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TMI Blog2024 (10) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... n No. 12/2017-CTR dtd 28.06.2017. From the para 5.52, it is clear that the Sr No. 3B was inserted to provide the exemptions on supply of certain services supplied to Government Authority, which was previously curtailed by the above referred Notification dtd 18.112021 w.e.f. 01,01.2022. Thus, entry Sr No. 3B is not a new entry, rather it is extension of existing entries of Sr No. 3 and 3A. The Sr No. 3 and 3A of the Notification No.12/2017-CTR dtd 28.06.2017 are applicable only in the case of pure services or composite supply having value of supply of goods not more than 25 percent. Since, Sr No 3B is also extension of Sr No 3 and 3A and all these entries are inter-related and it won t be appropriate to read all these entries in isolation or individually. Therefore, Sr No. 3B will also be applicable in case of pure services or composite supply, where value of the goods is not more than 25 percent. The applicant provides services to Nagar Nigam, Kota, which is a local authority and all the three entries Sr No 3, 3A and 3B of the Notification No. 12/2017-CTR dtd 28.06.2017 are consistent and should not be read individually, the rate of tax on services provided by the applicant should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility to pay tax on any goods or services or both A. SUBMISSION OF THE APPLICANT (in brief):- 1.1 M/s. Technocraft Construction Private Limited is engaged in providing, laying, jointing, testing and commissioning of Sewerage System and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Mechanical, electrical, instrumentation other necessary works) of Sewage Pumping Stations, Up-gradation of effluent of existing Sewage Treatment Plant with provision for treated waste water reuse including 1 year defect liability with 10 years O M for towns under package AMRUT-2.0/RAJ/SEWERAGE-21 for Kota North, Rajasthan. 1.2 That in month of May 2023, Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation Limited on behalf of Nagar Nigam Kota, through open competitive bidding system, invited open bids for Sewerage Works for providing, laying, jointing, testing and commissioning of Sewerage System and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Mechanical, electrical, instrumentation other necessary works) of Sewage Pumping Stations, Up-gradation of effluent of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st year shall be the defect liability period. 1.8 In view of the above, it appears that the said activity is a composite supply of works contract classifiable under HSN code 9954 and taxable at the rate of Nil under Entry No. 3B of Notification No. 13/2023-Central Tax (Rate) dated 19.10.2023. B. INTERPRETATION AND UNDERSTANDING OF APPLICANT ON QUESTION RAISED(in brief) 2.1 Section 9 of the CGST Act, 2017 empower levy of Central GST on intra state supplies of goods and services, the definition is as under: 9. (1) Subject to the provisions of sub-section (2), there shall be levied a fox caned the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person. 2.2 The term goods has been defined under section 2 (52) ibid as (52) goods means every kind of movable property other than money and securities but includes actionable claim, growing cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; The term movable and immovable property has not been defined under the Act. Interpretation of provisions and applicable concepts 2.10 As per definition cited in Para 2.6 above, the essential conditions for a supply to qualify as composite supply can be highlighted as under: (a) Two or more taxable supplies of goods or services or both (b) The taxable supplies should be naturally bundled (c) The taxable supplies should be supplied in conjunction with each other (d) One taxable supply should be a principal supply 2.11 That the term Naturally Bundled has not been defined under the GST Acts. However, under the erstwhile Service Tax regime the term Bundled Services was explained in the Education Guide issued by CBEC in the year 2012 which is as under: Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of bundled service would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above. 2.13 Where a supply satisfies all of the above conditions, it qualifies to be a composite supply and tax liability on composite supply has to be determined accordingly and the constituent supplies should not be viewed separately as distinct supplies. It is important to understand that a supply which comprises a single supply from an economic point of view should not be artificially split and such fact has been established through various judgments, some of them are cited below: Gujarat State Petronet Ltd. v. Commissioner of Central Excise, Ahmedabad [2010] 20 STR 109 (Ahd.- CESTAT) Classification of a composite service is based on that component of the service which gives the essential character. There is a need to determine whether a given transaction is the one containing major and ancillary elements or the one containing multiple and separate major elements. In the case of a transaction containing a major and ancillary element, classification is to be determined based on the essential feature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in goods. 2.17 However under GST, there is a monumental shift in concept of Works Contract which was prevalent under erstwhile VAT and Service Tax regime. In GST, as per definition of works contract service if construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning is for immovable property only, then it will classify as works contract. Hence it means that aforesaid activities if they are undertaken for a movable property then it will not be works contract service. 2.18 Now whether a supply is a works contract or not is dependent on whether the plant or device or property is a movable or immovable property. To decide whether a property is movable or immovable, the given terms have not been defined under the Act and hence the reliance needs to be placed on other laws and judicial precedents. 2.19 Under the General Clauses Act 1897 the term immovable property has been defined under Section 3 (26) as immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth; 2.20 As per the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability to the plant and keep its operation vibration free. Further, it was held that the setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set up is completed. Hence, the said plants were held to be movable. Relevant extract of the judgement is reproduced as under for ease of reference: Applying the above tests to the case at hand, we have no difficulty in holding that the manufacture of the plants in question do not constitute annexation hence cannot be termed as immovable property for the following reasons: (i) The plants in question are not per se immovable property. (ii) Such plants cannot be said to be attached to the earth within the meaning of that expression as defined in Section 3 of the Transfer of Property Act. (iii) The fixing of the plants to a foundation is meant only to give stability to the plant and keep its operation vibration free. (iv) The setting up of the plant itself is not intended to be permanent at a given place. The plant can be moved and is indeed moved after the road construction or repair project for which it is set u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary supply. 2.30 Thus which part of a composite supply is the principal supply must be determined keeping in view the nature of the supply involved. Value may be one of the guiding factors in this determination, but not the sole factor. The primary question that should be asked is What the essential nature of the composite supply is and which element of the supply imparts that essential nature to the composite supply. Some decisions passed by European Court of Justice to explain the concept, scope and limitations of Natural Bundling, Principal Supply and Predominant element of supply are enumerated below: Aktiebolaget NN vs. Skatteverket [2012] 22 taxmann.com 175 (ECJ) Definition of - Predominant element determines classification - If service is only a better means of enjoying goods sold, then, service incidental to sale of goods - Cost of elements is also relevant, but, cost alone is not decisive - Assessee entered into a single contract of supply and installation of telecommunication cable across countries - Property in cable passed to client after cable was installed and tested - PHED demanded service tax contending whole of transaction was service - HELD : Supply of Cable and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation and O M contract are so closely linked in a manner that they form a single indivisible supply. The driving factors are: A single tender has been floated for installation of sewerage system and O M Contract where the preamble of scope specifies that the contract combines providing, laying, testing, commissioning of sewerage system and O M work. The nature of contract is such that installation of sewerage system is the main service and the other services under O M contract combined with such service are in the nature of ancillary services which help in better operation of main activities of installing and commissioning the sewerage system and make the model successful. Department expects the provision of both the contracts together by the same service provider to make the model successful. 2.33 Thus, based on above facts and concept explained in Para 14 above, such contract shall be a single supply and cannot be treated as distinct supplies. Since all the conditions of composite supply as discussed in Para 11 above are satisfied, it is a composite supply, 2.34 Further, since composite supply of works contract has been specifically classified as supply of service under Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l pumps) of the soil as required will have to be maintained during the work. The lines laid will be hydraulically tested from manhole to manhole as soon as laid. The contractor shall have to conduct hydro-testine of the sewer line laid and the manholes constructed immediately after laying / construction. The contractor will be responsible for procuring the sewer pipes, man hole frames and covers and other materials as required as per specifications, to maintain their safe custody and for proper installations. 2.36 It is understood based on the scope of work detailed above that it involves complete provision, installation and commissioning of the sewerage system along with O M. For the same new immovable structure shall come into existence. 2.37 Based on above facts and the intent of the activity, it is implied that the given work is a contract for new sewerage system, wherein transfer of property in goods in the form of new sewerage system and mechanical/electrical equipment shall be involved in the execution of such contract. 2.38 That Works contract in itself is a composite supply in which construction, fabrication, completion, erection, installation, fitting out, improvement, mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth; (c) sanitation conservancy: (d) solid waste management: and (e) slum improvement and upgradation Nil Nil ; 2.44 That from above, it has already been deduced that services supplied by the applicant is a service i.e. works contract service. The same is for sewerage system installation and commissioning. Hence it is clearly a service by way of sanitation conservancy. Thus it gets classified under the clause (c) of the above entry 3B of NN 13/2023-CT (Rate) dated 19.10.2023. For exemption, it needs to finally analyzed if the services are supplied to a Governmental Authority, The said term has been defined under point 2(zf) of NN 12/2017-CT (Rate) dated 28.06.2017. It is read as under [(zf) 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 90 per cent or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution; 2.45 From the above, it is clear that to be considered as Governmental authority an entity must have been set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal Council shall be a body corporate by the name of the Municipal Council of the city by reference to which the Municipality is known and shall have perpetual succession and a common seal and may sue and be sued in its corporate name. (3) In every larger urban area, there shall be established a Municipal Corporation and every such Municipal Corporation shall be a body corporate by the name of the Municipal Corporation of the city by reference to which the Municipality is known and shall have perpetual succession and a common seal and may sue and be sued in its corporate name. 2.48 Thus, it is an entity set up by statue formed by state government and it also gets it status from the Constitution of India (Article 243P). Thus the governmental authority is subset of municipality only in terms of entry 3B of the NN 13/2023-CT (Rate) dated 19.10.2023. The functions as mentioned in the entry 243W are also entrusted to the municipality only i.e. the service recipient in the given case. 2.49 Thus if exemption is given under Entry 3B when the service recipient is governmental authority where it is related to the functions entrusted to a Municipality, then the said exemption is logically an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices Rate (percent) Condition (1) (2) (3) (4) (5) 3 Chapter 99 Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, Government or Union territory or local authority aa[***] by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution. Nil Nil 3A Chapter 99 Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 percent of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority laa[***] by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution. Nil Nil] 2a[3B Chapter 99 Services provided to a Governmental Authority by way of- (k) water supply; (I) public health; (m) sanitation conservancy; (n) solid waste management; and (o) slum improvement and upgradation. Nil Nil] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring on the Questions raised that the activity of applicant is a composite supply of works contract. Therefore, the applicability of provision of services in entry at S. No. 3B appears not to be appropriate. 7. In the para 5 of the Statement of Relevant facts having a bearing on the Questions raised , applicant has submitted that the applicant was clear up to 19th October 2023, that it was liable to pay tax on the same. It means the applicant is amply clear that the entry at S.No. 3 and 3A are not applicable to his scope of work. The entry at S. No. 3 specifies about pure services and entry at S. No. 3A specifies about composite supply of goods and services wherein value of goods are not more than 25% of the value of composite supply. It means the applicant is amply clear that in his case, it is neither the pure services nor composite supply (where the value of goods is less than 25% pf the value of composite value of goods and services). Now suddenly, after the notification no 13/2023-Central Tax (Rate) dated 19-10-2023, the applicability of its work under the services as per the said notification dated 19-10-2023 (Entry at S. No 3 B) neither justified nor appropriate. Conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EWERAGE-21. 4) We take up the contentions placed before us. We see that the applicability of GST on the aforesaid awarded work to the applicant, the applicant was clear up to 19th October 2023, that it was liable to pay tax on the same. However vide notification no 13/2023-CT (Rate) dated 19.102023, an amendment has been brought on NN 12/2017-CT (Rate) dated 28.06.2017, wherein the exemption notification for applicability of GST on supply of services, an entry number 3B has been added with effect from 20.10.2023 which is read as under: (1) (2) (3) (4) (5) 3B Chapter 99 Services provided to a Governmental Authority by way of- (a) water supply; (b) public health; (c) sanitation conservancy: (d) solid waste management: and (e) slum improvement and upgradation Nil Nil ; After the above amendment, the applicant contended that services supplied by him is a service i.e. works contract service for sewerage system installation and commissioning etc. hence it is a service by way of sanitation conservancy. Thus it may be covered under the clause (c) of the above entry 3B of notification no 13/2023-CT (Rate) dated 19.10.2023) as the services are supplied to a Government Authority. 5) At the, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Document. O M charges include all expenditures and expenses required to be incurred on labour, repair and/or replacement of material, preventive and / or breakdown maintenance including cost of any new material, equipment or machinery, equipment, consumable items, chemicals, fuel, water and all other matters and things of what so ever nature essential and desirable to run the system satisfactorily (the O M charges do not include power charges which shall be paid by the department/line agency).(2.27) b) Objective of the project : (i) The objective of the project is to upgrade/rehabilitate the existing 20 MLD Sewage Treatment Plant at Dhakarkheri, Kota, which was commissioned in the year 2008, to improve the effluent standards based the NGT disposal standards. (3.1) (ii) The main objective of sewage treatment is to stabilize decomposable organic matter present in sewage so as to produce an effluent and sludge which can be disposed of in the environment without causing health hazards or nuisance. The Sewage Treatment Plant is designed to deliver the treated sewage conforming to the standards specified by the State Government / CPHEEO manual / Ministry of Environment / National Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contractor. iv) In respect of goods and Materials procured by the Contractor, for use in Works under the Contract, VAT will be paid by the Contractor himself but in respect of such goods manufactured and supplied by the Contractor and Works executed under the contract, the responsibility of payment of VAT shall be that of the Procuring Entity. Taking account the scope and objectives of bidding documents, it is seen that the applicant is engaged for Providing, laying, jointing, testing and commissioning of Sewerage System and all ancillary works along With Design, construction, supply, installation, testing and commissioning (Civil, Mechanical, electrical, instrumentation other necessary works) of Sewage Pumping Stations. 6) As per sub-clause (119) of the Section 2 of the CGST Act, 2017, the works contract means:- (119) works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no 13/2023-CT (Rate) dated 19.10.2023, an amendment has been brought on NN 12/2017-CT (Rate) dated 28.06.2017, wherein in the exemption notification for applicability of GST on supply of services, an entry number 3B has been added with effect from 20.10.2023 which is read as under:- (1) (2) (3) (4) (5) 3B Chapter 99 Services provided to a Governmental Authority by way of- (a) water supply; (b) public health; (c) sanitation conservancy: (d) solid waste management: and (e) slum improvement and upgradation Nil Nil ; 8) With regard to the question raised by the applicant, let us see the definition of the terms used in the above notification - A) local authority means- (a) a Panchayat as defined in clause (d) of article 243 of the Constitution; (b) a Municipality as defined in clause (e) of article 243P of the Constitution; (c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund; (d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (Central Act No. 41 of 2006); (e) a Regional Council or a Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ेणी / डीएलबी /19/11001:- अधिनियम, 2009 की धारा 3, धारा 5, धारा 6 एवं धारा 10 के दवारा प्रदत्त शक्तियो का प्रयोग करते हुए. राज्य सरकार एतद्द्वारा इस विभाग के आदेश क्रमांक: F10 (Elec) LSG/19/7709 दिनांक 14.08.2019 को विखण्डित करती है तथा नगर निगम, कोटा को दो भाग ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #2357;ार्ड संख्या ( कोटा नगर निगम के लिये वर्ष 2014 में अधिसूचित किये गये सीमांकन के अनुसार 1 2 3 4 1. नगर निगम, कोटा उत्तर 1. कोटा उत्तर 1 से 3, 11 से 19 एवं 34 से 43 ( कुल 22) 2. लाड़पुरा 7 से 10 एवं 30 से 32 ( कुल 7) 2. नगर निगम, कोटा दक्षिण 1. कोटा दक्षिण 20 से 23, 26 से 28 44 से 58, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exempt the following five services supplied to Governmental Authority: Water Supply Public health Sanitation Conservancy Solid waste management Slum improvement and upgradation 11) Vide Notification No. 16/2021-Central Tax (Rate) dtd 18.11.2021 w.e.f. 01.01.2022, a Government Authority or a Government Entity words are omitted from SR No. 3 and 3A of the Notification No. 12/2017-CTR dtd 28.06.2017. From the para 5.52 reproduced supra, it is clear that the Sr No. 3B was inserted to provide the exemptions on supply of certain services supplied to Government Authority, which was previously curtailed by the above referred Notification dtd 18.11.2021 w.e.f. 01,01.2022. Thus, entry Sr No. 3B is not a new entry, rather it is extension of existing entries of Sr No. 3 and 3A. The Sr No. 3 and 3A of the Notification No.12/2017-CTR dtd 28.06.2017 are applicable only in the case of pure services or composite supply having value of supply of goods not more than 25 percent. Since, Sr No 3B is also extension of Sr No 3 and 3A and all these entries are inter-related and it won t be appropriate to read all these entries in isolation or individually. Therefore, Sr No. 3B will also be applicable i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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