9911796707
TMI Blog2023 (12) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... han Goods and Services Tax Act, 2017 (hereinafter also referred to as 'the RGST Act') by M/s Lakhlan & Qureshi Construction Co., Purani Chungi, Ajmer Road, Jaipur-Rajasthan-302021(hereinafter also referred to as the 'appellant') against the Advance Ruling No. RAJ/AAR/2021-22/31 dated 15.12.2021 BRIEF FACTS OF THE CASE 3. M/s Lakhlan & Qureshi Construction Co. (GSTIN - 08AAAFL9525H1Z7) have filed an appeal (on the portal) on 30.03.2022 against the Ruling issued by the Authority for Advance Ruling, Rajasthan vide Advance Ruling No. RAJ/AAR/2021-22/31 dated 15.12.20211. The requisite fee of CGST Rs. 10000/- and SGST Rs. 10000/-has been paid vide Challan dated 12.01.2022. The appellant in GST ARA-02 mentioned that this appeal has been filed within limitation period in pursuance to Hon'ble Supreme Court Judgment dated 10.01.2022 in Suo Motu Writ Petition (C) No. 3 of 2020. 3.1. The appellant are a partnership firm and a civil contractor engaged in construction of roads, buildings, civil structures or various other civil works as awarded from various Governmental and non-Governmental organizations. 3.2. As per the appellant, M/s Jaipur Smart City Limited (hereinafter referred to as " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of granting of permission for road cutting is not covered under the list of works mentioned under Article 243 W of the Constitution as entrusted to a Municipality. Thus, clause (b) of sub-section (2) of Section 7 of CGST Act, 2017 read with Notification No. 14/2017-Central Tax ( Rate) dated 28.06.2017 as amended by Notification No. 16/2018 - Central Tax (Rate) dated 26.07.2018 is not applicable for services provided by JNN to appellant. 3.4.5. Recovery of such road cutting charges by the Appellant from M/S JSCL is liable to GST at the rate 18% (i.e., 9% CGST and 9% SGST). As per clause (c) of sub-section (2) of Section 15 of CGST Act, 2017, any incidental expenses charged by the supplier to the recipient shall be included in the value of supply. Only exclusion to that is reimbursement of expenses done by the service provider in the capacity of pure agent. In the present case, the appellant does not satisfy the conditions for qualifying as a pure agent and therefore the recovery of road cutting charges from M/s JSCL shall be included in transaction value and liable to GST. 4. Aggrieved by the impugned Ruling, the appellant filed the present appeal before this authority o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or" are to be read in the alternative. 4.5 According to the appellant, the Authority of Advance Ruling has erred in holding that since Government of Rajasthan holds only 50% shareholding in M/s JSCL and balance shareholding is held by Jaipur Nagar Nigam (hereinafter also referred to as JNN) which is not a Government. Therefore, M/s JSCL are not a "Governmental Authority" as defined in the explanation to clause (16) of Section 2 of the IGST Act, 2017 only on the basis of equity. As per the AAR, M/s JSCL are not satisfying the definition of Governmental Authority. 4.6 As per the appellant, M/s JSCL are a Government of Rajasthan undertaking as mentioned in their charter and as per the master data records of Ministry of Corporate affairs (MCA) M/s JSCL are registered as a State Government company. 4.7 According to the appellant, Jaipur Nagar Nigam is a Municipal Corporation incorporated by Rajasthan State Government under "The Rajasthan Municipalities Act, 2009. The officials working as Director, Deputy Director etc., are also appointed by Rajasthan State Government. Therefore, Jaipur Nagar Nigam is controlled and managed by Rajasthan State Government. 4.8 As per the appellant, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services." 4.13 That Notification No. 14/2017-Central Tax ( Rate) dated 28.06.2017 states that the following activities or transactions undertaken by the Central Government or State Government or any local Authority in which they are engaged as Public Authority, shall be treated neither as a supply of goods nor a supply of service, namely "Services by way of any activity in relation to a function entrusted to a Panchayat under Article 243 G of the Constitution." Subequently, the same was amended vide Notification No. 16/2018 - Central Tax (Rate) dated 26.07.2018 to include the following - (i) after the words "State Government", the words "or Union territory" shall be inserted; (ii) after the word "Constitution", the words "or to a Municipality under Article 243W of the Constitution" shall be inserted. 4.14 As per the appellant, the Authority of Advance Ruling, Rajasthan has erred in holding that the appellant are liable to pay GST at the rate 18% (i.e., 9% CGST and 9% SGST) under RCM on road cutting charges paid to JNN on behalf of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 4.19 The appellant are of the view that, in respect of road cutting charges paid to JNN by them on behalf of M/s JSCL, all the conditions required for the service to qualify as a pure agent service are satisfied, namely- (a) LQCC is authorized by M/s JSCL 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, Information Utilities) Regulations, 2017 , Regulation 2(1)(c) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 , Section 2(g) of Securities and Exchange Board of India Act, 1992 . As per Black's Law Dictionary "Control" is the direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise; the power or Authority to manage, direct, or oversee. The appellant submitted the certain Rulings/judgments in their favor. The relevant portions of the judgments are as under : a) Hon'ble Supreme Court in Arcelor Mittal India Private Limited v. Satish Kumar Gupta & Ors 2018 (10) TMI 312 held : The expression "control"is therefore defined in two parts. The first part refers to de jure control, which includes the right to appoint a majority of the directors of a company. The second part refers to de facto control. So long as a person or persons acting in concert, directly or indirectly, can positively influence, in any manner, management or policy decisions, they could be said to be "in control". A management decision is a decision to be taken as to how the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Maharashtra and Pimpri Chinchwad Municipal Corporation have 50:50 stake in PCSCL) has held that PCSCL is clearly covered under the definition of 'Government Entity' as can be seen from the definition of a 'Government Entity' mentioned above". h) The AAR, Andhra Pradesh in a similar matter of Shapoorji Pallonji & Company Private Limited vide its order dated 25.02.2021 has held that Greater Visakhapatnam Smart City Corporation Limited (GVSCCL) rightly fits into the definition of the 'Government Entity' as per the said Notification. The functions carried out by the said GVSCCL are the functions which were entrusted by the Central Government, State Government and Local Authority i.e. of Municipal Administration." 6. The authorized representative of the appellant vide email dated 16.08.2023 furnished additional submissions in continuation of their earlier submission dated 01.08.2023. 6.1 In the additional submissions, the appellant submitted that the Ministry of Urban Development, Government of India in June 2015 came out with Mission Statement and guidelines for SMART CITY, wherein it was decided to identify 100 cities throughout India. To revamp the living standards of citiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, [other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above] provided] to the Central Government, State Government, Union territory, local authority, 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. 7.2.1 They further submitted that the term 'Original Work' was defined under the Service Tax Act (Finance Act 1994) in Notification No. 24/2012-ST dated 06.06.2012. The relevant portion of the same is reproduced as under: 2A Determination of value of service portion in the execution of a works contract Notification No. 24/2012 - Service Tax dated 06.06.2012 G.S.R. (E).- In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994) and in supersession of the notification of the Government of India in the Ministry of Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 It mentioned that the scope of works contract was supply, laying and installation of pipelines, fire hydrants and pumps including all necessary accessories. The certificate also mentioned that the contract price was Rs. 5,14,74,250/- excluding GST and that the entire GST cost was borne by M/s JSCL themselves. 7.5 They submitted that the work allotted by M/s JSCL to the appellant was an infrastructural work and it also does not qualify to be termed as predominantly for use other than for commerce industry, or any other business or profession. In this respect they submitted the Memorandum and Articles of Association of M/s Jaipur Smart City Limited. Reliance placed upon the judgment of Hon'ble Supreme Court in the case of Mansarovar Commercial Pvt. Ltd vs CIT 2023 (4) TMI 419. In this judgment, the apex court has held that the determinate test of control of a company is where the sole right to manage and control of the company lies. 7.6 Another opportunity for personal hearing was also sought in the above additional submissions. Accordingly, a personal hearing was fixed on 11.10.2023 but the appellant vide their email dated 10.10.2023 sought adjournment and requested to re-schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 12/2017-Central Tax (Rate), dated 28-6-2017 as here-under: 2(zs) "original works" means- all new constructions; (i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (ii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; d. Definition of term Control as referred in various statutes &as interpreted by Hon'ble Supreme Court are relied upon such as: * Black's Law Dictionary * Section 2(17) of the Companies Act, 2013 * Regulation 2(d) of Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 * Regulation 2(1)(c) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 * Section 2(g) of Securities and Exchange Board of India Act, 1992 * Accounting Standards-18 issued by the Institute of Chartered Accountants in reference to Related Party transactions DISCUSSION AND FINDINGS 8.1 We have carefully considered the entire material available on record including the Ruling of AAR, Rajasthan, the appeal papers filed by the appellant, records of personal hearings held on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n M/s JSCL and balance shareholding is held by Jaipur Municipal Corporation which is not a Government. Therefore, the AAR held that M/s JSCL are not satisfying the definition of Governmental Authority. 9.1 We note that the appellant have contested that participation can be in the form of "equity" or "control" or a combination of both. They submitted that Jaipur Nagar Nigam is a Municipal Corporation incorporated by Rajasthan State Government through powers vested with them by "The Rajasthan Municipalities Act, 2009. The State Government appoints Director, Deputy Director, Assistant Director and other officials for its functioning. 9.2 The appellant further submitted that State Government controls the decision-making power by directly appointing directors in the board of directors in M/s JSCL and also appointing officials in Jaipur Nagar Nigam who officiate in M/s JSCL. Therefore, as per the appellant, the condition of ninety per cent or more participation by way of control is satisfied and it can be said that M/s JSCL are a Governmental Authority with control in the hands of State Government. 9.3 For defining the term "Control" the appellant placed reliance on Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Jaipur Smart City Limited are a special purpose vehicle (SPV) formed on 12.03.2016 by the Rajasthan State Government (as approved by Order No. 64/2016 dated 01.04.2016 issued by the Cabinet of State of Rajasthan) 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. 9.6.3 (b) whether Government possesses ninety per cent or more participation in M/s JSCL by way of equity or control. As far as the 'equity' part is concerned, M/s Jaipur Smart City Limited are a State Government company incorporated under the Companies Act, 2013 in which the Rajasthan Sate Government and Jaipur Nagar Nigam are the promoters having 50:50 equity shareholding, which does not substantiate more than 90% of participation by way of equity of the Government. The shareholding pattern of Jaipur Smart City Limited as submitted by the appellant 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 Rajasth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Authority 2 AAR-Andhra Pradesh Order dated 25.02.2021 in case Shapoorji Pallonji & Company Private Limited Greater Visakhapatnam Smart City Corporation Limited Recipient was held as Government Entity 3 AAR- Maharashtra Order dated 25.05.2022 in case of Auto cluster Development Research Institute Pimpri Chinchwad Smart City Limited Recipient was held as Government Entity 9.6.3.4 We note that the provisions of Section 103 of the CGST Act, 2017 state:- (1) The Advance Ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only- (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for Advance Ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. Thus in view of the above provisions though such Rulings cannot be made applicable in the instant matter. However we note that the service recipient companies, for which 'Governmental Authority'/Government Entity' status has been pronounced by the various AARs in the aforesaid Rulings, have been created with the same motive which was behind the creation of M/s JSCL. M/s JSCL were also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession. 10.2 We observe that that the term 'original works' is defined vide Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 as under: 2(zs) "original works" means- all new constructions; (i) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (ii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; 10.3 We note that as per the Letter of Acceptance dated 18.02.2021 issued by M/s JSCL to the appellant, the work to be undertaken by the appellant for M/s JSCL is 'fire fighting system with pump house in ABD Area Jaipur'. Further, we have also perused the Bid Reference No. JSCL/Works/02/2020-21 for tender awarded to the appellant which encapsulates the Scope of Work of the contractor/appellant. As per the scope of work, the work undertaken/to be undertaken by the appellant also included (i) All equipment and sensors supply, installation, testing and commission including 5 years O&M is in the scope of contractor. (ii) All the civil, mechanical/Electrical work required to complete the scope of contractor. (iii) To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices. (h) Urban forestry, protection of the environment and promotion of ecological aspects. (i) Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded. (j) Slum improvement and up gradation. 10.6 In light of the above discussion, we find that when M/s JSCL qualify to be a Governmental Authority then the services provided to it by the appellant are 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 by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017 is clearly applicable on the appellant in this case. 11. The third question to decide before us is the GST rate for the work undertaken by applicant (now appellant) for M/s Jaipur Smart City Limited under Bid Reference No. JSCL/Works/02/2020-21. In light of the discussion for the first two questions, we are of the view that the services provided by the appellant are covered under Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended. The said servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion before us is to decide whether the activity to recover road cutting charges from appellant is in relation to any function entrusted to a municipality under Article 243 W of the Constitution or not. 12.3 We find that activity in respect of roads and bridges have been mentioned at clause (d) of list in twelfth schedule. We find that in Article 243W, the words "in relation to the matters listed in the Twelfth Schedule" has been mentioned, and in the Twelfth Schedule, road cutting charges or road cutting is not listed. We find that these services of granting NOC for road cutting charges are not related to construction of Road & Bridges. In our opinion, road cutting charges recovered by Jaipur Nagar Nigam from the Appellant is not covered under clause (d) i.e. roads and bridges. 12.4 In the present case, we observe that services of granting permission/NOC for road cutting were provided by the Local Authority i.e. Jaipur Nagar Nigam (municipality) for a consideration to the business entity i.e. M/s Lakhlan & Qureshi Construction Company (appellant) and not to M/s JSCL. Hence, the appellant being a recipient of the services are liable to pay GST for the charges paid to Jaipur Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as pure agent as well the provisions of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017. 13.4.1 We note that the pure agent has been defined in Rule 33 of CGST Rules, 2017 which reads as:- "Rule 33. Value of supply of services in case of pure agent. - Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely, - (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under Article 243 G of the Constitution; or (ii) Municipality under Article 243 W of the Constitution as has already been held in Para 12.3 above. 13.4.5 Therefore, we find that the exemption under Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 is not available to the appellant. Thus, the appellant are liable to pay GST on recovery of such road cutting charges (from M/s JSCL) @18% (i.e. 9% CGST + 9% SGST). ORDER In light of the above discussion and findings, we hold that 1. M/s Jaipur Smart City Limited are covered under Governmental Authority as defined in the explanation to clause (16) of Section 2 of the IGST Act, 2017. 2. The supply related to 'fire fighting system with pump house in ABD Area & Purohitji ka Katla including 5 years Operating & Maintenance installation' provided by the appellant to M/s JSCL is considered as supply of services provided to the Governmental Authority and are covered under 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. The said services are liable to attract GST @ 12% (i.e. 6% CGST & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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