2018 (12) TMI 1155 - AAR - GST

Levy of GST - Supply of goods or not - pure services - services provided by them by way of providing energy saving street lighting services including OM of the street lighting installations to Bhubaneswar Municipal Corporation (BMC) - Entry No. 3 of Notification No. 12/2017-CentraI Tax. Held that - There is no clarity as to whether the service supplied is a case of pure service and whether the contract in pursuance to which the service is being supplied by the applicant to BMC is not a works contract. In fact, the present ruling entirely hinges on answer to the first question i.e., whether the supply is a case of supply of pure service. The term pure service has not been deemed in the said notification for which it has to be understood by applying the common parlance test and general understanding. As per dictionary, pure means unadulterated and unmixed. Accordingly, pure service should mean pure unadulterated service not mixed with any other element (in this case without any mixture of goods). The consideration payable to the applicant includes the cost of acquisition of the business assets i.e. the energy efficient street light infrastructure set up by the applicant at the end of the contract period. Such transfer of business assets from the applicant to BMC is admittedly not covered in clause (c) of para 1 of Schedule II of the CGST/OGST Acts - Thus, it is not a case of supply of pure service but rather a case of supply with substantial use of goods. At the time of personal hearing, on a query raised by the authority it was explained by the applicant that during the period from 01.07.2017, till the date of hearing materials such as street Lights Control Panel and LED Bulbs etc. of value ₹ 3,89,72,117/- have been moved to Bhubaneshwar project from the manufacturing plant. This is a substantial amount and with material movement at this scale, the ultimate supply to BMC cannot be held as a case of supply of puce service. Thus, on this account, the condition is not fulfilled. The activities undertaken by the applicant do not constitute supply of pure services as it involves significant use of goods/materials. It is also a case of supply of works contract service by the Applicant to BMC. The benefit of exemption from tax in terms of S 1.3 of the notification No. 12/2017- Central Tax (Rate), dated 28.06.2017 is not available to the applicant - When there is ambiguity In exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject / assessee and it must be interpreted in favour of the revenue. Further, Entry at Sl. No. 3 of the notification No. 12/2017-central tax dated 28.06.2017 is unambiguous and it cannot be stretched or construed otherwise. It has no extension and putting any other extension is neither warranted nor intended to and would lead to absurd conclusion not called for and would render the notification entry redundant. Ruling - The services provided by the applicant by way of providing energy efficient street lighting services including 0M of the street lighting infrastructure during the contracted period to Bhubaneswar Municipal Corporation (BMC) do not constitute supply of pure services as it involves significant use of goods/materials with stipulation to transfer the total business assets to BMC at the end of the contract period. The benefit of exemption from tax in terms of S 1.3 of the notification No. 12/2017- Central Tax (Rate), dated 28.06.2017 is not available to the applicant.

Summary

Issues Involved:
1. Applicability of Entry No. 3 of Notification No. 12/2017-Central Tax to the services provided by the applicant.
2. Determination of whether the services provided constitute "pure services."
3. Consideration of whether the contract is a "works contract."

Issue-wise Detailed Analysis:

1. Applicability of Entry No. 3 of Notification No. 12/2017-Central Tax:

The applicant sought an advance ruling on whether their services of providing energy-saving street lighting, including operation and maintenance (OM) of installations to Bhubaneswar Municipal Corporation (BMC), are exempt under Entry No. 3 of Notification No. 12/2017-Central Tax. This notification exempts pure services provided to government entities in relation to functions entrusted to municipalities under Article 243W of the Constitution.

2. Determination of whether the services provided constitute "pure services":

The applicant argued that their services should be considered "pure services" because:
- The activity under the Energy Performance Contract does not involve a transfer of property in goods during the contract period.
- The contract involves the installation, management, and maintenance of energy-saving equipment, which they claim is a single supply of service.
- At the end of the contract period, the transfer of ownership of the equipment to BMC would be considered a supply of goods, but this would not be chargeable to GST as per Section 18(6) of the CGST Act.

However, the jurisdictional officers countered that the contract involves significant use of goods, such as LED lights and control panels, and includes their replacement during the contract period. Thus, it cannot be considered a contract of pure services.

3. Consideration of whether the contract is a "works contract":

The authority examined the terms of the contract, which included:
- Conducting asset surveys and maintaining an asset database.
- Installing and maintaining energy-efficient lighting and metering devices.
- Operating and maintaining the lighting fixtures, including replacements.
- Establishing a central monitoring center and reporting performance to BMC.
- Transferring the street lighting system to BMC at the end of the contract.

The authority concluded that the contract involves substantial use of goods and fits the definition of a "works contract" as per Section 2(119) of the CGST/OGST Act. The contract includes activities such as replacement, fitting out, repair, and monitoring of the lighting system, which are in relation to immovable property.

Conclusion:

The authority ruled that the services provided by the applicant do not constitute "pure services" due to the significant use of goods and the nature of the contract being a works contract. Therefore, the benefit of exemption from tax under Entry No. 3 of Notification No. 12/2017-Central Tax is not available to the applicant. The ruling emphasized that exemption notifications should be interpreted strictly, and any ambiguity should be resolved in favor of the revenue.

Ruling:

The services provided by the applicant, involving energy-efficient street lighting and OM during the contracted period to BMC, do not qualify as "pure services" and are not exempt from tax under the specified notification. The applicant or the jurisdictional officer may appeal this ruling within 30 days.