto 2000C, chamber 1 No. 4,000
space about 40x40x40 cm.

11 Concrete Test Hammer (rebound hammer) of impact energy 1 No. 5,000
2.207 N.m (0.225 Kgm) as per IS : 1331 (Part-2)- 1992.

12 Flat edge 10cm dia glass cylinder with glass plate 2000ml capacity. 1 No. 200

13 Miscellaneous items such as mixing trays, rice trays, karni etc. One set 2,000

14 Le-chatelier apparatus as per IS : 4031. 2 Nos. 500

15 Vicat apparatus as per IS : 4031 1 No. 1,000

INDIAN CONSTRUCTION 27 November 2018

Sr. Items Qty Approx. Cost
No. (in Rs.)

16 Vibration machine with 6 moulds as per IS : 4031. 1 No. 10,000

17 Hot Plate 1 No. 2,000

18 Apparatus (HCl heat of solution method) for estimation of 1 No. 500
cement content of fresh concrete.

19 Chemicals for water content determination of fresh concrete For 50 tests 3,000

sodium chloride, nitric acid, nitrobenzene, ferric alum,

silver nitrate, potassium thiocyanate, sodium hydroxide and HCl.

20 Glassware for testing of S.No. 19 One set 2,000
Total Rs. 71,300

With the above equipments, the following testing of b) Determination of density, yield, cement
construction materials can be conducted:- factor and air content as per IS : 1199-1959.
1. TESTING OF COARSE AND FINE
c) Casting of cubes as per IS : 516-1959.
AGGREGATE:
d) Test for cement content of fresh concrete.
a) Sieve analysis as per IS : 2386 (Part-I) - 1963.
e) Test for water/cement ratio and concrete 28
b) Deleterious materials as per IS: 2386 (Part- days compressive strength in 15 minutes of
II) - 1963. any grade of cement, so that any concrete
batch discharged from the mixer found sub-
c) Specific gravity, density, voids and standard should not be allowed for placing.
absorption as per IS: 2386 (Part-III) - 1963.
7. TESTING OF HARDENED CONCRETE:
d) Soundness as per IS: 2386 (Part-V) - 1963.
2. Testing of coarse aggregate: a) Compressive strength as per IS : 516-1959.

a) Aggregate crushing value as per IS: 2386 b) Density.
(Part-IV) - 1963.
c) Non-destructive testing of concrete
b) Elongation and flakiness index as per IS: structures as per IS: 13311 (Part-II)- 1992.
2386 (Part-I) - 1963.
8. TESTING OF CONCRETE ADMIXTURES AS
3. TESTING OF FINE AGGREGATE: PER IS: 2645 AND IS : 9103.

a) Silt content as per IS: 2386 (Part-I) - 1963. a) Workability test.

b) Material finer than 75 micron as per IS: 2386 b) Permeability test by capillary absorption
(Part-I) - 1963. method

c) Organic impurities as per IS: 2386 (Part-II) - c) Setting time
1963.
d) Compressive strength
d) Bulking as per IS: 2386 (Part-III) - 1963.
4. TESTING OF CEMENT AS PER IS: 4031: e) Bleeding.
9. TESTING OF BRICKS:
a) Fineness of cement by dry sieving.
a) Compressive strength as per IS: 3495 (Part-
b) Determination of soundness by Le-chatelier I) - 1976.
method.
b) Water absorption as per IS: 3495 (Part-II) -
c) Determination of consistency and setting 1976.
time.
c) Efflorescence as per IS: 3495 (Part-III) - 1976.
d) Determination of compressive strength. 10. TESTING OF TARFELT AS PER IS: 1322 - 1982.
5. CONCRETE MIX DESIGN
6. TESTING OF FRESH CONCRETE: a) Pliability test

a) Test for workability as per IS : 1199-1959. b) Storage sticking test

c) Heat resistance test

INDIAN CONSTRUCTION 28 November 2018

d) Water absorption test. 14. TESTING OF FLUSH DOOR SHUTTER
11. TESTING OF GLAZED TILES AS PER IS: 777-
a) Knife test as per IS: 1659-1969.
1970.
a) Impact strength test b) Glue adhesion test as per IS: 2202 (Part-I) -
b) Water absorption test 1973
12. TESTING OF MARBLE AS PER IS: 1124-1974
a) Water absorption test c) End Immersion Test.
b) Specific gravity test
13. TESTING OF WOOD AS PER IS: 287-1973 The above laboratory can be set up at any construction
a) Compressive strength site in a small covered area of about 16 sq. meter with
b) Moisture content small investment of only Rs. 71,300/- which can
c) Density perform tests on almost all construction materials
including quality control of fresh concrete, testing of
hardened and non-destructive testing of concrete
structures. However, such laboratory must have well
experienced persons to run it properly. A person may
be trained in 15 days time for conducting all the above
mentioned tests.

REFERENCES: 6. Kishore Kaushal, "Concrete Cube Testing", Bulletin of
7. Indian Concrete Institute, No. 51, Apr-Jun. 1995.
1. Dr. C.B. Kukreja, Kaushal Kishore, Dr. S.K. Kaushik, 8.
V.K. Gupta, "Materials Testing Laboratory Manual", Kishore Kaushal, "Concrete Cube Testing", Civil
Standard Publishers Distributors, 1705-B, Nai Sarak, 9. Engineering & Construction, Apr. 1995, pp. 33.
Delhi-110 006
Kishore Kaushal, "Evaluation of Cracks in Concrete
2. Kishore Kaushal, "Concrete Mix Design Based on IS: 456- Structures", Civil Engineering & Construction May. 96,
2000" Standard Publishers Distributors, 1705-B, Nai pp. 46-51.
Sarak, Delhi-110 006
Kishore Kaushal, "Simple Testing of Admixtures &
3. Kishore Kaushal, "Non-Destructive Testing of Concrete", Surface Coatings for Permeability to Water", NBM &
Builders Friend, Lucknow, Feb. 1982, pp. 3-4 CW Feb. 2000.

4. Kishore Kaushal, "Testing Hadened Concrete by Surface 10. Kishore Kaushal, "28-days Strength of Concrete in 15

Hardness" Indian Concrete Institute Bulletin, Sep. 1987, Minutes", Civil Engineering and Construction, Aug.

pp. 17-22. 1992, pp. 38-41

5. Kishore Kaushal, "Concrete Cube Testing- is Performed 11. Kishore Kaushal, "Testing Concrete For Cement Content,

Assured" Civil Engineering and Construction Review, Water Content and pH Value", Civil Engineering &

New Delhi, Jan. 1990, pp. 23-24. Construction, Apr. 2008, pp. 54-59.

'Indian Construction' has been since long 2. Non-destructive testing of concrete and masonry structures.
carrying articles of Er. Kushal Kishore. With
52 years of experience, Er. Kaushal Kishore 3. Repair, rehabilitation and Water proofing of buildings.
has offered his services for suggesting
solutions to field problems, BAI members may 4. In case of doubt 2nd opinion on test reports and my
be facing in the following areas : comments.

1. All types of concrete mix design, He can be contacted at : Er. Kaushal Kishore, Retd. IIT, Roorkee,
testing of construction materials. 571, Solanipuram, Roorkkee 247667 (Uttarakhand)
Email : [email protected] • Mobile : 9837577039

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INDIAN CONSTRUCTION 29 November 2018

Advance Loss of Profit / Delay in Start-up
Insurance (ALOP / DSU)

By Dev Chomal*

Principals and contractors alike are being confronted as an extension to the Storage Cum Erection

with escalating financial risk exposure in the wake Insurance / Marine Cum Erection Insurance (SCE /

of the increasing industrialization. MCE).

Principals now often collateralize loans with project Delay in start-up
assets and repay them purely on the basis of projected
earnings (i.e. Non-recourse Financing - debt financing ¾ Delay in start-up (DSU) cover is designed to
provided for projects with no or very limited recourse secure the portion of revenue which the
to the assets of the project sponsor. The financier relies principal requires to service debt and realize
on the technical, commercial and financial viability anticipated profit.
of the project and its earnings as the sole source for
debt servicing). ¾ For the principal / investor group, a major
incident / a large number of smaller incidents
The revenue generating capability of a project has of damage to the works during the construction
thus become a critical financing factor. phase (or) is likely to result in a delay in the
commencement of commercial operation of the
Any delay in the start-up of a project would project and consequently the ability to earn
immediately cause a loss in anticipated revenue. revenue

Therefore, stringent conditions regarding delays in ¾ The works contract between the principal and
scheduled project completion are now commonplace the EPC contractor stipulates that, as a rule, the
in contracts between financiers and principals, and contractor is accountable vis-à-vis the principal
particularly to those between principals and for any project startup delay arising through any
contractors. fault on the part of himself or his subcontractors.

Principals are, therefore, under pressure to ensure ¾ Whilst some of these losses may be recoverable
the economic viability of the projects by generating from the ‘contractor’s delay penalties’ under the
revenue immediately following the scheduled construction contract, others may not give rise
completion date. to penalties because the contract provisions
relieve the contractor of this obligation for any
The traditional Storage Cum Erection Insurance ¾ risk explicitly assumed by the principal.
(SCE) does not cover loss of anticipated revenue /
gross profit in the event of a delay in the scheduled While these risks may vary from contract to
start up date of any project, even though the same contract, the usual exclusions are with regard
may have arisen due to a peril insured by the SCE to “Force Majeure” events (earthquake, flood or
Insurance. windstorm etc.) as well as other physical
destruction or damage by any cause beyond the
The “Delay in Startup” Insurance (also known as ¾ control of the contractor, subcontractor or
“Advance Loss of Profits” Insurance) provides the supplier.
broadest possible insurance cover available in the
market to meet such contingencies. Furthermore the recovery of the full amount of
revenue loss from the Contractors is often
The DSU insurance is recommended to be purchased

* Has experience of 15 Years in insurance industry in Mumbai. Believes in analysing the holistic view of clients business before offering
any solution. Believes that insurance can shield the balance sheet from all risks other than business risks and builds solutions around this
concept. Worked in Direct Insurance Space – Life & Non Life. Expertise in offering the ease of buying insurance & Liability Cover. He was
also Risk Engineer in his earlier assignment with Insurer, where clients has valued his risk improvement and insurance advice. Has
completed his Licentiate Form III. He is MBA (Risk & Insurance Management), DBM from NMIMS, Commerce Graduate and a Certified
Insurance Broker. Email : [email protected] Mobile: +91 9004484931

INDIAN CONSTRUCTION 30 November 2018

limited by a ‘cap’ on liquidated damages, thus Profit Policy shall be in respect of:
leaving the Principal / Investor Group exposed
to losses in excess of this limit. Loss of gross profit (Hyperlink) sustained during the
indemnity period (Hyperlink) resulting from a
¾ The Advance Loss of Profits Insurance, covers reduction in turnover (Hyperlink) including any
the interest of the principal only, provided that increased cost of working (Hyperlink)
the delay in startup of the project from the
scheduled business commencement date and Or
the resultant loss of revenue is due to physical
damage covered under the underlying: Specified standing charges (Hyperlink), the amount
actually not earned during the indemnity period
o Storage cum Erection Insurance and resulting from a reduction in turnover including any
increased cost of working
o by the same set of perils as covered under
the parallel Advance Loss of Profit The indemnity shall not exceed the sum insured
Insurance (Hyperlink) for the maximum indemnity period.

Who can take the policy? FAQ’s

¾ The policy is taken by the Principal as he stands Q1. What does Gross Profit mean?
to lose in case of any delay in the commissioning
of a new project under installation / Gross profit means the amount by which the
construction value of the turnover and the value of the closing
stock exceed the value of the opening stock and
¾ Quite often the interests of the project financiers the amount of the specified working expenses.
is also included as “additional insured” The value of the opening and closing stocks shall
be calculated in accordance with the insured’s
¾ Contractors / sub-contractors cannot be normal accounting methods, due provision
included as the joint insured – as they have no being made for depreciation.
insurable interest (unlike in an EAR / CAR
Policy) Q2. What do specified working expenses mean?

ALOP / DSU covers are to be purchased in Specified working expenses means any costs
conjunction with: incurred for the acquisition of goods, raw
materials or auxiliaries as well as for supplies
1. Marine Cargo Insurance for critical items of the unless required for the upkeep of operations and
project any costs of packaging, carriage, freight,
intermediate storage, turnover tax, purchase,
2. Erection All Risks Insurance / Construction All tax, license fees and royalties, insofar as such
Risk Insurance costs are dependent on turnover.

Irrespective of whether the delay results from Q2. What does Indemnity period mean?
damage covered under the marine or the erection
policy, the trigger date remains the same. Indemnity period is the period during which the
interest insured is affected as a result of the delay
Hence, it is recommended that a single DSU policy in start-up, beginning on the scheduled date of
in conjunction with the Marine Cum Erection commencement of the business insured and not
Insurance be purchased which would cover: exceeding the maximum indemnity period
specified in the schedule.
¾ All (insured) physical damage
Q3. What does Turnover mean?
¾ Loss of Gross Profit arising out of a delay in
project, due losses covered by the underlying Turnover means the amount of money (less
storage cum erection insurance. discounts) paid or payable to the insured for
goods, products or services sold, delivered or
Indemnification rendered in the course of the business insured.

The indemnity provided by the Advance Loss of

INDIAN CONSTRUCTION 31 November 2018

Q4. What does Increased cost of working mean? and possible delay linked penalties for failure
to supply the finished product to specified
Increased cost of working means the additional buyers.
expenditure necessarily and reasonably
incurred for the sole purpose of avoiding or Thus the coverage is determined by the amount
diminishing the loss of gross profit which, of insurance purchased and by the agreed
without such expenditure, would have taken indemnity period, which should be
place. commensurate with the risk. For example, if
repair or rebuilding requires 12 months, the
Q4. What do Specified standing charges mean? indemnity period should be at least 12 months
and include a buffer for contingencies.
Specified standing charges mean any fixed costs
specified in the schedule which continue to be C A U T I O N: If the sum insured and maximum
payable in full during the indemnity period. indemnity is not appropriately decided, it will
result in application of the under insurance.
Q5. What does Sum insured mean? Thereby, it may not be possible for the policy to
provide you appropriate compensation for your
The sum insured should be decided by the loss.
insured on the following basis:

ƒ The annual anticipated gross profit Q6. What does Rate of gross profit mean?
(Hyperlink) or

ƒ Annual anticipated specified standing Rate of gross profit means the percentage of
charges. (Hyperlink) gross profit which, had the delay in start- up
not occurred, would have been earned on the
ƒ Should the maximum indemnity period annual turnover.
(Hyperlink) exceed twelve months, the
gross profit or the specified standing Q7. What does annual turnover mean?
charges shall be the pro rata amount for
that period. Annual turnover means the turnover which, had
the delay in start-up not occurred, would have
Q5. How should the insured decide the maximum been achieved during the twelve months after
indemnity period? the scheduled date of commencement of the
business insured.
The length of the indemnity period should be
decided carefully on a reasoned guess estimate Q8. What does date of commencement of the
basis as to how long will it take to actually start business insured mean?
production in the event of a major loss during
the erection or testing period. This should be Date of commencement of the business insured
planned on a ‘worst case scenario basis’. means the actual date on which the business
insured commenced.
o The indemnity period should be selected
by the insured based upon the longest Q9. What does Scheduled date of commencement of
replacement time required for critical items the business insured mean?

o Includes : time required for re-ordering, re- Scheduled date of commencement of the
manufacturing (if required – ‘made to business insured means the date specified as
order’), transportation to the site, re- such in the schedule or any revised date upon
erection, testing and commissioning which the business insured would have
commenced had the delay in start-up not
The extent of the maximum likely period of occurred.
interruption will need to be assessed from a
number of possible scenarios and the resultant Q10. What does Delay in start-up mean?
financial impact on the Project. Particular
attention needs to be paid to any “Take-or-pay” Delay in start-up means a delay in the scheduled
provision in the Fuel Supply Agreements (if any) date of commencement of the business insured.

INDIAN CONSTRUCTION 32 November 2018

GST on Re-development of Society Building, SRA
and JDA – Part II

CA Rajkamal Shah*

In Part-I, we discussed the taxability of Development are carved out of from land. This
Rights and Re-development of Co-operative would establish that ‘development rights’ are the
Housing Society Buildings. In this part, we shall ‘rights in immovable property’.
discuss the issue of taxability of Transferable
Development Rights, Slum Rehabilitation Projects In Chheda Housing Development Corporation vs.
and Land Development Agreements, popularly Bibijan Shaikh Farid – (2007) 3 Mah LJ 402, the
known as Join Development Agreements (‘JDA’) Division Bench of the Hon’ble Bombay High Court
under GST. has held that “FSI/TDR being a benefit arising from the
land, consequently must be held to be immovable property
Is TDR an ‘Immovable Property’? and an Agreement for use of TDR consequently can be
specifically enforced, unless it is established that
We shall now examine whether TDR or right to compensation in money would be an adequate relief”.
obtain extra FSI is an ‘immovable property’ or not.
The expression ‘immovable property’ has not been After having explained that FSI / TDR is a right in
defined under the GST law. It is, therefore, relevant immovable property, the next issue to be addressed
to note the definition of ‘immovable property’ under is whether the transfer of such right is liable to GST
other enactments. Some of these enactments are or not.
General Clauses Act, 1897, Transfer of Property Act,
1882, Maharashtra Stamp Act, Registration Act, 1908, Is TDR/FSI ‘goods’ or ‘service’?
The Real Estate (Regulation and Development) Act,
2016. The definition of ‘immovable property’ GST is a levy on supply of goods or services or both
contained these legislations are given in the previous for a consideration by a person in the course or
article and hence not repeated here. furtherance of business.

A perusal of the definitions in the aforesaid Section 2(52) of the CGST Act defines “Goods” as
enactments would show that they are more or less under:
similar. Thus, the definition of “immovable
property” not only includes land but also the benefit “S.2(52) “goods” means every kind of movable property
arising out of land and the things attached to the other than money and securities but includes actionable
earth or permanently fastened to anything attached claim, growing crops, grass and things attached to or
to the earth. The scope of the term ‘immovable forming part of the land which are agreed to be severed
property’ is not restricted to mere land or a building before supply or under a contract of supply”
but extends even to the benefits arising out of land.
A perusal of section 2(52) would show that it is an
The “benefit to arise of land” is that benefit whose exhaustive definition. It includes every kind of
origin can be traced to existence of land. It owes its movable property including actionable claims. It also
source to land. Such benefit is inextricably linked to includes growing crops, grass and things attached
land. to or forming part of the land provided they are
agreed to be severed before supply or under a
The expression “development right” is not defined contract of supply. It does not include money and
in DCR issued under the Maharashtra Regional and securities.
Town Planning Act, 1966. However, a careful perusal
and harmonious reading of various provisions of the Section 2(102) of CGST Act defines “services” as
DCR as also various judicial pronouncements show under:
the artificial manner in which ‘development rights’
“S.2(102) “services” means anything other than goods,

* CA Rajkamal Shah has been in the Advisory Commissioners of Central Excise, Mumbai. He is also part of Committees at
Chambers of Tax Consultant, Bombay Chartered Accountants Society and Builders Association of India. He can be reached
by Email : [email protected].

INDIAN CONSTRUCTION 33 November 2018

money and securities but includes activities relating to activities or transactions which shall be treated
the use of money or its conversion by cash or by any other neither as a supply of goods nor a supply of service
mode, from one form, currency or denomination, to reads as under:
another form, currency or denomination for which a
separate consideration is charged”. “5. Sale of land and, subject to clause (b) of paragraph 5
of Schedule II, sale of building.”
A perusal of the definition of “services” would show
that it is an exhaustive definition and it encompasses Therefore, by virtue of section 7(2) read with
anything other than goods. Just because it includes Schedule III, sale of land and sale of building are
anything other than goods, does it mean it can treated neither as supply of goods nor as supply of
include anything which normally not understood as services. Issue is “can one state that as serial no. 5 of
service? Can it include living beings? Answer is no. Schedule III uses the expression “land” and
Though the expression “services” means anything “building”, the benefit of this entry is not available
other than goods, it cannot include anything which to right in land or building?” The answer is no. We
is not normally understood as service. Service is have already explained that transfer of immovable
never understood to include property. Though property is not liable for GST as it is neither goods
service is defined under indirect tax laws, it is defined nor service. Immovable property, by definition,
in certain other laws. These definitions were includes even right in immovable property.
considered by the Hon’ble Gauhati High Court in Therefore, just because right in immovable property
Magus Construction (P.) Ltd. v. UOI [2008] (11) STR has not been specifically stated in Schedule III, it
225, wherein it has explained the meaning of the doesn’t mean that they are liable for GST. It is a well-
word “service”. After considering the definition of settled legal principle that exemption doesn’t pre-
‘services’ in various enactments like MRTP Act, 1969, suppose a charge.
Consumer Protection Act, 1986, FEMA, 1999,
amongst other enactments, the Hon’ble High Court Even otherwise, the expression “land” and
observed that “…one can safely define ‘service’ as an “building” in Schedule III includes even right in
act of helpful activity, an act of doing something useful, land/building. This is evident from Entry 18 of List
rendering assistance or help. Service does not involve II of Seventh Schedule of The Constitution read with
supply of goods; ‘service’ rather connotes transformation Entry 49 of the same list.
of use/user of goods as a result of voluntary intervention
of ‘service provider’ and is an intangible commodity in It is, therefore, viewed that TDR/FSI is neither
the form of human effort”. ‘goods’ nor ‘services’ and hence, cannot be
subjected to levy of GST.

Therefore, the expression ‘services’ as defined in Leviability of GST in case of Slum Rehabilitation
Section 2 (102) of the CGST Act cannot include Authority (SRA) Projects
‘immovable property’. Therefore, transfer of
immovable property or right in immovable property In case of slum encroached private land, the
cannot be treated as supply of service. landlord approaches the Slum Rehabilitation
Authority (SRA), a governmental authority covered
Section 7(2) of the CGST Act reads as under: under Article 243W of the Constitution which
declares the land as slum land and issues order for
“S.7(2) Notwithstanding anything contained in sub- rehabilitation of slum dwellers (in pursuance of DCR
section (1),–– 33(10) of Brihan Mumbai Municipal Corporation,
and similar regulations in other metropolitan cities).
(a) activities or transactions specified in Schedule III; or The landlord approaches a developer to develop the
land and SRA grant extra FSI to the developer for
(b) such activities or transactions undertaken by the construction of rehabilitation of slum dwellers as per
Central Government, a State Government or any local DCR. The developer constructs a building for slum
authority in which they are engaged as public authorities, dwellers and another for landlord including free sale
as may be notified by the Government on the area and for himself to recover the cost of
recommendations of the Council, construction. As an incentive to construct building
for slum dwellers, SRA may issue TDR in form of
shall be treated neither as a supply of goods nor a supply DRC (Development Right Certificate) which can be
of services.” used on another plot or even may be sold in open

Serial no. 5 of Schedule III of the CGST Act specifying

INDIAN CONSTRUCTION 34 November 2018

market by endorsement and delivery. Registration is reproduced below:
of document of transfer of DRC with local authority
is a regulatory requirement. Stamp duty is paid for “S.2(31) “consideration” in relation to the supply of goods
transfer of TDR as moveable property but is not or services or both includes––
required to be registered under Registration Act as
conveyance. Over and above this, the developer may (a) any payment made or to be made, whether in money
pay cash consideration to the landlord. or otherwise, in respect of, in response to, or for the
inducement of, the supply of goods or services or both,
In another scenario, the land may belong to the whether by the recipient or by any other person but shall
Government that has been encroached upon by the not include any subsidy given by the Central Government
slum dwellers. In such a case, the Developer may or a State Government;
agree to develop the land, construct the building for
the slum dwellers and allotment of units therein free (b) the monetary value of any act or forbearance, in respect
of cost to the slum dwellers in terms of the agreement of, in response to, or for the inducement of, the supply of
entered into with SRA. As against this, the Developer goods or services or both, whether by the recipient or by
would be granted TDR as may be permitted by the any other person but shall not include any subsidy given
town planning regulations on the recommendations by the Central Government or a State Government”.
of SRA which can be exploited by the Developer to
construct another building, the units in which can The above would show that consideration is linked
be freely sold by him. The Developer may even to supply. The expression consideration should not
decide to sell TDR in open market. be read in isolation of supply and scope of supply
should not be read independent of the word
A perusal of the regulations relating to slum consideration. Consideration can move even from
rehabilitation schemes would show that it is an third person as per the definition of consideration
integral scheme. The developer is required to carry as given in section 2(31). This concept is also
out the work of construction of tenements for slum- recognized under section 2(d) of the Indian Contract
dwellers. Some portion of the built-up area is also Act, 1872.
allotted to the Land Owner as per terms of DA. The
remaining constructed area belongs to the developer Whether the landlord can be considered to have
which is freely saleable by the Developer to recover made any supply in the above case and whether
the cost of construction of the entire project the free of cost area allotted by the developer to
alongwith his margin for the risk and reward. the landlord in the newly constructed building
(with or without additional cash payment to the
Therefore, it is a single contract for construction landlord) would constitute ‘consideration’ in the
under an integral scheme. The entire supply involves eyes of law?
consideration. Just because the scheme states that
certain share in the built-up area is to be handed over In the first scenario, the landowner whose land has
free of cost to slum dwellers and land owner, it is been encroached by the slum dwellers engages the
not free in the legal sense. There is consideration for developer to construct a building for rehabilitation
the built-up area handed over to all them. It is to be of the slum dwellers as mandated by the authorities
noted that the FSI / TDR that is sanctioned to the to make the rest of the land free from such
developer would enable him to construct units out encumbrance and another building or buildings
of which portion of it is available to him as freely which is to be shared by the developer and landlord
saleable area. Alternatively, the developer would be in agreed manner. Effectively, the land owner is
able to sell TDR in open market and monetize the sharing his land with the developer as against which
same. Once an area is declared as slum area and SRA the constructed area is being shared between them
frames slum rehabilitation scheme, Regulation 33(10) as per the terms of DA. Hence, landowner is
of DCR is required to be followed. Once the transferring his ownership right in the land for area
redevelopment / construction is carried out in of construction of his share as well as construction
accordance with Regulation 33(10), there are various of the building required for rehabilitation of the slum
conditions to be fulfilled. Therefore, different events dwellers.
cannot be broken to ascertain the GST liability. The
supply is only one. Section 2(31) of the CGST Act In case of Government land, TDR is issued against
defines ‘consideration’, the relevant portion of which construction of building for slum dwellers which
may be encashed by selling the same in open market.

INDIAN CONSTRUCTION 35 November 2018

In such a case, the realized value of TDR may be right is outside the scope of GST.
liable as consideration for construction of SRA
building. Generally, two models are in vogue in case of JDA
between the landowners and a Developer, viz:
In the case of Sumer Corporation vs. State of
Maharashtra – (2017) 82 Taxmann.Com 369 1. Revenue Sharing Model
(Bombay), the Hon’ble High Court has held TDR to 2. Area Sharing Model.
be a valuable consideration equivalent to money.
However, we may here hasten to add that the a) Revenue Sharing Model:
Hon’ble High Court has, with due respect, not
examined certain broader issues as accepted by itself In case of a landlord entering into Joint
in the judgment. The Hon’ble Court has confined Development Agreement with Developer
itself only to finding out whether consideration was wherein development right of the land is
present or not and have held that TDR is a granted to JDA for exploiting full potential of
consideration for the Works Contract Services. land on the following terms and conditions:

Nevertheless, one may be adopt a conservative view ¾ Value of land (FSI value) is credited to the
and apply the ratio of the decision of the Hon’ble landlord’s capital account;
High Court supra. If the TDR is used on the same
plot of land to construct a building for the land ¾ All expense from plan approval to
owner, slum dwellers and free sale area for the construction cost, supervision, etc. is to be
developer, it can be said that the consideration borne by JDA to be funded by the
received from free sale area covers the consideration Developer. In most of the cases landlord
for the entire works contract for slum rehabilitation has no further role to play;
and the landowner’s portion. It may be pointed out
here that SRA being covered by Article 243W of the ¾ Upon completion of construction, net
Constitution, neither SRA nor the Developer will be profit will be shared between the Landlord
liable to GST in respect of issue of TDR by SRA. and Developer in agreed ratio.

In view of the entire transaction being single supply, b) Area sharing Model:
it is possible to avail full input tax credit on entire
construction and set off against the sale of under Alternative structure of the transaction is that
constructed flats. the landlord appoints the developer by transfer
of development right of the entire portion of
Leviability of GST on Joint Development the land and in turn the developer agrees to give
Agreement (JDA) agreed percentage of constructed area to the
landlord. Balance area shall be retained and sold
JDA signifies a landlord entering into Development in open market by the Developer.
Agreement with a Developer to develop his land
having development potential (FSI) and JV is formed. Can the relationship between the landlord and the
The landlord contribute his land into JV and transfer developer in area sharing model be considered as
the same by virtue of JDA or promise to convey the ‘barter’ so as to constitute ‘supply’ and attract the
land to the society of the purchasers of flats as may levy of GST ?
be formed by the JV. The landlord may have a
passive or active role in JV. In most of the cases, In area sharing model, the landowner is giving
landowner is not having any active role in the development right to the developer in exchange for
venture except giving his land for construction getting share of constructed area (works contract
though this arrangement. Contribution in form of service). This is a case of barter. Taking conservative
land is a form of sale of land and outside the scope view, Both the landlord and developer will be
of GST. Even when the development right is granted required to pay GST, however albeit with entitlement
instead of transfer of land perse, it is normally in form of input tax credit.
of available FSI of the same plot of land on which it
is consumed. Grant of FSI is certainly the right arising However, in case the developer is obliged to give
out of the land and even on better footing than TDR constructed area to the landlord against the part
which is transferrable. Thus, grant of development ownership of land under the terms of JDA, both the
transactions are outside the ambit of GST.

In revenue sharing model, no service is provided by

(Contd. on pg. no. 47....)

INDIAN CONSTRUCTION 36 November 2018









Northern Region Mr. S

The 'First BAI Northern Region Meeting 2018-19' was Madhusudan
held in Pragati Maidan, New Delhi on 11th October,
2018. The meeting was held on the sidelines of 'Light Rao, Head
India 2018 - International Exhibition on Lighting
Products & Technologies, Electrical Engineering and Communication, News
Home & Building Automation' organised by Messe BAI; Mr. Satnam
Frankfurt Trade Fairs India Pvt. Ltd. BAI was S Arora,
'Industry Partner' for the exhibition.
Executive
Before start of the meeting, President and other senior
members from Northern Region participated in the Officer, BAI Delhi Office and Ms. Lata Vaid, Office
inaugural function of the 'Light India 2018'. Mr.
Suresh Prabhu, Hon'ble Union Minister of Commerce Executive, BAI Delhi Office were also present in the
& Industry and Civil Aviation and Dr. Harsh
Vardhan, Hon'ble Union Minister of Science & meeting. In his inaugural address, Mr. Puhazhendi
Technology, EF & CC were the Chief Guests and
inaugurated 'Light India 2018'. Mr. A. Puhazhendi, appreciated the efforts of senior members of Delhi
President, BAI was also on the dais for the inaugural
function. Office-bearers of Electric Lamp and and Haryana for holding such a grand meeting. He
Component Manufacturers Association of India
(ELCOMA) and captains of the lighting industry also discussed in details the various efforts being made
graced the dais during the inauguration along with
representatives of Messe Frankfurt Trade Fairs India by BAI in solving the problems of the members, stay
Pvt. Ltd. viz. Mr. Raju Bista, President ELCOMA &
Managing Director of Surya Roshni; Mr. Shyam order granted in the ESIC Matter, his meeting with
Sujan, Secretary-General, ELCOMA; Mr. Sunil Sikka,
Advisor, ELCOMA; Mr. J P Aggarwal, Chairman & the Secretary, Ministry of Labour, Joint Secretary,
Managing Director, Surya Roshni; Mr. Prashant
Tiwari, President CREDAI NCR & MD, R. G. Group Dept. of Industrial Policy & Promotion, Ministry of
(WUP) and Mr. Raj Manek, Executive Director &
Board Member of Messe Frankfurt Asia Holding Ltd. Commerce & Industry. He stressed upon the need

On the sidelines of the inauguration function, Mr. A. for members to come together for the benefit of
Puhazhendi had an opportunity to interact with Mr.
Suresh Prabhu and Dr. Harsh Vardhan, wherein he construction industry, to interact and contribute
briefed them about BAI and also invited them to
'bauma CONEXPO India 2018' Exhibition. efforts and energy to solve the problems of fellow

BAI Members, in large numbers from Delhi, Haryana, members. He further stated that such meetings
Rajasthan and Uttar Pradesh attended the 'First BAI
Northern Region Meeting 2018-19'. Mr. A. provide platform to discuss the problems and find
Puhazhendi, President, BAI was the Chief Guest. Mr.
Lal Chand Sharma, Trustee & Past President, BAI and remedial measures. Mr. Lal Chand Sharma, Mr. S. P.
Mr. S. P. Goel, Past President, BAI were the Guests
of Honour. Other senior members who graced the Goel, Mr. O. P. Sharma, Mr. R. N. Gupta also
occasion were Mr. O. P. Sharma, Vice President, BAI;
Mr. R. N. Gupta, Immediate Past Vice President, BAI; addressed the gathering. Mr. Sanjay Tyagi,
Mr. Ashok Aggarwal, Past Vice President, BAI; Mr.
Ram Avtar, State Chairman, BAI Delhi; Mr. Rajiv Chairman, BAI Ghaziabad Centre spoke about some
Goel, State Chairman, BAI Haryana: Centre
Chairmen from Delhi / Haryana / Uttar Pradesh / issues related to the work and requested the senior
Rajasthan. Mr. Raju John, Executive Secretary, BAI;
members to help them out through their interaction

with the CPWD officials. In reply to the issues raised,

Mr. R. N. Gupta and Mr. Ram Avtar shared the latest

positions and assured them of all help and assistance,

if required.

During the meeting technical presentations were
presented by M/s. Ashtech Buildpro Pvt Ltd. on
'ACC Blocks: Current Practices'; Mr. P. K. Jain,
Executive Director, National Capital Region
Transport Corporation on 'Key Trends &
Developments in Urban Rail Transport System' and
Mr. Subrata Sen, Associate Vice President - Lighting,
Havells India Limited on 'The Idea of convergence
of Lighting with Building'. The meeting was followed
by a conducted tour for the BAI members to the 'Light
India 2018'.

Telangana State

The 'Third BAI Telangana State Meeting' was held
on 3rd and 4th October, 2018 at Vijay Vihar,
Nagarjuna Sagar, Nalgonda. Mr. D. V. N. Reddy,
State Chairman, BAI Telangana, chaired the meeting.
Others who graced the dais during the meeting were

INDIAN CONSTRUCTION 41 November 2018

: Mr. S. Narsimha Reddy, Past Vice-President, BAI; Ratalani; Mr. C. S. Parhar; Mr. Sunil Mate and Mr.
IFAWPCA Board Member and Chairman, BAI's M. J. Halbe - all of BAI Pune Centre.
Membership Development & New Centres
Committee; Mr. P. Mohan Reddy, Past State A "Children's Felicitation Program" to honour the
Chairman, BAI Telangana; Mr. B. Sugunakar Rao, meritorious children of members, who performed
Past State Chairman, BAI Telangana; Mr. V. Bhaskar outstanding in the field of Education, Art & Sports
Reddy, State Secretary, BAI Telangana; Mr. P. and Extra Curricular Activities, was held by BAI Pune
Narsimha Rao, State Treasurer, BAI Telangana; Mr. Centre on 14th July 2018 at The Ladies Club, Pune.
S. Satyanarayana, Chairman, Nalgonda Centre and Dr. R. B. Krishnani, Past Vice-President, BAI was the
Mr. S. Krishna Rao, Chairman Organising Chief Guest. Incidentally Dr. R. B. Krishnani was
Committee. Issues confronting the building and recently appointed as President - West Zone for
construction industry in Telangana in particular and promoting Sports by Sports Development Board
the nation in general were discussed along with BAI India. Mrs. Jalaja (Deshpande) Bhirange and Mrs.
organisational matters. Rutuja (Deshpande) Kulkarni - were the Guests of
Honour, who are the recipients of 'Shiv Chhattrapati
BAI's Taxation Committee Awards' in Swimming and Water Polo respectively.
Mr. Pradeep Garge, Chairman, BAI Pune Centre in
An 'Open House Session on GST' addressed Mr. his inaugural speech appreciated and encouraged the
Mahender Singh, IRS, CBIC, New Delhi - GST children and told them that "Success comes with
Member was held in Coimbatore on 20th September, dedication, hardwork and untiring efforts. So set your
2018. Mr. K. Vishwanathan, Chairman, BAI's goals - work hard - achieve it". Dr. R B Krishnani,
Taxation Committee attended the event and also Mrs. Jalaja (Deshpande) Bhirange, Mrs. Rutuja
presented a representation on behalf of BAI. Mr. S. (Deshpande) Kulkarni, Mr. Pradeep Garge Mr.
K. Rahman IRS, Additional Director General GST; Suresh Moorjani, and Convenor of the event,
Mr. Yogendra Garg IRS, Additional Director General, distributed awards to the meritorious students. 65
GST; Mr. Nikhil Mohan Goyal, IRS, Assistant entries were received of the participants from Junior
Director, GST, New Delhi and Mr. C. P. Rao, Principal School to University level. For making the
Chief Commissioner, GST, Chennai were present at proceedings of evening lively and colorful,
the event. entertainment program such as Selfie Photo, Magic
Show, Surprise Gifts, etc. were arranged by BAI Pune
Pune Centre the Centre.

Since 2013 BAI Pune Centre and Mr. R. B. Yadadri Centre
Suryavanshi, Past Chairman of Pune Centre and Sr.
Chief Executive, M/s B. G. Shirke Construction Mr. A. Sathi Reddy was installed as the Chairman of
Technology Private Limited are carrying out BAI Yadadri Centre on 7th September, 2018 in Hotel
construction of Girl Students Toilet in nearby villages Vivehra, Bhongir. Other office-bearers who were also
and remote areas of Pune. This is Seventh Toilet installed are : Mr. A. Srinivas Goud as Vice-
Blocks handed over recently. Mr. R. B. Suryavanshi Chairman, Mr. Soma Venkata Ramana Reddy as
initiated this social activity of construction of girl Hon. Secretary, Mr. G. Bal Reddy as Hon. Treasurer
students toilet, with proper drainage facilities and and Mr. Chandra Prakash as Hon. Jt. Secretary.
hygienic standards to be maintained by the school. Dignitaries who graced the installation ceremony are
Till date Seven Toilets Block is constructed by BAI : Mr. Ch. Ramakotaiah, Vice President, BAI; Mr. D.
Pune Centre, out of which cost of Three Toilet Blocks V. N. Reddy, State Chairman, BAI Telangana; Mr. V.
is solely sponsored by Mr. R. B. Suryavanshi. Like Venkateswara Rao, State Chairman, BAI Andhra
every year recently, decent wash room block for girl Pradesh; Mr. B.Seenaiah, Past President, BAI; Mr. S.
student had been constructed and handed over to Narsimha Reddy, Past Vice-President, BAI;
'Kai. Sonabai Ramchandra Dedage Vidyalaya' of 'Shri IFAWPCA Board Member and Chairman, BAI's
Kal Bhairawantha Vidyalaya', Rule, Near Panshet, Membership Development & New Centres
Pune on 18th June 2018 in the presence of Mr. P. L. Committee; Mr. B. Sugunakar Rao, Past State
Garge, Chairman; Mr. Ashok Atkekar, Hon. Chairman, BAI Telangana; Mr. V. Bhaskar Reddy,
Secretary; Mr. R. R. Gandhi, Hon. Treasurer; Mr. R. State Secretary, BAI Telangana; Mr. P. Narsimha Rao,
B. Suryavanshi; Mr. Dilip Shirole; Mr. Shashikant State Treasurer, BAI Telangana and Mr. U. Surender,
Killedarpatil; Mr. Jagannath S. Jadhav; Mr. C. H. State Joint Secretary, BAI Telangana.

INDIAN CONSTRUCTION 42 November 2018

Ichalkaranji Centre BAI Ichalkaranji Centre arranged a 'Technical Visit'
to 'Crushed Sand Plant' of M/s B. G. Shirke
BAI Ichalkaranji Centre and Confederation of Real Construction Technology Private Limited
Estate Developers' Associations of India (CREDAI) (BGSCTPL) at Nirmiti Kendra Alandi Site, Pune on
Ichalkaranji organised a welcome reception booth 30th September, 2018. Mr. Chavansaheb and Mr.
for families and organisations coming to the Manavsaheb of BGSCTPL gave the BAI members a
immersion spot to immerse Lord Ganesh. In the guided tour of the facility.
welcome reception booth, water and light
refreshments were arranged along with resting Tiruchirappalli Centre
arrangements for senior citizens. Mr. Suresh Ganpati
Halwankar, MLA Ichalkaranji; Mrs. Alka Swami, As part of ‘Image Building Activities’, BAI
President, Ichalkaranji Municipal Council; Mr. Tiruchirappalli Centre conducted a mega tree
Vishwas Narayan Nangare-Patil, Special Inspector planting at the National Institute of Technology
General of Police, Kolhapur Range; Dr. Abhinav (NIT), Tiruchirappalli on 25th October, 2018. This
Deshmukh, Superintendent of Police; Mr. Shrinivas greening effort was aimed at enriching the campus
Ghadge, Additional Superintendent of Police; Mr. of the NIT, Tiruchirappalli. Mr. A. Puhazhendi,
Nitin Dhoot, President, CREDAI Ichalkaranji and Mr. President, BAI graced the event. 1000 trees with as
Mohan Satpute, Chairman, BAI Ichalkaranji, along many as varieties were planted. Office-bearers and
with office-bearers and sernior functionaries of BAI senior functionaries of BAI Tiruchirappalli Centre
Ichalkaranji and CREDAI Ichalkaranji were present. and faculty and staff NIT, Tiruchirappalli took part
in the tree plantation activity.

Surshakti TMT bars of M/s S. K. Samanta & Co. (P) Ltd., Kolkata

Introduction of the Company: • Major thrust is given on
‘quality’ of the product for
M/s. S. K. Samanta & Co. Pvt. Ltd. is a large which State-of-Art ‘Quenching
infrastructural engineering company having all India Technology’ has been adopted.
presence. The Company is executing large EPC The bars are tested in digital Universal Testing
contracts in coal, power and steel sectors in the Machine & well equipped physical and
country. chemical laboratories.

The Company diversified into manufacturing arena • The plant is having ISO 9001:2015 accreditation
in ‘Steel Sector’ and set-up one ‘State-of-Art and also having valid BIS License.
Technology Steel Plant’ at Bilaspur, Chhattisgarh
State. The Plant is having a capacity of 150000 MT The quality TMT bars being produced, is sold under
per annum Reinforcement Steel (TMT bars) and the the brand name ‘SURSHAKTI TMT’. This brand has
range is from 8mm to 32mm. trademark registration also.

Product Profile: Pollution abatement measures:

The details are as follows:- • Continuous Emission Monitoring System
• The quality of TMT bars is as per IS1786:2008 (CEMS) has been installed & is connected online
with the server of Central Pollution Control
and Fe 415 & Fe 500 grades are produced. Board (CPCB).

• The range of TMT bars is from 8 mm to 32 mm. • Rain Water Harvesting Scheme has been
installed.
• This is an automated & continuous mill and
thereby reducing the wastages.

The product is marketed through the marketing network and the contact details are :
Executive Director (Marketing), M/s S. K. Samanta & Co. (P) Ltd., CSIDC Industrial
Growth Centre, Vill. Basia, Silpahari, Dist. Bilaspur – 495 001 (C.G.), Mobile: 9479124317

INDIAN CONSTRUCTION 43 November 2018

Anti-Profiteering Law – a big setback for
the construction industry

CA Gaurav Goyal* CA Sandesh Mundra*

Anti- profiteering measure, covered under Section The article addresses various issues in relation to
171 of the CGST Act, 2017 was introduced with two Anti-profiteering on Construction Sector:-
fold objectives- protecting consumers and to ensure
that GST does further fuel the inflation. It provides Section 171 of CGST Act, 2017 reads as follows:-
that any reduction in rate of tax on any supply of
goods or services or the benefit of input tax credit Any reduction in rate of tax on any supply of goods
shall be passed on to the recipient by way of or services or the benefit of input tax credit shall be
commensurate reduction in prices. It thus intends passed on to the recipient by way of commensurate
to check price rise and also put a legal obligation on reduction in prices.
businesses to pass on the benefit.
Some of the keywords used in the definition are
defined under GST law as follows:-

Rate of Tax Not Defined
Benefits
Input Tax Credit Not Defined

Recipient As per Section 2 (62) of CGST Act, 2017 Input Tax means the central tax, State
tax, integrated tax or Union territory tax charged on any supply of goods or
services or both made to him but does not include the tax paid under the
composition levy;

As per definition of recipient provided under section 2 (93), the recipient of supply
of goods or services or both means –

(a) Where a consideration is payable for the supply of goods or services or both,
the person who is liable to pay that consideration;

(b) Where no consideration is payable for the supply of goods, the person to
whom the goods are delivered or made available, or to whom possession or
use of the goods is given or made available; and

(c) Where no consideration is payable for the supply of a service, the person to
whom the service is rendered,And any reference to a person to whom a supply
is made shall be construed as a reference to the recipient of the supply and
shall include an agent acting as such on behalf of the recipient in relation to
the goods or services or both supplied.

As per this definition, the recipient shall be the payer of consideration.

As we go through the above table and definitions of of the key words is left for all to imagine, which has
various key words, it is surprising to see that the lead to numerous doubts in the minds of
base on which anti profiteering calculations are to professionals and businesses seeking the correct
be framed remain un answered. The interpretation interpretation of law.

* CA Sandesh Mundra ([email protected]) and CA Gaurav Goyal ([email protected]) based on their extensive
research and computations done for several projects since the implementation of GST. During this journey they have been able to
interact with a lot of government bodies engaged in infra projects, private sector giants and of course the law making agencies and feel
a strong need to bring everyone to a common point of understanding on the subject of Anti-Profiteering. As a Chairman of the GST
Committee of Builders’ Association of India, CA Sandesh Mundra has organized several training programmes with a view to educate
the industry on the sensitive issues connected with Anti-Profiteering and the construction industry.

INDIAN CONSTRUCTION 44 November 2018

The following key issues pertaining to construction calculations of Pre GST taxes in a works contract/
industry are being raised because of this vague real estate agreement:-
drafting and interpretation of Anti Profiteering Law:-
a) Cost of construction pending as on 30-06-2017
1. When Anti profiteering Law will be applicable can never be accurately assessed, as it is always
on a business? based on estimates,

2. What is the meaning of reduction in rate of tax? b) The actual consumption of different materials
Is it a comparison of Pre GST-Taxes vis-à-vis also cannot be quantified accurately till the
Post GST or is it meant to cover the continuous work completion,
reductions being announced in the GST rates
by the council? c) The budgeted cost of materials and actual cost
of materials vary drastically, raising a doubt
3. What is the meaning of “benefit” as about the value to be considered for calculation
incorporated in section 171? of taxes

4. Whether these benefits would have to be d) In most of the cases there is still a doubt,
computed at Customer Level, Project Level, whether the post GST taxes have to be
State Level or at Company Level? computed on the above estimate of pre-GST
taxes.
5. What is the meaning of Input tax Credit, is it
ITC Availed or utilized? Whether it includes Keeping all this in mind, we can say that working
Transitional credit ? out the anti – profiteering benefit is a tough task
which needs an extensive exercise and consideration
6. What happens if the ITC once availed or utilized of a number of factors.
is sought to be reversed? What if such a reversal
takes place after the benefit has been passed to Very recently the authors had the occasion to
the recipient? examine the recent order of The Anti-Profiteering
Authority - In the case of M/s Pyramid Infratech
In addition to above, there is no methodology (clear Pvt Ltd, where the Authority ordered the company
or unclear) provided under the Law, about how to to pass on the benefits to the tune of 6.1% of the post
proceed for the calculations. The problem gets GST taxable turnover in compliance with Section 171.
aggravated looking to the complexities in real-estate
and construction contracts where the prices were With due respect, the methodology adopted has been
fixed prior to implementation of GST and where a found to lack tax prudence on a lot of fronts. The
portion of work was pending to be executed as on order in principal also leaves a number of issues and
that date. concerns unresolved or unanswered which may be due to
the lack of availability of the appropriate information from
However, before proceeding further, it is essential the builder.
to test the applicability of anti profiteering provisions
on works contract/real estate agreements :- The brief facts are as below: -

In Pre GST-regime, Works contracts were liable to 1. The case was scrutinized by screening
VAT in respective states and most were also liable committee at the behest of complainants who
to payment of Service Tax except few cases which were buyers in the project of said company in
got covered under the Mega Exemption Notification. the name of “Urban Homes”.
In addition to it, the materials used in the
construction were liable to Excise duty in the Pre GST 2. The residential projects were of affordable
regime, the ITC of which was not allowed to the housing, which were subjected to VAT @ 5.25%
builders as well as contractors. and exempted under service tax in the Pre GST-
era, and subsequently post GST were initially
Further, when we go through the contracts, we find taxed at 12% after abatement which got reduced
that majority of the contracts were entered on an all- to 8% w.e.f. 25th January, 2018.
inclusive basis, which necessitates the builder or
contractor to re-calculate all the existing taxes which Following ratios direct or indirect are laid out by
they were paying earlier. the authority in this case:-

The following major issues are being faced while 1. The Conditions of passing on the benefit of

INDIAN CONSTRUCTION 45 November 2018

reduced tax rate and benefit of ITC have been calculate the incremental benefits only for this
viewed to be two independent conditions and period, it should be calculated on the basis of
Section 171 of CGST Act, 2017 would be total project cost pending as on 30.06.2017 on
attracted if both or either of these conditions the basis of the drawing and designs initially
exist. (Para 8) prepared by the respondent. However, no
attempt has been made to ascertain the
2. The Authority also affirms that exact projected cost as at 1.7.2017 and the pre-GST
calculations of ITC for such projects is very taxes lying in the same.
difficult and can be calculated only at the
completion of the project. Thus, leaving a scope 3. The basis of calculation of the Anti-profiteering
for the builders or contractors to have benefit as taken in the judgement has been the
provisional calculations and then final difference of the ratio of Input Tax Credit /
calculations at the end of the project. (Para 9) Taxable Turnover in the post GST and the pre-
GST regime which does not seem to be
3. The Authority has concluded that the ITC appropriate for following reasons: -
available to the respondent during PRE GST-
period was 1.10% whereas the ITC available to a) Taxable Turnover would vary as per the
the respondent was 7.20% of the taxable market conditions and it is difficult to
turnover and thus there was additional benefit maintain the ratio of the same in
of ITC to the tune of 6.10% in the post GST era. proportion to procurement in a real estate
(Para 13) sector.

4. Assumed definition of Rate of Tax (Para 13) b) Input Tax Credit is an absolute number
which would vary as per the Govt. rate
The word “Rate of Tax” has not been defined policies. A lot of goods have been moved
anywhere under GST. Now, as per Para 13 it is from 28% to 18% slab. This has not resulted
clear that the rate of tax means the sum total of into any benefit to the registered buyers
all the taxes on Sales/Services/Manufactures/ as they were entitled to credit in both
other in PRE GST-era as compared with rate of scenarios. However this will significantly
GST on Supply in post GST era. vary the ratio as calculated by the authority
to assess the anti-profiteering benefit.
This also stands confirmed in the Vaseline order
passed in the case of HUL. c) No attempt has been made to assess the
Input Tax Credit lost in the pre-GST regime
5. The authority has also taken a view that increase 4. which is no more the cost in the post-GST
or decrease in cost on account of factors other regime.
than tax rate and ITC are not to be considered
for the purpose of profiteering. (para 22) The appropriate formula would be to assess the
difference between ratio of Input Tax Credit
The points which are not at all considered by Lost / (Projected Taxable Purchases + Expenses)
AUTHORITY in its order. in the post GST and the pre-GST regime.

1. Construction Project Life cycle effect has been Overflow of Input Tax Credit at the end of the
totally ignored and it is assumed that uniform 5. Project can-not be taken as a refund by the
expenses are incurred throughout the lifecycle builders due to specific restriction under
based on the formula adopted by the Authority. Notification 15/2017. No such overflow has
been projected or worked out as the same can-
2. The ITC proportion post GST is taken for the not be termed as a benefit.
period till the date of investigation which may
not be commensurate to the duration of the Reversal of Input Tax Credit in future due to
project. A possibility that some of the high tax 6. receipt of Completion Certificate may also have
bearing materials would have been used in this a bearing on the Input Tax credit availed by the
period and labour execution is still pending can- builder. Such a critical factor needs to be given
not be ruled out. This would reduce the ITC for appropriate weight while making the final
the future period. Therefore, it is not right to computation.

INDIAN CONSTRUCTION 46 November 2018

7. It is assumed that all the expenses incurred in that the authors have made on a preliminary
the post GST period are towards the taxable study of the order. There are many issues which
turnover as all the credit has been attributed can be unearthed from this unique order passed
towards the same. No regard has been given to by the Authority. But one thing is for sure that
the fact that Input Tax Credit would also get this will certainly have a lot of repercussions
accumulated on account of construction of on the industry which continues to attract the
unsold units. negative eye of the regulators. This no more
remains an easy to enter industry for the
8. No comment has been given on the issue that if startups as even the matured ones find it
in future the ratio of credit vis-a-vis the taxable difficult to adapt to the newly introduced
turnover is less than 7.2%, there could be a customer protection initiatives of the
possibility of recoveries from the customer. government. Long live the customer, even if it
as the cost of the seller.
The above are some of the basic observations

(....Contd. from pg. no.36)

the developer or JV to the landlord. In fact, the JV the Real Estate/Construction Sector are varied and
sell the flats and the revenue is to be distributed complex. An attempt is made in this article to deal
between the developer and the landlord in the agreed with certain crucial issues and shed light on the legal
ratio. The amount received by the landlord is position and principles set by the judiciary. What is
towards sale / transfer of land which is outside the required is a very critical examination of the issues
scope of GST as per Sch. III of CGST Act. Hence, no and the interpretation of relevant statutory
GST liability can arise on revenue sharing model. provisions in light of the principles of the law settled
by various judicial pronouncements. Needless to say,
Time of payment of GST on supply of under on the readers may apply the views expressed in this
development right – NN. 4/2018 CT (Rate) dtd. article based on the fact of this case and after
25.1.2018 obtaining expert opinion.

By virtue of this notification, the liability of payment Non-Receipt of ‘Indian Construction’
of CGST is deferred from the date of supply of
development rights, i.e. date of entering into DA/ This is for the information of Members/
JDA to date of grant of possession or right in the Subscribers who fail to receive ‘Indian
constructed complex by entering into conveyance Construction’ dispatched to them either due to un-
deed or similar instrument (eg. Allotment letter). It intimated change of address or postal problems.
is not out of context to mention that wrong notion is Members/Subscribers are requested to inform to
prevailing in certain quarters that the notification BAI secretariat about any change in their address.
impose the liability of service tax on TDR. As stated It is desirable that Members/Subscribers
earlier, the liability may flow from the statute by download and fill the ‘Membership Data Updation
virtue of loosely drafted definition of ‘service’. The Form’ by logging on to www.baionline.in and go
notification can be said to be only a clarification on to ‘BAI Activities’ and further to ‘Members Area’.
point of taxation of TDR if at all liable. However, in PLEASE NOTE THAT MENTIONING ‘PIN
our view, the point of taxation even in case of DA / CODE’ IS VERY IMPORTANT
JDA remains same as the said agreements normally
allocates the constructible area at the initial stage Please email all correspondence to
only. It may be noted that the notification does not [email protected]
prevent discharge of liability any time before grant
of possession in order to avail input credit to be
utilized against the sale of under constructed units
as the input credit may be lost wholly or partially in
case of some units remaining unsold.

Conclusion:

From the indirect tax perspective, the issues plaguing

INDIAN CONSTRUCTION 47 November 2018

BAI continues to tackle contentious GST issues . . .

Since its inception on 1st July, 2017, GST has had many contentious provisions, which BAI tackled by
engaging in regular interaction with the Government. While some contentious issues were favourably
addressed by the Government, some still remain. Mr. A. Puhazhendi, President BAI has addressed a
detailed all-encompassing representation to Government of India on theses contentious issues, which is
reproduced below.

Ref. : 605/O/2018-19 dated October 15, 2018
Shri Arun Jaitley
Hon’ble Finance Minister
Government of India,
North Block,
New Delhi – 110 011

Respected Sir,

Sub: Issues related to Contractors

Builders’ Association of India (BAI) is an apex all 2. classified under composite supplies or mixed
India body of Engineering Construction Contractors supply, as the case may be.
and Real Estate Companies founded in 1941, with
more than 18,000 business entities as members Execution of works includes multiple activities
through its 170 plus Centres (Branches) throughout in its ambit and to classify it either as mixed or
the country. Regional Associations Affiliated to BAI as composite supply is an onerous task and
form indirect membership of more than 1,00,000. The prone to lots of litigations.
fundamental aim of the Association is to bring about
all round improvements in the construction sector, Lower Rate Notifications
while striving towards resolution of operational as
well as policy level problems faced by the Govt. has issued Notification No. 11/2017 dated
construction industry. This involves making efforts 28.06.2017 for prescribing tax rates on services.
to obtain from policy makers and authorities, the level The services which were exempted under the
of attention that the construction industry deserves Service tax regime are now taxed at 12% instead
in view of its tremendous contribution and of 18%. To cater to this change, the original
importance to the economy. notification has been amended a lot of times after
the appointed date. The original notification has
A. Issues related to taxability and rates been amended by the following subsequent
notifications:-
1. Scope of immovable property
• Notification No. 20/2017-Central Tax
Section 2(119) of CGST Act, 2017 defines works (Rate) dated 22nd August, 2017.
contract. The definition is reproduced below:-
• Notification No. 24/2017-Central Tax
“works contract” means a contract for building, (Rate) dated 21nd September, 2017.
construction, fabrication, completion, erection,
installation, fitting out, improvement, modification, • Notification No. 31/2017-Central Tax
repair, maintenance, renovation, alteration or (Rate) dated 13th October, 2017.
commissioning of any immovable property wherein
transfer of property in goods (whether as goods or in • Notification No. 1/2018-Central Tax (Rate)
some other form) is involved in the execution of such dated 25th January, 2018.
contract;
All these notifications are prospective in nature.
Definition of works contract covers only So this has created a lot of confusion. For
immovable property. Hence, any works example, the works contract services for canal
executed on movable property has to be and dam is taxable at the rate of 18% from 1st
July, 2017 to 21st August, 2017 and thereafter the
tax rate has been reduced at 12%.

INDIAN CONSTRUCTION 48 November 2018

To ease out the tax liability and to extend the 5. Notification No. 20/2017-Central Tax (Rate)
intentions of Govt., the lower rate benefits New Delhi, the 22nd August, 2017 - Works
should be given a retrospective effect. contract service for construction of roads

3. Lower rate benefits should be extended to pure Presently, construction service for roads is
labour services taxable at the rate of 12%. This rate is very high

Lower rate of 12% has been prescribed for 6. for taxing a basic infrastructure project.
services in nature of works contract only i.e. Therefore, the tax rate should be nil or it should
services along with material component. In tune be taxable at the rate of 5%.
of Govt.’s intention to provide the benefit of
Coverage of Supply

lower rate, the lower rate benefit should be As per section 7 of the CGST Act, supply
extended to pure labour services also. includes all forms of supply of goods and/or
services.
4. Exemption to leasing

Exemption is provided under Entry 41 of 7. As per Recommendations made by GST council
Notification No. 12/2017 as amended by 32/ in its 23rd Council meeting, a Circular No. 21/
2012 to upfront amount (called as premium, 21/2017-CGST was Issued to extend the
salami, cost, price, development charges or by clarification for inter-state movement of rigs,
any other name payable in respect of service by tools and spares, and all goods on wheels [like
way of granting of long term lease of thirty years, cranes].
or more) of industrial plots or plots
for development of infrastructure for financial The exemption on inter-state movements is
business, provided by the State Government available to rigs, tools, spares and goods on
Industrial Development Corporations or wheels. The same should be extended to other
Undertakings or by any other entity having 50 plant and machineries.
per cent or more ownership of Central
Government, State Government, Union Tax rate of cement
territory to the industrial units or
the developers in any industrial or financial Cement is currently taxed at the rate of 28%.
business area. Cement is required for all sort of infrastructure
development and housing projects. It is the base
The exemption is restricted to premium for of any construction activity and keeping the tax
industrial plots only and no exemption is rate as high as 28% negates the intention of Govt.
provided to residential plots allotted by State to develop infrastructure in this country.
Development Corporations or undertaking
levying Upfront amount (called as premium, High tax rate is a double edged sword. It effects
salami, cost, price, development charges or by the contractors in a manner that the output tax
any other name payable in respect of service by liability is at the rate of 12%-18% however, the
way of granting of long term lease of thirty years, main input is taxable at the rate of 28%. This
or more) from value of consideration for under creates an inverted rate structure which is not
constructed flats favourable for the business’s working capital
cycle.

Lease transactions suffer stamp duty as well as 8. Further, the client is the end consumer who has
GST. Leasing is a benefit arising out of land and to bear the tax rate of 28% and as discussed,
is covered under the umbrella of immovable cement is the basic necessity for building any
property as defined under General Clauses Act house/infrastructure. Therefore, looking to its
read with Transfer of Immovable Property Act. relevance, tax rate on cement should be reduced
Further, long term lease of more than 99 years to 5%.
or for perpetuity is transfer of land in substance.
Therefore, notwithstanding the fact that the lease Taxability of Transferable Development
is of industrial plots or it is of more than 30 years Rights / FSI
or it is for Govt., the leasing transactions should
be put out of the GST net. Transferable Development Right (TDR) means

INDIAN CONSTRUCTION 49 November 2018

making available certain amount of additional service under GST Laws. Therefore, assignment

built up area in lieu of the land area relinquished of lease shall not be taxable under GST on the

or surrendered by the owner of the land, so that same basis as sale of land.

he can use the permissible extra built up area Under GST law, ‘services’ is defined to be
(on account of allotment of TDR) either by anything other than goods. The point being that
himself or transfer it to another person in need the concept of an activity in order for it be a
of the extra built up area for an agreed sum of service is absent in the GST law. Under GST law,
money. in Schedule III, item 5, sale of land and sale of

If the owner of any piece and parcel of land / building (in the case of building after its

property is required to surrender the same to completion) is exempt as it is considered neither

the Government or Governmental Agency for as supply of goods nor as supply of services.

the purposes of road widening, formation of The assignment of an existing lease by one
new roads or development of parks, play Lessee to another (Assignee) would not amount
grounds, civic amenities etc., as per the to an activity that would amount to a transfer
proposed plan of the said Government or of under GST Laws. Therefore, assignment of
Governmental Agency he shall be eligible for lease shall be exempt under GST on the same
the award of Transferable Development Rights. basis as sale of land.
Such award will entitle the owner of the land in

the form of a Development Rights Certificate 10. Movement of goods within same business not
(DRC) which he may use for himself or transfer to be treated as supply
it to any other person. Every supply of capital goods attract tax on the

Further, Govt. for development of value of capital goods. The transaction value as

infrastructure, instead of money, grants TDR as per Section 15 read with rules can be a huge

consideration in kind. For example: - a amount. Therefore, the supply of capital goods

contractor constructing a building for Govt. (whether to own depot or to the customer)

receives TDR as a consideration. should be kept outside the purview of GST, and

TDRs, being an immovable property should not only the leasing/renting/transfer of right to use
be taxable under the GST Laws. the asset be subject to tax. Movement of capital
goods for provision of services like renting/

9. Transfer of immovable property by way of leasing/ transfer of right to use be excluded
Assignment of Lease from the scope of supply under GST regime.

One of the means of acquisition of land is 11. Classification as Composite Supply and Mixed
acquiring the leasehold interest of any Lessee Supply
in the land by way of an Assignment of Lease
such that all the rights of the Lessee are Composite supply is defined as, “composite
transferred in favour of the Assignee. In law, supply” means a supply made by a taxable person to
title can be in different forms such as freehold a recipient consisting of two or more taxable supplies
title, leasehold title, etc. of goods or services or both, or any combination
thereof, which are naturally bundled and supplied
Under the Service Tax law, transfer of title of in conjunction with each other in the ordinary course
any immovable property is a carve-out from the of business, one of which is a principal supply;
definition of Service and hence not liable to
Service Tax. Moreover, under the Service Tax Mixed supply is defined as, “mixed supply” means
law, any service is defined to be an ‘activity’ two or more individual supplies of goods or services,
carried out by a person for another. Therefore, or any combination thereof, made in conjunction with
Assignment of Lease is considered as transfer each other by a taxable person for a single price where
of title and not liable to Service Tax. such supply does not constitute a composite
supply.

The assignment of an existing lease by one Supply of two or more goods or services or a
Lessee to another (Assignee) would not amount combination thereof can be mixed supply or a
to an activity that would amount to supply of composite supply. A supply which is not a

INDIAN CONSTRUCTION 50 November 2018