GST exemption on Water supply and Sewage projects, Goods and Services Tax - GST

[N Balachandran]

Sir

We are EPC contractor executing Drinking water supply projects involves supply of pipes and laying including civil works and also under Under ground drainage projects for Govt authority including Municipal corporations.

Question is :

1. GST is applicable on the above projects if so , What is rate of GST is applicable ?

As per recent Notification No 13/2023-Central Tax (Rate) dt 19 10 2023, Nil rate of GST is granted to

a) Water supply

b) Public Health

c) Sanitation converancy

d) Solid waste Management and

e) slum improvement and upgradation. vide 3B of Chapter 99 (amended the Notificaiton No 12/2017-Central Tax (Rate) dated 28th June 2017.

in view of the above notification , Kindly clarify the applicable GST on the above said project

Regards

N Balachandran

Posts / Replies

[KASTURI SETHI]

Sh.N.Balachandran Ji,

Your firm is not supplying services specified in Notification No.13/23-CT(R) dated 19.10.23. Your services are classified under 'Works Contract Services' . Hence not eligible for exemption in this notification.

Also emphasis is laid on the legal meaning and essence of the phrase 'by way of'. This phrase disintegrates your services from the services specified in the said notification.

Disclaimer : These are my personal views for education purposes only and not meant for any court proceedings.

[Amit Agrawal]

Without checking the contractual & tender terms, all relevant factual aspects (to be eligible to claim exemption) and without determining nature of supply, it is not possible to answer the query raised.

Kindly allow me to give some points to ponder:

A. Serial No. 3B of Notification No. 12/2017- Central Tax (Rate) (as inserted vide Notification No 13/2023-Central Tax (Rate) dt 19 10 2023) covers all type of services (i.e. services falling under Chapter 99) which includes 'works contract service as defined in clause (119) of section 2, irrespective of value of goods supplied while supplying works contract services' as well as 'other composite supplies involving supply of any goods, where principal supply is that of services'. But, said exemption does NOT deal with supply of goods at all.

B. Service-recipient has to be 'Governmental Authority' before claiming exemption under above-said Serial No. 3B. In other words, where Service-recipient is the Central Government, State Government or Union territory or local authority (i.e. Panchayat / municipal corporations), exemption under above-said Serial No. 3B will not be available.

B1. Where Service-recipient is the Central Government, State Government or Union territory or local authority (i.e. Panchayat / municipal corporations), one needs to check eligible under other exemptions entries like serial numbers like Serial No. 3, 3A of Notification No. 12/2017- Central Tax (Rate), which have expanded scope of 'description of services' eligible for exemption as compared to Serial No. 3B but same should be 'pure services' to be eligible under Serial No. 3 or it should be 'Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply' to be eligible under Serial No. 3A.

B2. Point is each serial number of exemption notification or each of different exemption notifications should be looked into independently after studying the contractual & tender terms, all relevant factual aspects (to be eligible to claim a particular exemption) and same should be mixed up with each other.

C. Exemption under Serial No. 3B also limited to "Services provided by way of –

(a) water supply;

(b) public health;

(c) sanitation conservancy;

(d) solid waste management; and

(e) slum improvement and upgradation.

C1. With regards to meaning of 'By way of' as well as 'Water Supply' used above, your attention is invited to Circular No. 199/09/2016-Service Tax dated the 22^nd August, 2016, relevant portion of which is re-produced below:

"2.1 Vide Serial No. 12 (e) of Notification 25/2012-Service Tax dated 20-6-2012-

"Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal"

2.2 Vide Serial No. 25(a) of notification 25/2012-Service Tax dated 20-6-2012

2.2.1 In the period 1-7-2012 to 10-7-2014

"Services provided to Government, a local authority or a governmental authority by way of carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation".

2.2.2 In the period 11-7-2014 onwards

"Services provided to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation".

3. Thus, it follows that, among others, exemption is available to the following services provided to the Government, a local authority or a governmental authority, by way of-

(a) construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for (i) water supply (ii) water treatment, and

(b) water supply

4. The phrase "water supply" is a general phrase. Basically it will involve providing users, access to a source of water. The source may be natural or artificial like tanks, wells, tube wells etc. Providing users access to such a source will involve construction of the source (if artificial) and the transmission of water to the user. It will involve activities like drilling , laying of pipes, valves , gauges etc, fitting of motors, testing etc, so as to eventually result in the supply of water. Similarly the word plant has to be understood and interpreted with reference to the context. A plant for water supply need not necessarily involve a huge assembly of machinery and apparatus, for the reasons explained earlier.

5. Thus the exemption under the entries at Serial No. 12(e) and 25(a) of Notification 25/2012-Service Tax dated 20-6-2012, will cover a wide range of activities/services provided to a government, a local authority or a governmental authority and will include the activity of construction of tube wells."

C2. Again, one should be extremely careful and should not solely rely of these clarifications issued in erstwhile tax-regime to understand meaning of terms used in gst regime. This is more so when there is no exemption directly similar to Serial No. 12 (e) of notification 25/2012-Service Tax dated 20-6-2012 under GST regime (though Serial 3 & 3A of Notification No. 12/2017- Central Tax (Rate) can be read as nearer to Serial No. 12 (e) of notification 25/2012-Service Tax dated 20-6-2012)

C3. I have quoted this circular just as point to ponder in the context of query raised because it also quotes & relies on Serial No. 25(a) of notification 25/2012-Service Tax dated 20-6-2012 (post period from 11.07.2014 onwards) which is very similar to Serial No. 3B as reference to nature of services eligible for exemption (i.e. by way of water supply).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

*Please read relevant line from Para B2 of above post as follows: .................. and same should NOT be mixed up with each other.