2022 (2) TMI 1042 - AAR - GST

Project Management Consultancy services provided to Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation (RUDSICO) under Rajasthan Secondary Towns Development Sector Project - Invoice is raised by the Applicant to the Leading Member, who further raise invoice to RUDSICO of complete amount - pure services or not - exemption under SI. No. 3, (Chapter 99) of Table mentioned in Notification No. 12/2017 - Central Tax (Rate) Dated 28/06/2017 - Governmental Authority or not - HELD THAT - The services provided by the Applicant to RUDSICO is Project Management Consultancy Services is in relation to Rajasthan Sector Towns Development Sector Project (RSTDSP) for rehabilitation and expansion of water supply network, rehabilitation and expansion of sewerage network, modernization and construction of new water supply and wastewater treatment plants which is listed in Twelfth Schedule to Article 243 W of the Constitution - the PMC services provided by the Applicant to RUDSICO is a 'Pure Service' eligible for exemption under Notification no. 12/2017-Central Tax (rate) dated 28.06.2017. irrespective of the way of raising Invoice as stated in the Joint Venture Agreement. Whether the applicant is eligible for exemption under notification 12/2017central tax rate dated 28.06.2017 or otherwise? - HELD THAT - It is seen that the following three conditions are to be fulfilled to be eligible for taking the benefit of the exemption from GST under the above notification - (i) Pure services are to be provided. (ii) Such services provided should be by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India; and (iii) Service recipient should either be Central Government or State Government or Union territory or Local authority or Governmental authority. In the present case, as regard the first condition to be discussed is as to what is meant by pure service? Since 'pure service' has not been defined under GST. the same can be construed in general terms as any supply, which is either deemed as services under Schedule II of CGST Act or which are not covered under the definition of goods shall be categorized as pure services. It is seen that the services provided are of only consultancy services. The applicant has also declared that PMC services provided by them has no component of supply of goods. Since there is no involvement of supply of goods in the services, the services would be termed as 'pure services'. Hence, the first condition is fulfilled. As regard the second condition, the project will include O M embedded construction contracts combining design, construction and O M for water supply and waste water contracts for a period of 10 years. This will support the municipalities O M responsibility and improve the quality of service delivery by providing continuity in system operation as well as O M. In view of the above, we conclude that the supply of Consultancy services by the applicant are in relation to function of town planning and water supply. As regard the third condition, as per the master data submitted by the applicant, we find that the total authorized capital is ₹ 50 crores and the paid up capital is ₹ 48.67 crore.It is further found that total paid up capital, wherein, only ₹ 41 crore holding with Government of Rajasthan through H.E. governor of Rajasthan, which is less than 90%, as per the definition given under Notification no. 11/2017-Central tax (rate) and Notification no. 12/2017- Central tax (rate) dated 28th June 2017 as stated above, the recipient of the service viz. Rajasthan Urban Drinking Water Sewerage Infrastructure Corporation Limited (RUDSICO) is not a Governmental authority. Therefore, they are not eligible for exemption under notification no. 12/2017 central tax (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Whether the 'Project Management Consultancy' services provided to RUDSICO under Rajasthan Secondary Towns Development Sector Project can be termed as 'Pure Services' as referred in SI. No. 3 - (Chapter 99) of Table mentioned in Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017 and accordingly eligible for exemption from CGST and SGST.

Detailed Analysis:

I. Interpretation of 'Pure Services':

1.1 The services provided by the Applicant, CEG, may be termed as 'Pure Services' if they exclude works contract service, exclude other composite supplies involving supply of any goods, and involve the supply of services without involving any supply of goods.
1.2 The term 'Pure Services' has not been defined in the Act, Rules, or notification. However, CBEC FAQs clarify that 'Pure Services' means supply of services without involving any supply of goods.
1.3 The term 'Works Contract' as defined in Section 2(119) of the CGST Act, 2017, involves the transfer of property in goods in the execution of a contract.
1.4 The contract between the Applicant and RUDSICO is purely a service contract with no component of transfer of property in goods.
1.5 The scope of work includes project management, execution, monitoring, construction supervision, and ensuring ESMPs are implemented.
1.6 The Joint Venture Agreement states that GST on consultancy services is exempt.

II. RUDSICO as a Governmental Authority:

2.1 RUDSICO is a State Government Company with more than 90% equity or control by the Government of Rajasthan.
2.2 The definition of "Governmental Authority" under Notification No. 11/2017 and 12/2017 includes any authority with 90% or more participation by the government.
2.3 RUDSICO is controlled by the State Government and functions under the Minister of UDH & LSG, Government of Rajasthan.

III. Services in Relation to Functions Entrusted to a Municipality:

3.1 Article 243W of the Constitution empowers Municipalities to function as institutions of self-government concerning urban planning, water supply, and other functions listed in the Twelfth Schedule.
3.2 The Twelfth Schedule includes urban planning and water supply for domestic, industrial, and commercial purposes.
3.3 RUDSICO’s objectives align with the functions listed in Article 243W, including infrastructure development and public utilities.
3.4 The project aims to improve water and wastewater services in 42 secondary towns of Rajasthan.
3.5 The PMC services provided by the Applicant are in relation to functions entrusted to a Municipality under Article 243W.

IV. Financial Administration of the Joint Venture Agreement:

4.1 The project is a joint venture involving M/s Haskoning DHV Consulting Pvt. Ltd., M/s Haskoning DHV Nederland B.V., and M/s Consulting Engineers Group Ltd.
4.2 The Leading Member is responsible for financial administration, including preparation and submission of invoices to the client.
4.3 There is no principal-agent relationship between the Leading Member and the Applicant.
4.4 The Applicant provides 'Project Management Consultancy' services to RUDSICO and raises invoices to the Leading Member for financial administration purposes.

Findings and Conclusion:

1. The services provided by the Applicant are 'Pure Services' as they involve only consultancy services without any supply of goods.
2. The services are in relation to functions entrusted to a Municipality under Article 243W of the Constitution.
3. However, RUDSICO does not qualify as a "Governmental Authority" as it does not meet the 90% government equity requirement under Notification No. 11/2017 and 12/2017.

Ruling:

The 'Project Management Consultancy' services provided to RUDSICO under the Rajasthan Secondary Towns Development Sector Project, where the invoice is raised by the Applicant to the Leading Member, who further raises an invoice to RUDSICO, cannot be termed as 'Pure Services' eligible for exemption under Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017.