2023 (3) TMI 1250 - AAR - GST

Taxability under GST or not - pure services - Engagement of system integrator for implementation water revenue management system, creation and maintenance of database, spot billing/meter reading and bill distribution (MRBD) services for water supply sewerage connections under the jurisdiction of Municipal Corporation, Gurugram - SAC Code - rate of output tax liability on services - exemption under clause 3 of notification 12/2017 dated 28.06.2017. HELD THAT - A water distribution system is a part of water supply network with components that carry potable water from a centralized treatment plant or tubewells to the consumers. It also includes the water supply for commercial, industrial and fire fighting requirements. The Government has notified the list of services or activities which are exempted under the GST Act 2017. Relevant entry no. 3 of Pure Services in the exemption notification dated 12/2017-CT(R) which got amended on 18.11.2021 w.e.f. 01.01.2022 is as Pure Services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243 G of the Constitution or in relation to any function entrusted to a Municipality under Article 243 W of the Constitution - From this, it can be construed that for any supply to be covered under the Pure Services if there is no supply of goods and the recipient should be Central government/State government/Union territory/ Local Authority and services should be by way of any activity in relation to any function entrusted to a panchayat under article 243G of the constitution or in relation to any function entrusted to a Municipality under Article 243 W of the Constitution. The main function of water distribution services is of MCG and the same can be considered as pure services. But the services received by MCG from the applicant are not in the nature of Pure Services and not the support services as these are support services and not in relation to any function which is entrusted to the MCG. The goods (tangible and Intangible) and services provided by the applicant cannot be regarded as an integral part of the water distribution system itself. These are add on activities. The definition of the Scope of Supply and Business under the CGST Act, 2017 is quite extensive. The taxability of any supply of goods and services is covered under these definitions. There should be an express/explicit provision for the availment of any exemption under the CGST Act, 2017. Exemptions are not optional and the conditions/constrained prescribed under the provisions must be fulfilled. And in the present case, it is clearly observe that the said services provided by the applicant to the MCG are not part and parcel of the water supply system. The services provided by the applicant to MC, Gurugram is a taxable supply - applicable SAC Code is 998633, taxable at 18% - further, Service is not exempt under clause 3 of notification 12/2017 dated 28.06.2017.

Summary

Issues Involved:
1. Engagement of system integrator for implementation of water revenue management system, creation and maintenance of database, spot billing/meter reading, and bill distribution (MRBD) services for water supply & sewerage connections under the jurisdiction of Municipal Corporation, Gurugram.
2. Determination of the liability to pay tax on the above services.
3. Exemption status of the services under clause 3 of notification 12/2017 dated 28.06.2017.

Issue-Wise Detailed Analysis:

1. Engagement of System Integrator for Implementation of Water Revenue Management System:
The applicant is engaged in providing maintenance of a database, spot billing, meter reading, and bill distribution services to the Municipal Corporation, Gurugram for water supply and sewerage connections. These services include the creation and maintenance of a database, generation of data for spot billing, and provision of web-based software for billing and collection of payments. The applicant has received a work order from the Municipal Corporation for these services, which involve using software and manpower to support water distribution services.

2. Determination of the Liability to Pay Tax:
The applicant sought a ruling on the liability to pay tax on the aforementioned services. The relevant provisions under the CGST Act, 2017, including definitions of "business," "consideration," "exempt supply," and "supplier," were examined. According to Section 7 of the CGST Act, 2017, all forms of supply of goods or services made for a consideration in the course or furtherance of business are included in the scope of supply. The authority concluded that the services provided by the applicant to the Municipal Corporation, Gurugram, are taxable and not exempt under the GST Act, 2017. The SAC Code for these services is 998633, and the applicable rate of output tax liability is 18%.

3. Exemption Status Under Notification 12/2017:
The applicant contended that their services are pure services covered under serial no. 3 of Notification no. 12/2017-Central Tax (Rate) and related to municipal functions as enumerated in the Twelfth Schedule of Article 243W of the Constitution. However, the authority found that the services provided by the applicant, which include software services and manpower for spot billing and collection of payments, do not qualify as pure services. These services are support services and not integral to the water distribution system itself. The exemption under notification no. 12/2017 dated 28.06.2017 applies to pure services provided to a local authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution. Since the applicant's services are not part and parcel of the water supply system but rather support services, they are not exempt under this notification.

Conclusion:
Based on the detailed analysis and legal provisions, the authority ruled that the services provided by the applicant to the Municipal Corporation, Gurugram, are taxable. The SAC Code for these services is 998633, the applicable rate of output tax liability is 18%, and the services are not exempt under clause 3 of notification 12/2017 dated 28.06.2017.