2021 (4) TMI 566 - AAR - GST

Taxability - levy of GST - Rent received from Backward Classes Welfare Department - services of renting an immovable property - exemption under entry number 3 of N/N. 12/2017 -Central Tax (Rate) dated 28-06-2017 - HELD THAT - The applicant has rented his property to the Backward Classes Welfare Department, Government of Karnataka, who in turn is using the same for providing hostel facilities to the post metric girls of backward classes. This is in relation to the function entrusted to a panchayat under article 243G of the constitution which is covered by 27th entry of 11th schedule which says Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes. Since the applicant is providing to the State Government pure services by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution, the same is covered under the entry number 3 of Notification No. 12/2017 -Central Tax (Rate) dated 28-06-2017 and hence is exempted under the CGST Act, 2017 - the activity is also exempted under the KGST Act, 2017.

Summary

Issues:
1. Admissibility of the application under the CGST Act and KGST Act.
2. Taxability of rent received from the Backward Classes Welfare Department.
3. Applicability of Notification No. 12/2017 - Central Tax (Rate) dated 29-06-2017.
4. Interpretation of Article 243G of the Constitution in relation to the services provided.

Admissibility of the application:
The unregistered individual applied for an Advance Ruling under Section 97 of the CGST Act, 2017, and KGST Act, 2017 regarding the taxability of rent received from the Backward Classes Welfare Department. The application was found admissible as it pertained to the applicability of a notification issued under the provisions of the Act.

Taxability of rent received:
The applicant rented out his property to the Backward Classes Welfare Department to run a post-metric Girl's Hostel. The applicant believed that since the property was being used for the welfare of backward classes students, the service provided should be exempted under Article 243G of the Constitution. The Authority noted that the applicant was only providing the service of renting an immovable property, which constituted a pure service as per the relevant notification.

Applicability of Notification No. 12/2017:
The service provided by the applicant to the Backward Classes Welfare Department was considered a pure service as per the notification, which exempts services provided to the Central Government, State Government, or local authority in relation to functions entrusted to a Panchayat under Article 243G of the Constitution. The service provided by the applicant fell under this exemption.

Interpretation of Article 243G of the Constitution:
The Authority analyzed Article 243G of the Constitution, which deals with the powers and responsibilities of Panchayats. Since the applicant's service was related to a function entrusted to a Panchayat under Article 243G, specifically concerning the welfare of weaker sections, the service provided was exempted from tax under the CGST Act and KGST Act. The ruling stated that the transaction of providing pure service through renting a building to the Backward Classes Welfare Department was exempt from tax as per the relevant notification.

In conclusion, the Authority ruled that the service provided by the applicant in renting the building to the Backward Classes Welfare Department for the purpose of activities related to a function entrusted to a Panchayat under Article 243G of the Constitution was exempt from tax payment as per the specified notification.