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2023 (7) TMI 519 - AAR - GSTExemption from GST - Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution - determination of supplier of service and the recipient of service in the transaction between the Government and the applicant - reverse charge mechanism. Petitioner claims that they are making payment to the Government for using this property and hence the payment should be treated as payment to the Government for using such rights. Therefore they can claim benefit under Entry No. 3 of Notification No. 12/2017 CT (Rate) dated 28.06.2017. Supplier and recipient of service - HELD THAT - On analysis of the terms and conditions of the contract with reference to the definition of the terms; consideration recipient of service and supplier of service; it is evident that the transaction covered by the subject contract between the applicant and the Government in sum and substance confers the right to the applicant to extract the mud and sand lying underneath the reservoir of Mangalam Dam and appropriate the same by way of sale or otherwise during the term of the contract for a lumpsum consideration of Rs. 15 Crores payable in instalments spread over the contract period. Therefore in the subject transaction the supplier of service is the Irrigation Department of the Government of Kerala and the recipient of service is the applicant. Classification and rate of GST of the service - HELD THAT - The grant of the right to desilt the reservoir and to extract the sand and mud therein falls within the scope of; licensing services for the right to use minerals including its exploration and evaluation as described in Heading 997337 of the Scheme of Classification of Services under GST - the service is appropriately classifiable under SAC 997337 and attracts GST at the rate of 18% as per entry at SI. No. 17 (viii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. Person who is liable to pay the tax; whether the supplier of service under forward charge or the recipient of service under reverse charge? - HELD THAT - In the instant case the applicant is the recipient of service supplied by the Irrigation Department of the Government of Kerala. As per entry at SI. No. 5 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017 the tax in respect of services supplied by the Central Government State Government Union territory or local authority to a business entity shall be paid by the business entity located in the taxable territory on reverse charge basis. Therefore the applicant is liable to pay the GST on reverse charge basis on the consideration of Rs. 15 Crores given to the State Government for grant of the right to desilt the dam and extract the sand and mud lying underneath for appropriation.
Issues Involved:
1. Eligibility for exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. 2. Liability to pay GST under reverse charge mechanism as per Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017. Detailed Analysis: Issue 1: Eligibility for Exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 The applicant, a private limited company, was awarded a tender for desilting the Mangalam Reservoir by the Irrigation Department, Government of Kerala. The applicant sought to determine whether their services qualify for exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate), which exempts "Pure Services (excluding work contract services or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution." The applicant contended that the desilting service is a pure service without any material element and should be exempt as it is provided to a State Government department. However, upon detailed examination, it was found that the transaction involves two supplies: a service (desilting) and goods (residues such as clay, soil, and sand). The service provided by the applicant is classified under SAC 997337, which pertains to licensing services for the right to use minerals, including exploration and evaluation. This classification attracts GST at the rate of 18% [CGST - 9% + SGST - 9%] as per entry at SI. No. 17 (viii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017. The ruling concluded that the applicant is not eligible for the exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate) as the service provided does not qualify as a pure service exempted under the said notification. Issue 2: Liability to Pay GST under Reverse Charge Mechanism Given that the service in question is taxable, the applicant sought clarification on whether they can pay GST under the reverse charge mechanism as per SI. No. 5 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017, which states that the tax on services supplied by the Central Government, State Government, Union territory, or local authority to a business entity shall be paid by the recipient on a reverse charge basis. The ruling affirmed that the applicant, as the recipient of the service supplied by the Irrigation Department of the Government of Kerala, is liable to pay GST on a reverse charge basis. This is consistent with the provisions of Notification No. 13/2017 Central Tax (Rate). Rulings: 1. Exemption Eligibility: The applicant cannot avail the benefit of exemption under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate) as the service provided is taxable under SAC 997337, attracting GST at the rate of 18%. 2. Reverse Charge Mechanism: The applicant is liable to pay GST on a reverse charge basis as per entry at SI. No. 5 of Notification No. 13/2017 Central Tax (Rate).
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