2019 (8) TMI 1155 - AAR - GST

Classification of supply - pure service or composite supply - recipient of service, government, local authority, governmental authority or a government entity? - in relation to any function entrusted to a Panchayat or a Municipality under the Constitution - Reverse charge mechanism - eligibility of exemption under Sl No. 3 or 3A of Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017 - Circular No. 51/25/2018-GST dated 31/07/2018. HELD THAT - Circular No. 51/25/2018-GST dated 31/07/2018 leaves no doubt that the phrase 'in relation to any function', as applied to Sl No. 3 or 3A, makes no substantial difference between Sl No. 25(a) of the ST Notification and Sl No. 3 or 3A of the Exemption Notifications (Service). Under the previous service tax regime, the exemption was limited to certain functions specified in Sl No. 25(a) of the ST Notification, whereas, under the GST the ambit has been broadened to include any such functions that are performed by a Panchayat or a Municipality under specific provisions of the Constitution - These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens - When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST under Sl No. 3 or 3A of the Exemption Notifications (Service), provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value. Scrutiny of the work reveals that the work involves earthwork, excavation, sloping and earthmoving services involving making of embankments or cuttings for laying down pathways to access the ash ponds, and other excavating and earthmoving work services. Transportation of the excavated earth and ash is ancillary to the principal supply of excavation and earthmoving service (SAC 995433). Evacuation and disposal of settled ash by mechanical means from the ash ponds is, therefore, a composite supply of services. Supply of goods, if any, is incidental to the main supply, and does not constitute any significant percentage. The recipient, being a Panchayat, is entrusted under section 153 of the 1973 Act with such powers and responsibilities as provided under Art 243G of the Constitution. Art 243G of the Constitution empowers the State Government to enact laws enabling the Panchayat to act as an institution of local self-government for implementing schemes for economic development and social justice as may be entrusted, including those in relation to matters listed in the Eleventh Schedule of the Constitution - Unless an activity is directly concerned with a matter listed in the Eleventh Schedule, the State Government entrusts the Panchayat by specific order a work that advances the cause of economic development and social justice. In the discharge of its functions, the Zilla Parishad shall, therefore, be guided by such instructions or directions as the State Government may give from time to time under section 212 of the 1973 Act. The Applicant's service to PMZP, therefore, is exempt under Sl No. 3A of the Exemption Notifications (Service) - The question of liability to pay tax on the Applicant's supply of service to PMZP being thus answered, further probing with respect to tax KTPS is paying on reverse charge basis is not necessary.

Summary

Issues:
1. Admissibility of the Application
2. Submissions of the Applicant
3. Observations and findings of the Bench

Admissibility of the Application:
The case involved the West Bengal Power Development Corporation awarding work to a local authority for evacuation and disposal of settled ash. The Applicant sought clarification on the classification of the supply and potential GST liability. The questions raised were deemed admissible under the GST Act, and the application was admitted.

Submissions of the Applicant:
The Applicant argued that the work provided was a pure service to a local authority and related to functions entrusted to a Panchayat under the Constitution. They contended that the service fell under the exemption notifications for services provided to government entities.

Observations and findings of the Bench:
The Bench analyzed Circulars and legal provisions to determine the eligibility of the Applicant for exemption under the relevant notifications. It was established that the service provided to the local authority for activities related to public welfare functions specified in the Constitution was exempt from GST. The work undertaken by the Applicant was considered a composite supply of services, with incidental supply of goods. The Zilla Parishad was recognized as a Panchayat and a local authority under the relevant Acts. The service provided by the Applicant to the Zilla Parishad was found to be exempt under the applicable notification.

In conclusion, the ruling stated that the Applicant's supply to the Zilla Parishad was a composite supply exempt under the relevant notification. The decision was valid unless declared void under the GST Act.