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2019 (2) TMI 186 - AAR - GSTPure service - Providing Inspection services in relation to Water Supply and Sewerage - Government authority - Benefit of SI.No. 3 of Notification No. 12/201 /-CT (Rate) dated 28th June 2017 - applicant providing Third Party Inspection Services to their clients viz., M/s. Chennai Metro Water Supply and Sewerage Board (CMWSSB) and M/s. Tamil Nadu Water Supply and Drainage Board (TWAD) for the water related projects - Notification is effective from 01/07/2017 - pure services - taxability of Invoices already raised on the client prior to 01/07/2017. Held that - If any Pure Services are provided to a Governmental Authority by way of any activity in relation to any function entrusted to a Municipality under Article 243 W or a Panchayat under Article 243 G (from 13.102017) of the Constitution and that Governmental Authority is an Authority or a Board set up by an Act of Parliament or a State legislature or established by the Government with 90 percent or more participation by way of equity or control to carry out any function entrusted to a Municipality under article 243 W of the Constitution, then the same is exempted vide SI.No. 3 of the Notification No. 12/2017 Central Tax (Rate) dated 28th June 2017. In the case at hand, M/s. CMWSSB is created vide The Chennai Metropolitan Water Supply and Sewerage Act, 1978 (Tamil Nadu Act 28 of 1978) with 100% contribution by way of Government (i.e. by way of takeover of Assets and Liabilities from Chennai Municipal Corporation and Tamil Nadu Water Supply and Drainage Board) and controlled by the Government by way of appointing Directors of the CMWSS Board, to carry out the functions of supplying water for Domestic, Industrial and Commercial purposes as well as Sanitation Conservancy by way of disposal of Sewerage. M/s. TWAD Board is a Board, constituted by an Act of Tamil Nadu State Legislature called Tamil Nadu Water Supply and Drainage Board Act, 1970 with 100% contribution by way of Government and controlled by Government by way of appointing Directors of the TWAD Board entrusted with the development of Water Supply and Sewerage facilities in Municipalities and Panchayats in the State of Tamil Nadu, except Chennai Metropolitan Development. Thus, in respect of services received in relation to functions pertaining to Municipality, M/s. CMWSSB and M/s.TWAD is a Governmental Authority as defined under 2(zf) of the Notification No. 12/2017-CT (Rate) as amended. However, in respect of Services received in relation to functions pertaining to Panchayat, TWAD is a Governmental Authority only from 13.10.2017 as defined under 2(zf) of the Notification No. 12/2017-CT (Rate) as amended. In the two agreements furnished by the Applicant, the Applicant is suppling Pure Services of Inspection to M/s. TWAD and M/s. CMWSSB which is a Governmental Authority relating to Water Supply and Sewerage which are covered under Twelfth Schedule of Article 243 W of the Constitution. Therefore, the services rendered by the Applicant are exempted from CGST under SI.No. 3 of the Notification No. 12/2017-CT (Rate) dated 28th June 2017 as amended and exempted from SGST under SI.No. 3 of the G.O. (Ms) No. 73 dated 29.06.2017 No.II (2)/CTR/532(d-15)/2017 as amended. Other question raised before us is regarding raising of credit notes is of procedural nature and therefore not answered.
Issues Involved:
1. Whether the services rendered by the Applicant to CMWSSB and TWAD are exempted under SI.No. 3 of Notification No. 12/2017-CT (Rate) dated 28th June 2017. 2. If the services are exempt, whether the Applicant can take credit of SGST by issuing a Credit Note for invoices already raised with a levy of 18% GST. Detailed Analysis: Issue 1: Exemption of Services under Notification No. 12/2017-CT (Rate) The Applicant, a Third Party Inspection Services Agency, sought an advance ruling on whether their services to CMWSSB and TWAD are exempt under SI.No. 3 of Notification No. 12/2017-CT (Rate) dated 28th June 2017. The services provided involve inspection of materials procured by TWAD and CMWSSB to ensure quality assurance, and the Applicant is paid a percentage of the value of materials inspected. Verification of Agreements and Work Orders: - The agreements with TWAD and CMWSSB indicate that the Applicant conducts inspections for various equipment and submits a final report on quality. These services are termed as “Pure Services” without involving any supply of goods/materials. - CMWSSB and TWAD are both constituted by Acts of the Tamil Nadu State Legislature and are controlled by the government, making them "Governmental Authorities" as defined under the relevant GST notifications. Legal Provisions and Definitions: - SI.No. 3 of Notification No. 12/2017-CT (Rate) exempts “Pure Services” provided to a governmental authority in relation to functions entrusted to a Municipality under Article 243W of the Constitution. - The definition of "governmental authority" includes entities set up by an Act of Parliament or State Legislature with 90% or more government participation. Functions of CMWSSB and TWAD: - CMWSSB, created by the Chennai Metropolitan Water Supply and Sewerage Act, 1978, and TWAD, constituted by the Tamil Nadu Water Supply and Drainage Board Act, 1970, are both responsible for water supply and sewerage functions, which are municipal functions under Article 243W of the Constitution. - The services provided by the Applicant to these authorities are directly related to these municipal functions. Conclusion: The services rendered by the Applicant to CMWSSB and TWAD qualify as "Pure Services" provided to a governmental authority in relation to municipal functions. Therefore, these services are exempt from CGST and SGST under SI.No. 3 of the respective notifications. Issue 2: Credit of SGST by Issuing Credit Note The second issue concerns whether the Applicant can take credit of SGST by issuing a Credit Note for invoices already raised with an 18% GST levy if the services are ruled exempt. Ruling: The authority did not address this issue, stating it is of a procedural nature. Ruling: The activity of the Applicant as per the two contracts with TWAD for conducting Third Party Inspection for procurements of equipment supplied by L&T, Chennai, and with CMWSSB for conducting Third Party Inspection for procurements of equipment and chemicals involved in water supply and sewerage schemes are exempt from CGST under SI.No. 3 of Notification No. 12/2017-CT (Rate) dated 28th June 2017 and from SGST under SI.No. 3 of the G.O. (Ms) No. 73 dated 29.06.2017 as amended.
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