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TMI Blog2023 (12) TMI 821X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/2016 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. Whether Government possesses ninety per cent or more participation in M/s JSCL by way of equity or control? - HELD THAT:- M/s Jaipur Smart City Limited is a limited company incorporated under the Companies Act, 2013 in which the Rajasthan State Government and the Jaipur Nagar Nigam (local Authority/ULB) are the promoters having 50:50 equity shareholding. We note that Jaipur Nagar Nigam being a local authority is also an extension of the Government as it is a Municipal Corporation incorporated by Rajasthan State Government under The Rajasthan Municipalities Act, 2009 . The officers of Jaipur Nagar Nigam also officiate as one of the Directors in M/s JSCL. This substantiates more than 90% control of the Government by way of participation; Therefore, it is held that M/s JSCL are covered under Governmental Authority as defined in the explanation to clause (16) of Section 2 of the IGST Act, 2017. Whether or not Item number (vi) in Column (3) of serial number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Tax (Rate) dated 26.07.2018 is not applicable in this case. Therefore, the appellant are liable to pay GST @18%( i.e. 9% CGST + 9% SGST) as a recipient under RCM. Whether Recovery of such road cutting charges by the Appellant from M/s. Jaipur Smart City Limited is liable to GST? If the answer is in affirmative, what will be the GST rate? - HELD THAT:- Three conditions are required to be satisfied for a service to be covered under Entry No. 3 of the Notification which are : (1) It must be pure service not involving any supply of goods. (2) It must be provided to the Central Government or State Government or Union territory or local Authority or a Governmental Authority or a Government Entity. (3) It must be an activity in relation to any function entrusted to a (i) Panchayat under Article 243 G of the Constitution; or (ii) Municipality under Article 243 W of the Constitution. The appellant have fulfilled the condition No. 1 i.e reimbursement of road cutting charges by M/s JSCL to the appellant involves no supply of goods. Thus, the activity is purely in nature of service. Further, as it has already been decided that M/s Jaipur Smart City Limited are a Governmenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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 M/s JSCL ), are a Government of Rajasthan Undertaking (as mentioned in their charter) floated for development of Jaipur as a Smart City and are controlled by the Rajasthan State Government. As per the appellant, Jaipur Nagar Nigam is also incorporated, controlled and managed by Rajasthan State Government and is governed by the board of directors who are answerable to Rajasthan State Government. 3.3. M/s JSCL had invited tenders for the work of installation of Fire fighting system with pump house in ABD Area Purohit ji ka Katla, including 5 years O M in Jaipur City and the said project/work was awarded to the appellant. 3.4. The Appellant sought Advance Ruling from the Authority for Advance Ruling, Rajasthan on various questions. Rajasthan Authority for Advance Ruling vide Order No. RAJ /AAR / 2021-22/ 31 dated 15.12.2021 pronounced the following ruling:- 3.4.1. M/s JSCL are not a Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant 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 on following grounds : 4.1 As per the appellant, item number (vi) in column no. (3) of serial no. 3 (Construction Services) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.20177 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017 is applicable in their case. According to the appellant, the services provided by them to M/s JSCL fall within the scope of clause (a) of item number (vi) i.e. works contract 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. 4.2 That the term Governmental Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nicipal 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 State Government controls the decision-making power by directly appointing Directors in the board in M/s JSCL and through the officials of Jaipur Nagar Nigam who are also appointed by the state Government. The State Government has complete influence on the operating decisions of M/s JSCL along with appointment, transfer posting of the employees. Therefore, 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. The appellant added that this fact can also be established through the copy of minutes prepared during board meetings where the governing directors are State Government officials. 4.9 As per the appellant, the functions performed by M/s JSCL are squarely covered under Article 243 W (g) of the Constitution of India. They added that the opinion recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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/s JSCL for the activity of granting of permission for road cutting. The appellant submitted that the AAR wrongly held that it is not covered under the list of works mentioned under Article 243W of the Constitution as entrusted to a Municipality and that 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. 4.15 As per the appellant, JNN is a Municipality for Jaipur city having which works in capacity of a Public Authority. That the service of granting permission for road cutting, provided by JNN, is in relation to function entrusted to the Municipality under Article 243W of the Constitution i.e., functions enumerated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 shall be reimbursed by M/s JSCL to them upon submitting invoices. It is established from 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. (b) The payment made by the LQCC to JNN on behalf of M/s JSCL has been separately reported in the invoices issued by LQCC to M/s JSCL. (c) The supplies i.e. obtaining NOC from JNN upon payment of road cutting charges by LQCC as a pure agent of the M/s JSCL is in addition to the services LQCC supplies on their own account to M/s JSCL. (d) LQCC is into contractual agreement with M/s JSCL to acts as their pure agent to incur cost or expenditure in the course of supply of services i.e. installation of fire fighting systems in contracted area. (e) LQCC does not hold any title t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 body is to be run in its day-to-day affairs. A policy decision would be a decision that would be beyond running day to day affairs, i.e., long term decisions. So long as management or policy decisions can be, or are in fact, taken by virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist. b) Hon ble Supreme Court in of Nagpur City v. Ramchandra (1981) 2 SCC 714 has held: the term control is of a very wide connotation and amplitude and includes a large variety of powers which are incidental or consequential to achieve the powers vested in the Authority concerned. c) Hon ble Supreme Court in Shamrao Vithal Cooperative Bank Ltd. v. Kasargode Panduranga Maliya (1972) 4 SCC 600 has held: the word control is synonymou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 citizens, Jaipur Smart City strives for enhancing the city s Infrastructure and Heritage. As part of this scheme, it was mandated that the Special Purpose Vehicle to carry out the activities for Smart City shall be in the form of a limited company incorporated under the Companies Act, 2013 at the city level, in which the State/UT and the ULB (Urban Local Body) will be the promoters having 50:50 equity shareholding. A copy of Smart City Guidelines was also provided by the appellant. 6.2 As per the appellant, on 01.04.2016 vide Order No. 64/2016, the Cabinet of State of Rajasthan has approved setting up of Jaipur Smart City. They have provided a copy of the order passed by the State Cabinet. 6.3 The present composition of Board of Directors of Jaipur Smart City Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Department of Revenue) number 11/2012 Service Tax, dated the 17 March, 2012, published in the Gazette of India, Extraordinary, vide number G.S.R. 209 (E), dated the 17 March, 2012, the Central Government, hereby makes the following rules further to amend the Service Tax (Determination of Value) Rules, 2006, namely :- (1) These rules may be called the Service Tax Determination of Value) Second Amendment Rules, 2012. (2) 2A. Determination of value of service portion in the execution of a works contract (i) . (ii) . (A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-schedule the personal hearing. Accordingly, the PH was rescheduled for 31.10.2023. The authorized representative of the appellant appeared and reiterated the contents of the submissions made so far. Furthermore, in the hearing they also submitted the judgment dated 13.10.2023 passed by Hon ble Supreme Court under Civil Appeal No. 3991/2023 and 3992/2023 in the case of Commissioner, CCE ST Patna v. Shapoorji Pallonji and Company Pvt. Ltd. ORS and Union of India v. Shapoorji Pallonji and Company Pvt. Ltd. 7.7 During the hearing, the authorized representative of the appellant was requested by the Member, AAAR to provide an executive summary of their case within a week. Consequently, a synopsis of the case was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 16.08.2023, 24.08.2023 31.10.2023, additional submissions furnished by the authorized representatives of the appellant vide letters/emails dated 01.08.2023, 16.08.2023, 24.08.2023 and 21.09.2023 and the synopsis submitted vide email dated 10.11.2023. 8.2 Before proceeding to decide the appeal, let us first decide as to whether the appeal has been filed within stipulated period (i.e. thirty days from the date on which the ruling sought to be appealed against is communicated to the applicant) prescribed under Section 100 (2) of CGST Act, 2017 or not. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court decision in the case of Arcelor Mittal India Private Limited v. Satish Kumar Gupta Ors 2018 (10) TMI 312, Hon ble Supreme Court decision in the case of Corpn. of Nagpur City v. Ramchandra (1981) 2 SCC 714, Hon ble Supreme Court decision in the case of Shamrao Vithal Cooperative Bank Ltd. v. Kasargode Panduranga Maliya(1972) 4 SCC 600, Hon ble Supreme Court decision in the case of State of Mysore v. Allum Karibasappa(1974) 2 SCC 498 Hon ble Patna High Court decision in the case of Shapoorji Paloonji Company Pvt. Ltd. Versus Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, 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 Rajasthan) 1 3 Commissioner, Municipal Corporation, Jaipur (Nominee of Urban Local Body) 99,99,99,998 (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) 99,99,99, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Tirupati Smart City Corporation Limited Recipient was held as Governmental 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n planning including town planning. (b) Regulation of land-use and construction of buildings. (c) Planning for economic and social development. (d) Roads and bridges. (e) Water supply for domestic, industrial and commercial purposes. (f) Public health, sanitation conservancy and solid waste management. (g) Fire services. (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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in relation to a functions entrusted to a Panchayat under Article 243 G of the Constitution or to a Municipality under Article 243 W of the Constitution are considered as neither supply of goods nor supply of services. 12.2 From the AAR Ruling Order, we find that it is not under dispute that Jaipur Nagar Nigam is a Municipality/ local Authority. Only question 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 12/2017-Central Tax (Rate), dated 28-6-2017 the reimbursement of amount by M/s JSCL to the appellant 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 M/s JSCL attracts nil rate of tax. 13.4 It is imperative to ascertain the conditions to qualify 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 iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a (i) Panchayat under Article 243 G of the Constitution; or (ii) Municipality under Article 243 W of the Constitution. 13.4.4 We find that the appellant have fulfilled the condition No. 1 i.e reimbursement of road cutting charges by M/s JSCL to the appellant involves no supply of goods. Thus, the activity is purely in nature of service. Further, as it has already been decided that M/s Jaipur Smart City Limited are a Governmental Authority , therefore the second condition is also satisfied. However, we find that the recovery of road cutting charges is not covered under an activity in relation to any function entrusted to a (i) Panchayat 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 cover ..... X X X X Extracts X X X X X X X X Extracts X X X X
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