2020 (10) TMI 811 - AAR - GST

Exemption from GST - benefit of N/N. 12/2017-Central tax (Rate) dated 28.06.2017 - pure consultancy services provided to the Municipalities and Corporations - taxability of pure consultancy services provided to the private individuals - rate of tax - input tax paid on the purchase of capital goods like furniture, computer, lab equipments, drone cameras, total station, auto level instruments, etc., and on certain services. HELD THAT - The applicant is involved in the rendering pure consultancy services like project management consultancy services including construction, supervision, quality control, rejuvenation and development of lakes. The applicant is also involved in the preparation of detailed project report for pumping treated water, scientific landfill at Bengaluru quarries, construction of Raja Nala and Other development civil works etc. The applicant provides these services mainly to the Municipalities, Corporations (i.e. local bodies) and to Government Departments and only in a few cases, a pure consultancy service is being provided to private parties - the work undertaken by the applicant reveals that he is providing majority of his services to the BBMP and Government Departments and to the smaller extent to the private individuals. The pure services provided to Central Government or State Government or to a local authority or Governmental authority in relation to any function entrusted to a Municipality under Article 243W of the Constitution is exempt from payment of tax - the BBMP and Sindhanur Municipality come under the definition of local authority and the service provided by the applicant to BBMP and Sindhanur Municipality is the service rendered to the local authority. The applicant providing pure services (without supply of goods) to the Local bodies and to the Department of the State Government. The services provided by the applicant are in relation to the function entrusted to the Municipality under article 243W of the constitution. Hence the applicant is entitled to the benefit of Sl. No. 3 of Notification No.12/2017-Central Tax (Rate), dated 28th June 2017. Benefit of Input Tax Credit - HELD THAT - Sub-section 2 of section 17 of the CGST Act 2017 clearly says that, the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero-rated supplies - Since the applicant providing both taxable and exempted supplies, applicant has to restrict the input tax paid on the capital goods to the extent of taxable supply of services.

Summary

Issues Involved:
1. Whether pure consultancy services provided to Municipalities and Corporations are exempt from GST.
2. Whether pure consultancy services provided to private individuals are taxable, and if so, the applicable rate of tax.
3. Whether input tax paid on the purchase of capital goods and certain services can be claimed to the extent of taxable supply of services.

Issue-Wise Detailed Analysis:

1. Exemption of Pure Consultancy Services to Municipalities and Corporations:
The applicant, a private limited company, provides pure consultancy services like project management, construction supervision, quality control, and the preparation of detailed project reports (DPRs) primarily to Municipalities, Corporations, and Government Departments. The applicant sought a ruling on whether these services are exempt from GST under serial number 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

The notification exempts "pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government, Union territory, local authority, or Governmental authority by way of any activity in relation to any function entrusted to a Municipality under Article 243W of the Constitution."

The applicant argued that their services fall under this exemption as they are pure services provided to local authorities (BBMP) and Government Departments, relating to functions listed in the Twelfth Schedule of the Constitution. The Authority for Advance Rulings (AAR) confirmed that BBMP and Sindhanur Municipality are local authorities, and the services provided by the applicant are related to functions entrusted to Municipalities under Article 243W, such as public health, sanitation, urban amenities, and environmental protection. Thus, these services are exempt from GST, subject to the condition that no goods are involved in the service provision.

2. Taxability of Pure Consultancy Services to Private Individuals:
The applicant also provides consultancy services to private individuals. The AAR ruled that these services are taxable under entry No. 21 of the heading 9983 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, which pertains to "Other professional, technical and business services." The applicable tax rate is 9% under CGST and 9% under SGST, totaling 18%.

3. Claim of Input Tax Credit on Capital Goods and Services:
The applicant inquired whether they could claim input tax credit (ITC) on the purchase of capital goods and certain services to the extent of taxable supply of services. According to subsection 2 of section 17 of the CGST Act 2017, when goods or services are used partly for taxable supplies and partly for exempt supplies, the ITC must be restricted to the extent attributable to taxable supplies. Therefore, the applicant can claim ITC proportionately to their taxable supplies.

Ruling:
1. Pure consultancy services (without supply of goods) provided to Municipalities, Corporations, and State Government Departments are exempt from GST as per serial number 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
2. Pure consultancy services provided to private individuals are taxable at 9% under CGST and 9% under SGST as per entry No. 21 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.
3. Input tax paid on the purchase of capital goods and certain services shall be restricted to the extent attributable to taxable supplies as per subsection 2 of section 17 of the CGST Act 2017.