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) dated 19.10.2023 for services provided by the applicant.
2. Classification of the activity as a composite supply of works contract.
3. Determination of tax liability for the services provided to a local authority.

Issue-wise Detailed Analysis:

1. Applicability of GST Exemption under Entry 3B:
The applicant, engaged in providing services related to the installation and commissioning of a sewerage system, sought an advance ruling on whether these services were exempt under Entry 3B of Notification No. 13/2023-CT (Rate) dated 19.10.2023. This entry exempts services provided to a Governmental Authority by way of sanitation conservancy. The applicant argued that their services qualified as sanitation conservancy, thus falling under the exemption.

The ruling clarified that Entry 3B was introduced to extend exemptions previously curtailed for services to Governmental Authorities. However, the exemption under Entry 3B was not applicable to the applicant's services because the exemption was intended for pure services or composite supplies where the value of goods does not exceed 25% of the total supply value. The applicant's services involved substantial goods supply, exceeding this threshold.

2. Classification as Composite Supply of Works Contract:
The applicant's activities were classified as a composite supply of works contract, which involves both goods and services for immovable property. The ruling emphasized that works contracts are inherently composite supplies, as they include construction, installation, and commissioning activities along with the transfer of property in goods. The applicant admitted to supplying both goods and services, confirming the classification as a works contract.

The ruling highlighted that works contracts are treated as a supply of services under GST law, specifically under Schedule II, Entry 6(a). Therefore, the services provided by the applicant were classified as works contract services.

3. Determination of Tax Liability:
The ruling analyzed the tax liability for the applicant's services, considering the nature of the contract and the recipient being a local authority. The services provided to the Municipal Council Kotputli, a local authority, were initially taxed at 18% GST. The ruling concluded that the exemption under Entry 3B was not applicable due to the composite nature of the supply involving significant goods.

The ruling further noted that the applicant had been paying GST under the SAC 995424, related to general construction services of local water and sewerage pipelines. The services, therefore, did not qualify for exemption under Entry 3B, as they did not meet the criteria of being purely services or having a goods component below the specified threshold.

Conclusion:
The advance ruling concluded that the applicant's services of providing, laying, jointing, testing, and commissioning the sewer system and ancillary works were not exempt under Entry 3B of Notification No. 13/2023-CT (Rate) dated 19.10.2023. The services were classified as a composite supply of works contract, and the tax liability was determined based on the existing provisions for such contracts, requiring the applicant to continue paying GST at the applicable rate.

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