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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 ..... y Limited (JSCL) is a Special Purpose Vehicle (SPV) for development of Jaipur City - 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 conditions of item No. ix (of paragraph 4) of an explanation to Notification No 11/2017-CT(R) dated 28.06.2017 in respect of 'Governmental Authority'. Applicability of Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017 3/2019-Central Tax (Rate) dated 29.03.2019 - HELD THAT:- When M/s JSCL not qualified as Governmental authority then services provided to it by the applicant is also not considered as services provided to the governmental authority. Thus, Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended time to time is not applicable on applicant in this case - services provided by the applicant will be covered under Item number (xii) in Column (3) of serial number 3 of Notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CL) - HELD THAT:- Clause (c) of sub section (2) of Section 15 of the CGST Act, 2017 states that any incidental expenses charged by the supplier to the recipient and any other amount charged for anything done during the supply until the time of delivery of the goods or supply of the services shall be included in the value of the supply. Hence, any goods or services provided by the supplier, for which a consideration is charged from the recipient, shall be included in the transaction value and chargeable to tax. With regard to reimbursement of expenses incurred as a pure agent, Rule 33 of the CGST rules, 2017 provides that any expenditure incurred as a pure agent will be excluded from the value of supply, and hence, from the aggregate turnover as well. 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 - 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, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posal according to Smart City mission launched by the government of India. The SPV is governed by the board of directors and is answerable to Jaipur Municipal corporation. The work of installation of Firefighting system with pump house in ABD Area Purohit ji ka Katia, including 5 years O M in Jaipur city was awarded to M/s Lakhlan Qureshi Construction co. vide Letter of acceptance no. JSCL/XEN-III/2020-21/1743 dated 18.02.2021 (Total contract price ₹ 5,14,74,250/- excluding GST) and NTP No. JSCL/XEN-III/2020-21/1852 dated 26.02.2021. The project commencement and completion dates are 08.03.2021 and 07.02.2022 respectively. The project would involve design, erection, installation, operation and maintenance of the Fire Fighting system. Further as per Section V -Procuring Entity's Requirements of RFP, the detailed specifications are as under:- 5.1 Project Background 5.1.3 Need of the project From Fire and Life safety point of view the market has no permanent system of its own, like modern marketplaces called mall. 5.2 Scope of work 1) For scope of work, bidder is expected to refer bidding document and also advised to visit the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding (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 single optimal solution and should refrain from suggesting multiple solutions or options that may lead to rejection of the bid. xii. All the civil/ mechanical/Electrical works required to complete the job are in scope of contractor. xiii. Third party inspection/ test from IIT/MNIT/ any other agency as per direction of JSCL Engineer-in-charge of all the materials and works (as per directions of Engineer-in-charge) is to be got done by the successful bidder. Cost of inspection/test is to be paid by the bidder and the same will be reimbursed to the bidder on submission of invoice of the same along with the running bill. xiv. Any other item Which has not been specifically mentioned in specification but are necessary for the completion of the project as per good engineering practice, safety norms and successful operation and guaranteed performance of the entire project shall be deemed to be included within scope of work and shall be provide by the contractor with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and permission is granted subject to the payment of the fees. A copy of letter no. F-29()/XEN/NNJ/2020/332 dated 26lh March 2021 issued by Jaipur Nagar Nigam to the applicant for road cutting permission fees is attached. Notification number 24/2017 of Central Tax (Rate) dated 21st September 2017 was issued to amend the original rate Notification 11/2017 dated 28lh June 2017 to insert an item number (vi) in Column (3) of serial number 3 in the abovesaid notification and the said service shall be chargeable to CGST at the rate of 6%. This new introduced item states that 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) a civil structure or any other original works meant predominantly for use other than for commerce, indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 notification number 16/2018 of Central Tax (Rate) dated 26th July 2018. Additionally, applicant also wishes to understand that if the service provided by JNN to applicant is not covered under sub-section (2) of section 7 of CGST Act, 2017 then whether the applicant is liable to pay tax under RCM on the amount of fees paid by the applicant to JNN for obtaining NOC. Further, applicant also wishes to understand, whether the reimbursement by JSCL to the applicant for the amount paid to JNN for obtaining NOC is liable to GST or not. STATEMENT CONTAINING APPLICANT'S INTERPRETATION OF LAW IN RESPECT OF THE QUESTION RAISED IN ANNEXURE - 1 1. APPLICABILITY OF NOTIFICATION NUMBER 11/2017 OF CENTRAL TAX (RATE) DATED 28TH JUNE 2017. 1.1 Abstract from Notification Number 11/2017 of Central Tax (rate) dated 28th June 2017 as amended by 24/2017 of Central Tax (rate) dated 21st September 2017 for item numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 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 243 W of the Constitution. The functions entrusted to a municipality under the Twelfth Schedule to article 243W of the Constitution are as under:- (a) Urban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner, 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 class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above it is understood that Jaipur Smart City Ltd., 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. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FOR OBTAINING NOC IS NOT LIABLE TO GST. 3.1.1 Applicant submits that if the service from 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 Witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal authority, governmental authority, an individual or any other person not registered and receiving online information and database 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 Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d point B of this order. 4. Before we delve deep to decide the case, it would be proper in the fitment of justice to discuss the relevant provisions of the statute 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by items (i), (ia), (ib), (ic), (id), (ie) and (if) above } provided to the Central Government, State Government, Union Territory, a local authority or a governmental authority or a government entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of - (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) a structure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Government, State Government, Union territory or a local authority, the exemption shall apply only where the consideration charged for such service does not exceed five thousand rupees in a financial year. NIL NIL 4.4 Section 9(3) of the CGST Act, 2017 (RCM) SECTION 9. Levy and collection.- (3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. 4.5 Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017: The supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation .- For the purposes of this rule, the expression- pure agent means a person who- (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. 5. In the present case, as far as the question whether the service recipient i.e. M/s. Jaipur Smart City Limited is a Governmental Authority as defined in item No. ix (of paragraph 4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In our view services provided by the applicant will be covered under Item number (xii) in Column (3) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended time to time and is liable to GST @ 18% (i.e. 9% CGST 9% SCGST). 7. Further, as far as applicability of GST under RCM in respect of road cutting charges paid by applicant to Jaipur Nagar Nigam (JNN) on behalf of M/s. Jaipur Smart City Limited in relation to such contract is concerned, let's examine the issue in the light of legal provisions and facts of the case, we find that the Executive Engineer, Jaipur Nagar Nigam (JNN) i.e. municipality vide demand note dated 26.03.2021 (as provided by the applicant) raised a demand to the applicant for road cutting charges in respect of Fire Fighting pipeline. Further, as per clause no. (viii) of point no. 1 of the general scope of work as mentioned under heading 5.3 of Section V - Procuring Entity's Requirements of RFP, any approval required from any line agency should be taken by the contractor in the name of entities. No additional cost will be paid by Entity and NOC Charges shall be paid by the contractor and the same will be reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration is charged from the recipient, shall be included in the transaction value and chargeable to tax. With regard to reimbursement of expenses incurred as a pure agent, Rule 33 of the CGST rules, 2017 provides that any expenditure incurred as a pure agent will be excluded from the value of supply, and hence, from the aggregate turnover as well. However, the supplier will need to satisfy the following conditions for the exclusion from the value of supply:- (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation .- For the purposes of this rule, the expression -pure agent means a person who- (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art City Limited? Answer 2 :NO. Question 3. What will be the GST rate for the work undertaken by applicant for M/s Jaipur Smart City Limited under Bid Reference no. JSCL/Works/02/2020-21 ? Answer 3 :The services provided by the applicant will be covered under Item number (xii) in Column (3) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended time to time and attracts GST @18% (i.e. 9% CGST 9% SCGST). Question 4. Whether the Applicant is liable to pay GST under RCM in respect of road cutting charges paid by them to Jaipur Nagar Nigam (JNN) on behalf of M/s. Jaipur Smart City Limited in relation to such contract? If the answer to the same is in affirmative, what will be the GST rate for such payment under RCM? Answer 4: Yes, the Applicant is liable to pay GST under RCM in respect of road cutting charges paid by them to Jaipur Nagar Nigam (JNN) on behalf of M/s. Jaipur Smart City Limited (JSCL) under Section 9 of CGST Act, 2017 read with No. 5 of the Notification No. 13/2017-CT(R) dated 28.06.2017 No. 9 of the Notification No. 12/2017-CT(R) dated 28.06.2017. The rate of GST would be @ 18% (i.e. 9% CGST+9% SCGST). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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