PURE SERVICES TO GOVERNMENT, Goods and Services Tax - GST

[Rajnish Mishra]

Dear all,

I want to know, that one of my relative having engineering consultancy services he provide service to WRD Dept. ( water resource department ) which is wholly controlled and owned by state government in madhya pradesh, he provides consultancy engineering services to department is he is liable to pay gst or it is exempted vide entry no. 3 of notification no. 12/2017-CT(Rate)

Please clear me, actually i hv discussed it with many people some told me taxable some told exempt, please clear the doubt.

Posts / Replies

[KASTURI SETHI]

Dear Querist,

Go through the following AAR and also Para No.2 of Board's Circular No.51/25/2018-GST, dated 31-7-2018. In this case Service Provider is Financial Consultant. Any decision of AAR is applicable to the applicant only but it has persuasive value.

2019 (29) G.S.T.L. 539 (A.A.R. - GST) = 2019 (9) TMI 1100 - AUTHORITY FOR ADVANCE RULING, WEST BENGALIN RE : SUMITABHA RAY

[Kashish Gupta]

Dear Rajnish Ji,

Notification No. 12/2017- Central Tax (Rate) dated 28th June 2017 (and corresponding notifications under State Act and IGST Act), notifies the services which are exempted from levy of GST. The serial no. 3 of Notification No. 12/ 2017- Central Tax (Rate) provides that-

“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 or a Government entity 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.”

Please note that –

1. 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”. However, as per the notification, works contract services or other composite supplies involving supply of any goods are not covered in serial no. 3. Though, services in the nature of original works to Government is exempted vide serial no. 10 and 11.
2. Governmental entity is defined in Notification no. 31/2017-Central Tax (Rate) dated 13 October 2017 as

“An authority or a board or any other body including a society, trust, corporation,

• set up by an Act of Parliament or State legislature, or
• Established by any Government;

with 90 per cent or more participation by way of equity or control, to carry-out a function entrusted by the Central Government, State Government, Union Territory or a local authority.”

In the present case, services are provided to WRD department, which is wholly owned and controlled by the Government of Madhya Pradesh (MP) and hence is a Government entity.

3. The phrase ‘in relation to any function’, as applied in Sl Nos. 3 and 3A above, makes no substantial difference between Sl No. 25(a) of the ST Notification and Sl No. 3/3A of the Exemption Notification. Under the previous service tax regime, the exemption was limited to certain functions specified in Sl No. 25(a) of the ST Notification; whereas, under the GST the ambit has been broadened to include all such functions as entrusted to a Panchayat or a Municipality under the Constitution. It clear that the phrase ‘in relation to any function’ refers not to who the service provider is or what activities the recipient of the service is engaged in, but only to what service the supplier is providing.

4. The services supplied should be 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. Therefore, it is important to have knowledge on what kind of activities are provided by WRD so as to classify the same under any of the entries specified in twelfth schedule to Constitution of India. The Twelfth Schedule or Article 243W of the Constitution list the functions of the municipality at SI No 5 as “Water Supply for domestic, industrial and commercial purposes “and at SI No 6 as “Public health, sanitation conservancy and solid waste management”

Therefore, kindly see whether the services are classifiable under any of the above categories and in case it gets classified, then the supply of service is covered under entry number 3 (supra).

It is also prima facie of much importance to note that as per Notification No. 11/ 2017 Central Tax (rate) dt. 28.06.2017, the Civil Engineering Consultancy Services falls under HSN Code 9983 and GST is leviable at the rate of 18%.

Reference can further be given to the rulings in the case of M/S. Kerala State Construction Corporation Ltd. [2019 (5) TMI 961 - AUTHORITY FOR ADVANCE RULINGS, KERALA], M/S. Shri Jayesh Anilkumar Dalal [2019 (8) TMI 1220 - AUTHORITY FOR ADVANCE RULING, GUJARAT] and Tamil Nadu Water Investment Company Limited [2019 (2) TMI 187 - AUTHORITY FOR ADVANCE RULING, TAMILNADU.

[YAGAY andSUN]

Question 25: What is the scope of ‘pure services’ mentioned in the exemption notification No. 12/2017-Central Tax (Rate), dated 28.06.2017?

Answer: In the context of the language used in the notification, supply of services without involving any supply of goods would be treated as supply of ‘pure services’. For example, supply of man power for cleanliness of roads, public places, architect services, consulting engineer services, advisory services, and like services provided by business entities not involving any supply of goods would be treated as supply of pure services. On the other hand, let us take the example of a governmental authority awarding the work of maintenance of street lights in a Municipal area to an agency which involves apart from maintenance, replacement of defunct lights and other spares. In this case, the scope of the service involves maintenance work and supply of goods, which falls under the works contract services. The exemption is provided to services involves only supply of services and not for works contract services.