2024 (10) TMI 934 - AAR - GST

Exemption from GST - activity of providing, laying, jointing, testing and commissioning of sewer system and all ancillary works - applicability of entry 3B of the NN 13/2017-CT (Rate) dated 28.06.2017 - composite supply of works contract or not - determination of tax liability for the services provided to a local authority - HELD THAT - In the instant case the applicant is engaged in providing works contract services . The applicant also admits the fact that they are engaged in supply of goods along with services for an immovable property. Thus, the services provided by the applicant are found to be works contract services, where goods along with services are supplied. KOTPUTLI Municipal Council is covered under the definition of Local Authority. In the instant case, the applicant is providing services to KOTPUTLI Municipal Council which is a local authority. The Sr No. 3 and 3A of the Notification No. 12/2017-CTR dtd 28.06.2017 are applicable only in the case of pure services or composite supply having value of supply of goods not more than 25 percent. Since, Sr No 3B is also extension of Sr No 3 and 3A and all these entries are inter-related and it won t be appropriate to read all these entries in isolation or individually. Therefore, Sr.No. 3B will also be applicable in case of pure services or composite supply, where value of the goods is not more than 25 percent. The applicant provides services to kotputli Municipal Council, which is a local authority and all the three entries Sr No. 3, 3A and 3B of the Notification No. 12/2017-CTR dtd 28.06.2017 are consistent and should not be read individually, the rate of tax on services provided by the applicant should be decided in terms of Sr No. 3 and 3A, since the said entries cover services provided to local authority , there is no need to go to Sr No. 3B. The applicant is providing it s services to Municipal Council KOTPUTLI (local authority) of Providing, laying, jointing, testing and commissioning of sewer system and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and Instrumentation and other necessary works) of SPS, MPS and 10 MLD capacity STP based on SBR process with provision of 1 year defect liability and there after 10 years for Kotputli town, Jaipur District, Rajasthan. So, exemption entry No. 3B is not applicable to the applicant.

Issues Involved:

1. Applicability of GST exemption under Entry 3B of Notification No. 13/2023-CT (Rate) for services provided to a Governmental Authority.
2. Classification of the activity as a composite supply of works contract.
3. Determination of whether the services fall under the category of pure services or composite supply with goods component not exceeding 25%.

Issue-wise Detailed Analysis:

1. Applicability of GST Exemption under Entry 3B of Notification No. 13/2023-CT (Rate):

The applicant sought clarification on whether their activity of providing, laying, jointing, testing, and commissioning of a sewer system qualifies for exemption under Entry 3B of Notification No. 13/2023-CT (Rate). This entry provides exemption for services provided to a Governmental Authority by way of water supply, public health, sanitation conservancy, solid waste management, and slum improvement and upgradation. The applicant argued that their services fall under the category of sanitation conservancy and are provided to a Governmental Authority, i.e., the Municipal Council Kotputli, thus qualifying for exemption.

However, the ruling concluded that the exemption under Entry 3B is not applicable to the applicant's services. It was determined that Entry 3B is an extension of earlier entries 3 and 3A, which are applicable only to pure services or composite supplies where the value of goods does not exceed 25%. The applicant's services were found to be a composite supply involving significant goods components, thus not qualifying for exemption under Entry 3B.

2. Classification as a Composite Supply of Works Contract:

The applicant's activity was examined to determine if it constituted a composite supply of works contract. The definition of works contract under Section 2(119) of the CGST Act, 2017, includes contracts for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property involving the transfer of property in goods.

The ruling confirmed that the applicant's services, which involve the installation and commissioning of a sewerage system, qualify as a works contract. The services provided include both goods and services for an immovable property, thus constituting a composite supply of works contract.

3. Determination of Pure Services or Composite Supply with Goods Component:

The ruling also addressed whether the applicant's services fall under the category of pure services or composite supply with goods component not exceeding 25%. According to the exemption notification, pure services or composite supplies with a goods component not exceeding 25% provided to the Central Government, State Government, or local authority are exempt.

The ruling found that the applicant's services involve a significant supply of goods, including sewerage systems and sewage pumping stations, which exceed the 25% threshold. Therefore, the services do not qualify as pure services or composite supply with a minimal goods component, and thus, the exemption under entries 3 and 3A is not applicable.

Conclusion:

The ruling concluded that the applicant's activity of providing, laying, jointing, testing, and commissioning of a sewer system and all ancillary works does not qualify for exemption under Entry 3B of Notification No. 13/2023-CT (Rate). The services are classified as a composite supply of works contract involving significant goods components, and therefore, they are not exempt under the GST provisions discussed.

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