2023 (6) TMI 528 - AAR - GST

Exemption form GST - Classification of services - pure services or not - Activity in relation to function entrusted to Panchayat or Municipality under Article 243G or Article 243W respectively of the Constitution of India or not - Project Development Service (i.e. Detailed Project Report Service (DPR) and Project Management Consultancy services (PMCS) provided by the applicant to the recipient under the Contract from State Urban Development Agency (SUDA) under the Contract for PMA Y-U - claim of exemption on services provided by a sub-contractor to the main contractor HELD THAT - As per SI. No. 3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 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 or a Governmental authority 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 as amended by notification no. 16/2021-central tax (rate) w.e.f 1.1.2022 are exempt from tax. SUDA has been established as a state level nodal agency, under the department for Urban Employment and Poverty Alleviation by Uttar Pradesh Government - As SUDA has been established as a state level nodal agency, under the department for Urban Employment and Poverty Alleviation by Uttar Pradesh Government and as per the information contained in Memorandum of Association (in Para 14 above), it is clear that SUDA is a part of State Government of UP. Further, as per website of Pradhan Mantri Awas Yojana-blousing for All (Urban), Ministry of Housing and Urban Affairs, the PMAY is a Scheme to provide central assistance to Urban Local Bodies (ULBs) and other implementing agencies through States/UTs for Rehabilitation of existing slum dwellers using their land as a resource through private, participation, and affordable Housing in Partnership. As per the details available on website SUDA is the state level nodal agency for PMAY(U) in the state of Uttar Pradesh - the Consultancy services rendered by the Applicant under the contract with SUDA, and for PMAY are in relation to functions entrusted to Municipalities / Panchayats under Article 243W / 243G of the Constitution of India. Whether such services provided by the Applicant would qualify as Pure services? - claim of exemption on services provided by a sub-contractor to the main contractor - HELD THAT - The services mentioned in the contract would qualify as Pure Service (excluding works contract service or other composite supplies involving supply of any goods) as provided in serial number 3 of Notification No. 12/2017- Central Tax (Rate) dated 28 June, 2017 issued under Central Goods and Services Tax Act, 2017 (CGST) and corresponding Notifications No. KA.N.I.-2-843/X1 - 9 (47) / 17-UP. Act-1 - 2017 - Order - (10) - 2017 Lucknow, dated June 30, 2017 issued under Uttar Pradesh Goods and Service Tax Act, 2017 (UPGST Act). In an identical matter, the Appellate Authority of Advance Ruling, Uttar Pradesh vide Appeal Order No. 17/A AAR/02/7/2021 dated 02.07.2021 2021 (12) TMI 414 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH has held that the Services rendered by the appellant to the State Urban Development Agency, Uttar Pradesh (SUDA), and for PMAY are in relation to functions entrusted to Municipalities under Article 243 W and to Panchayats under Article 243G of the Constitution of India and such services would qualify as Pure Service (excluding works contract service or other composite supplies involving supply of any goods). It is observed that Sl. No. 3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 exempts 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 or a Governmental authority 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 as amended by notification no. 16/2021-Central Tax (rate) w.e.f. 1.1.2022 - As such, for qualifying exemption under the said entry, it is essential that specified services are provided to the Central Government, State Government or Union territory or local authority or a Governmental authority and there is no condition in the notification that the said services are provided directly to the Central Government, State Government or Union territory or local authority or a Governmental authority. Accordingly, the applicant is entitled for exemption if the specified services are provided to SUDA under sub-contract with main contractor.

Summary

Issues Involved:
1. Qualification of Project Development Service and Project Management Consultancy services under Article 243G and 243W of the Constitution of India.
2. Eligibility for GST exemption under Notification No. 12/2017-Central Tax (Rate) for Pure Services provided to government entities.

Issue-Wise Detailed Analysis:

Issue 1: Qualification under Article 243G and 243W

The applicant sought a ruling on whether the Project Development Service (Detailed Project Report Service, 'DPR') and Project Management Consultancy services ('PMCS') provided to the State Urban Development Agency (SUDA) under the Pradhan Mantri Awas Yojana-Urban (PMAY-U) qualify as activities related to functions entrusted to Panchayats or Municipalities under Article 243G or 243W of the Constitution of India.

The judgment established that SUDA is a state-level nodal agency under the Department for Urban Employment and Poverty Alleviation by the Uttar Pradesh Government. SUDA's main objectives include identifying urban poor, formulating and implementing schemes for their upliftment, and reviewing the progress and effectiveness of these activities. SUDA's activities align with the functions listed in the 11th and 12th schedules of the Constitution, which pertain to Panchayats and Municipalities, respectively. Therefore, the services rendered by the applicant under the contract with SUDA for PMAY-U are in relation to functions entrusted to Municipalities under Article 243W and to Panchayats under Article 243G of the Constitution.

Issue 2: Eligibility for GST Exemption

The second issue was whether such services qualify as Pure Services (excluding works contract service or composite supplies involving supply of any goods) provided to government entities, thus eligible for GST exemption under Notification No. 12/2017-Central Tax (Rate).

The judgment detailed the scope of work under the agreements, which included physical verification, data collection, preparation of architectural designs, project structuring, and supervision of construction activities. These services were deemed to qualify as Pure Services, as they did not involve works contract services or the supply of goods. The notification exempts Pure Services provided to the Central Government, State Government, Union territory, or local authority by way of any activity related to functions entrusted to Panchayats or Municipalities under Articles 243G and 243W.

The ruling also referenced similar cases and orders, including those from the Rajasthan Authority for Advance Ruling and the Appellate Authority for Advance Ruling, Maharashtra, which supported the view that services provided by a subcontractor to a main contractor for government projects are eligible for GST exemption if the services align with the specified functions and conditions.

Conclusion:

1. The services provided by the applicant under the contract with SUDA for PMAY-U qualify as activities related to functions entrusted to Panchayats and Municipalities under Articles 243G and 243W of the Constitution.
2. These services qualify as Pure Services and are exempt from GST under Notification No. 12/2017-Central Tax (Rate), as amended, and corresponding notifications under the Uttar Pradesh Goods and Services Tax Act, 2017.