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TMI Blog2022 (3) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... d, Jaipur-302021, Rajasthan - (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (b)&(e) given as under:- (b) applicability of a notification issued under the provisions of this Act. (e) Determination of the liability to pay tax on any goods or services or both. A. SUBMISSION AND INTERPRETATION OF THE APPLICANT: 1. Brief facts of the case : > M/s Lakhlan & Qureshi Construction Co. (hereinafter referred to as "LQCC" or "the Applicant") (a partnership firm) is a civil contractor and is engaged in the business of construction of roads, buildings, civil structures or various other civil works as awarded from various governmental and non-governmental organisations. > M/s Jaipur Smart City Limited (hereinafter referred to as "JSCL"), having their premises at, Pandit Deen Dayal Upadhyay Bhawan, Municipal Corporation Jaipur, Lal kothi, Tonk Road, Jaipur is a Special Purpose Vehicle (SPV) formed on 12.03.2016, to operate as a nodal agency to take up works proposed under the smart city proposal according to Smart City mission launched by the government of India. The SPV is governed by the board of directors and is answerabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials practice in this order. vii. Electricity/ water bill during construction of Project up to Testing and hand over of project to the line agency. viii. Any approval required from any line agency should be taken by the contractor in the name of entities. It is very clear that JSCL can only morally support to the contractor for liaising with respective department. It is very clear that morally support means to officially facilitate contractor to get the approval from concern Govt, department. If the line agency required any changes in technology/terms, the contractor shall change accordingly. No additional cost will be paid by Entity and NOC Charges shall be paid by the contractor and the same will be reimbursed to the contractor on submission of the invoice with the running bill. ix. The bids shall address the complete scope of work. Any bid for part scope of work or related services shall be held non-responsive and shall summarily be rejected. x. All the tests for welding (including but not limited to pressure test and spray penetration test) or any other work as desired by JSCL engineer-in-charge and as per technical requirements. xi. Bidders are requested to propose a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der heading 5.3 of Section V - Procuring Entity's Requirements of RFP is as mentioned below - "viii. Any approval required from any line agency should be taken by the contractor in the name of entities. It is very clear that JSCL can only morally support to the contractor for liaising with respective department. It is very clear that morally support means to officially facilitate contractor to get the approval from concern Govt, department. If the line agency required any changes in technology/terms, the contractor shall change accordingly. No additional cost will be paid by Entity and NOC Charges shall be paid by the contractor and the same will be reimbursed to the contractor on submission of the invoice with the running bill." > In respect of the above-said clause, the applicant is required to obtain NOC from Jaipur Nagar Nigam (JNN) for cutting of roads to install pipelines for firefighting system upon payment of certain fees firstly from their own pocket and then the same shall be reimbursed by JSCL to them upon submitting of invoices. > In order to execute the work, the applicant has made an application to obtain permission from JNN. JNN has considered the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification number 16/2018 dated 26th July 2018, wherein the activities or transactions undertaken by the central government or state government or union territory or any local authority in relation to functions entrusted through article 243G or 243W of the constitution are considered as neither supply of goods nor supply of services. > Considering the fact that the construction services provided by LQCC to JSCL are chargeable to GST, it wishes to understand whether the GST rate according to item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 as amended by notification number 24/2017 is applicable in relation to transactions with JSCL. > Further, considering the fact that the services provided by Jaipur Nagar Nigam in form of granting approval for road cutting to the applicant are in the capacity of public authority and service is in relation to a function entrusted to them under article 243 W of the constitution, it wishes to understand whether the service provided by JNN to applicant is a supply of service or not as per section 7 of CGST Act, 2017, in the light of notification number 14/2017 of Central Tax (Rate) dated 28th June 2017 as amended by notifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der CGST Act) shall be entitled to charge CGST at the rate of 6% when providing the abovesaid services to Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of civil work or any other work as mentioned in the notification. 1.1.3 The scope of services provided by M/s Lakhlan & Qureshi Construction Co. to Jaipur Smart City Limited fall within the scope of clause (a) of item number (vi) of construction services i.e. services provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. 1.2 Consideration of Jaipur Smart City Limited (JSCL) as Governmental Authority 1.2.1 Governmental Authority has been defined through an explanation to Section 2(16) of IGST Act, 2017. ..... 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JSCL is as under: S.No. Name of Shareholders Shareholding (No. of Shares) 1 Secretary to Government, Local Self Government, Rajasthan, Jaipur (Nominee of Government of Rajasthan) 1 2 Commissioner, Jaipur Development Authority, Jaipur (Nominee of Government of Rajasthan) I 3 Commissioner, Municipal Corporation, Jaipur (Nominee of Urban Local Body) 9,99,99,998 (4,998 initially & 9,99,95,000 further allotted) 4 Director and ex-officio Special Secretary, Local Bodies, Rajasthan, Jaipur (Nominee of Government of Rajasthan) 9,99,99,997 (4,997 initially & 9,99,95,000 further allotted) 5 Additional Commissioner (Head Quarter), Municipal Corporation, Jaipur (Nominee of Urban Local Body) 1 6 Chief Accounts Officer cum, FA, DLB (Nominee of Government of Rajasthan) 1 7 Chief Engineer, JMC (Nominee of Urban Local Body) 1 Total 20,00,00,000 1.2.3 As per the applicant's understanding, the functions performed by Jaipur Smart City Limited are covered under Article 243 W of the constitution of India to be defined as governmental authority. 1.2.4 Jaipur Smart City Limited seems to satisfy both the conditions required to be classified as governmental authority.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... squarely falls under the definitions of "government authority" as per explanation to clause (16) of Section 2 of the Integrated Goods and Services Tax Act, 2017. " 1.4 Conditions satisfied by the Applicant to apply rate of 6% CGST as mentioned in notification. 1.4.1 Based on the above provisions contained in Notification Number 11/2017 of Central Tax (Rate), it appears that the following conditions have been satisfied by the Applicant to charge CGST at the rate of 6% on the transactions with Jaipur Smart City Limited:- a. The Applicant is registered under the CGST Act. b. The Applicant is providing construction services to Jaipur Smart City Limited (JSCL) who is a governmental authority. c. The construction services of installation of Fire Fighting system with pump house in the contracted area is covered under clause (a) of item number (vi) of Column number. 1.4.2 Therefore, all of the conditions contained in the notification have been complied with by the Applicant for the chargeability of CGST at the rate of 6%. 2. SERVICE PROVIDED BY JAIPUR NAGAR NIGAM TO THE APPLICANT IS NOT A SUPPLY OF SERVICE. HENCE APPLICANT IS NOT LIABLE TO PAY GST UNDER RCM ON THE FEES PAID FOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom JNN to LQCC is not liable to tax, then the reimbursement of the same from JSCL to LQCC will also not attract GST as the primary service is out of the ambit of supply as per section 7 of CGST Act, 2017 and therefore its reimbursement from JSCL is also not taxable under GST. 3.1.2 Further, applicant submits that as per serial number 3 of notification no. 12/2017 of central tax (rate) dated 28th June 2017 as amended by notification no. 02/2018 of central tax (rate) dated 25th January 2018, pure services 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 them through article 243G or 243W of the constitution attracts nil rate of tax. In the light of the said notification, the reimbursement of amount by JSCL to the applicant for the NOC fees paid is in the nature of pure services provided in relation to activities mentioned in article 243W of the constitution and therefore its reimbursement from JSCL attracts nil rate of tax. 3.1.3 Without prejudice of the above, if the service provided by JNN to LQCC is taxable then in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abase access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory. Explanation.-For the purposes of this clause, the expression "governmental authority" means an authority or a board or any other body,- (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, with ninety per cent, or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243 W of the Constitution; In this case JSC Ltd. has been established by the government (A Government of Rajasthan Undertaking) as evident from the share holding pattern of the authority (Copy enclosed). JSC Ltd is a Special Purpose Vehicle (SPV) formed on 12.03.2016, to operate as a nodal agency to take up works proposed under the smart city proposal according to Smart City mission launched by the government of India. Further, JSC Limited is required to carry out the functions entrusted to Municipal Corporation Jaipur such as fire fighting system which falls under the activities mentioned in article 243W of the constitution (Fire Fighting System at e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which are as under- 4.1 Governmental Authority has been defined through item No. ix (of paragraph 4) of an explanation to Notification No 11/2017-CT(R) dated 28.06.2017. The same has been reproduced below - "Governmental authority " means an authority or a board or any other body,- (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, with ninety per cent or more participation by way of equity or control, to carry out any function entrusted to a Panchayat under article 243G or to a municipality under article 243W of the Constitution. Further, as per item No. ix (of paragraph 4) of an explanation to Notification No 11/2017-CT(R) dated 28.06.2017, the Governmental Authority has been defined as under: "Governmental authority" means an authority or a board or any other body,- (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government, with ninety per cent or more participation by way of equity or control, to carry out any function entrusted to a Panchayat under article 243G or to a municipality under article 243W of the Constitution. The functions entrusted to a municipality under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (c) a residential complex predominantly meant for selfuse or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017. ["Explanation. - For the purposes of this item, the term 'business' shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.".] 6 - ("(xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix), (x) and (xi) above. Explanation. - For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry."; 9 - 4.3 Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017: SI.No. Chapter, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said Table:- SI.No. Category of Supply of Services Supplier of service Recipient of Service (1) (2) (3) (4) 5 Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers. Central Government, State Government, Union territory or local authority Any business entity located in the taxable territory. 4.6 Section 15 of the CGST Act, 2017:- SECTION 15. Value of taxable supply.- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mart City Limited (JSCL)is a Special Purpose Vehicle (SPV) for development of Jaipur City. As per 'List of members of JSCL' provided by the applicant, we find the share holding pattern as under: S.No. Name of shareholders Shareholding (No. of shares) 3 Commissioner, Municipal Corporation, Jaipur (Nominee of Urban Local Body) 9,99,99,998 4 Director and ex-officio Special Secretary, Local Bodies, Rajasthan, Jaipur (Nominee of Government of Rajasthan) 9,99,99,997 As per data/documents provided by the applicant, we find that total authorized capital is Rs. 200 crores and the paid up capital is Rs. 200 crore of M/s JSCL. Further, in view of above shareholding pattern, we find that Nominee of Government of Rajasthan have only 9,99,99,997 shares in JSCL, which is almost 50% and not ninety per cent or more participation by way of equity. Further, the Commissioner, Municipal Corporation, Jaipur (Nominee of Urban Local Body) have9,99,99,998 shares in JSCL, which is almost 50%. The Municipal Corporation, Jaipur is not Government but it is a Local Authority. Thus, shareholding of State Government is almost 50% only in the JSCL. Therefore, M/s JSCL is not satisfying the condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient when Services supplied by the Central Government, State Government, Union territory or local authority to a business entity. Further, as per item No. 9 of the Notification No. 12/2017-CT(R) dated 28.06.2017, there is an exemption for Services provided by Central Government, State Government, Union territory or a local authority where the consideration for such services does not exceed five thousand rupees. In the present case, services of permission/fees of road cutting is provided by the Local Authority i.e. Jaipur Nagar Nigam (municipality) to the business entity i.e. M/s Lakhlan & Qureshi Construction Company (applicant) for the consideration of Rs. 3,85,10,775/-(i.e. more than Five thousand rupees). Hence, the applicant is liable to pay GST as a recipient for the charges paid or to be paid to the Jaipur Nagar Nigam under reverse charge mechanism. It is pertinent to mention here that activity of giving permission for road cutting charges is not mentioned in the list of works as provided under article 243 W of the constitution entrusted to a Municipality. Thus, clause (b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides on his own account. In the instant case, as M/s JSCL is not a governmental authority therefore, serial number 3 of Notification No. 12/2017 of central tax (rate) dated 28th June 2017 as amended by Notification No. 02/2018 of central tax (rate) dated 25th January 2018 is not applicable on applicant. Further, as per demand note ........................................... dated 26.03.2021 issued by the Executive Engineer, Jaipur Nagar Nigam (JNN) (Kishanpol Zone), Jaipur, it is find that applicant (by name) was demanded Rs. 3,85,10,775/- for road cut approval by the JNN and nowhere the name of M/S JSCL mentioned in the said letter dated 26.03.2021. This shows that applicant i.e. LQCC hold the title to the services of road cut approval so procured from the JNN. Hence, the applicant does not satisfy the condition of pure agent and does not fall under the ambit of 'Pure Agent' as per Rule 33 of the CGST rules, 2017.As per clause (c) of Section 15(2) of CGST Act, 2017, recovery of such road cutting charges by the Applicant from M/s. Jaipur Smart City Limited will be included in the value of supply under GST. Thus, the applicant is liable to pay GST @18% (i.e.9%CGST+9%SG ..... X X X X Extracts X X X X X X X X Extracts X X X X
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