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TMI Blog2024 (10) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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 kotputli Municipal Council, 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 be decided in terms of Sr No. 3 and 3A, since the said entries cover services provided to local authority , there is no need to go to Sr No. 3B. The applicant is providing it s services to Municipal Council KOTPUTLI (local authority) of Providing, laying, jointing, testing and commissioning of sewer system and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and Instrumentation and other necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commissioning of sewer system and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and Instrumentation and other necessary works) of SPS, MPS and 10 MLD capacity STP based on SBR process with provision of 1 year defect liability and there after 10 years O M for Kotputli town, Jaipur District, Rajasthan. 1.3 That the applicant applied for aforesaid tender and vide letter of acceptance bearing number N.P. Kot/2023/1016 dated 10/07/2023, the applicant was awarded such work by the Municipal Council Kotputali. The commencement date of such work as per LOI is 13/08/2023 and the stipulated completion date is 13/08/2025. 1.4 That in the context of 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 19.10.2023, an amendment has been brought on NN 12/2017-CT (Rate) dated 28.062017, 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined 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 crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; 2.3 The term services has been defined under section 2(102) ibid as (102) services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; 2.4 As per Section 7 of Central Goods and Services Tax Act, 2017, the term supply means: 7. (1) For the purposes of this Act, the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, renta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en defined under the GST Acts. However, under the erstwhile Service Tex 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 bundied service would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board, Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. 2.12 As per the Education Guide, Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below- The perception of the consumer or the service receiver. If large number of service receivers of such bundl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 features or the dominant element of the transaction. A supply which comprises a single supply from an economic point of view should not be artificially split. The method of charging or invoicing does not in itself determine whether the service provided is a single service or multiple services. Single price normally suggests a single supply though not decisive. The real nature and substance of the transaction and not merely the form of the transaction should be the guiding factor for deciding the classification. Card Protection Plan Ltd vs. Commissioners of Customs and Excise [2012] 22 taxmann.com 176 (ECJ) Two or more acts to be regarded as a single supply if they are so closely linked that they form a single indivisible economic supply: Where a transaction comprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vable, 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 definition the term permanently fastened or attached to earth can be treated as immovable property. Any attachment with earth which is temporary in nature or can be shifted from part of earth to another Without causing substantial damage to it cannot be treated as immovable property. 2.21 On the given issue, CBEC has also clarified in its circular number 58/1/2002CX dated 15/1/2002 where in para (e) it was clarified that e) If items assembled or erected at site and attached by foundation to earth cannot be dismantled without substantial damage to its components and thus cannot be reassembled, then the items would not be considered as moveable and will, therefore, not be excisable goods. 2.22 Though the concept of excisable is not applicable here but the inference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 up is completed. 2.25 In furtherance to the aforesaid judgment, the Madras High Court in the case of Board of Revenue, Chepauk, Madras v. K. Venkataswami Naidu (AIR 1955 Mad 620, 1955 Cri LJ 1369), held that if something is temporarily embedded in the earth, it cannot be termed as immovable property. The relevant extract of the judgement is reproduced as under: 2. The answer to the question depends upon whether the equipment of the touring cinema would/all within the category of immoveable property. We have no hesitation in holding that it does not. In the question referred to us. the properties are described as collapsible and capable of being removed. In the very nature of things, properties of that nature cannot be immoveable property, The expression permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans 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 laying thereof are so closely linked that they constitute a single indivisible economic transaction - Predominant element is supply of cable as property in cable is transferred to client without alteration/adaptation to requirement of client and cost of materials is major part of cost Since supply of goods element is predominant whole contract is a sale , not service - Not liable to service tax [Paras 31 to 40] [In favor of assessee] LevobVerzekeringen BV and OV Bank NV vs Secretary of State for Finance, Netherlands* [2012] 22 taxmann.com 174 (ECJ) Service - Definition of - Under a single contract, basic software supplied, customization carried out and training provided by same supplier for prices were stipulated separately PHED contended that whole transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Schedule II, it should be first analyzed whether the contract can be classified as a works contract or not. 2.35 The scope of work under Para 2.9 to Para 2.19 of the Tender Document has been carefully examined to derive that it involves- The contractor will have to fix the exact line of proposed layout of the sewer in all locations so as to avoid the existing underground installations as best as possible. He is required to make necessary enquiries from the relevant departments to assess the locations as best as possible. He shall also then pinpoint the existing installations by help of Geo-radar survey. The final alignment of the sewer shall be proposed taking the information into account. A list of existing facilities that are required to be removed or realigned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the intent of the activity, it is implied that the given work is 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, modification, repair, maintenance, renovation, alteration or commissioning etc. are involved along with transfer or property in goods. 2.39 Further, such a contact can amount to works contract in GST only if the commissioning and installation is of any immovable property. The concept of immovable property has been explained above in Para 21 to 31. Taking references from the concepts evolved from the precedents cited therein, it is understood that the properties for which commissioning, and installation works has been assigned for sewerage system, it cannot be moved from one site to another. All the components of the sewerage system are erected at the prescribed location and permanently attached to the earth, and they cannot be dismantled and reassembled as such disman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 up or established specifically to carry out the functions which are entrusted to a municipality under Article 243W of the Constitution. The list of functions envisaged under Twelfth Schedule [Article 243W of the Constitution (Seventy-Fourth Amendment) Act, 1992], consists of (1) Urban planning including town planning; (2) Regulation of land-use and construction of buildings; (3) Planning for economic and social development; (4) Roads and bridges; (5) Water supply for domestic, industrial and commercial purposes; (6) Public health, sanitation conservancy and solid waste management; (7) Fire services; (8) Urban forestry, Protection of the environment and promotion of ecological aspects; (9) Safeguarding the interests of weaker sections of society, including the handi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unicipality only in terms of entry 3B of the NN 13/2023-CT (Rate) dated 19.102023, 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 Municipality, then the said exemption is logically and naturally available When the said activities are directly awarded by the municipality to the service provider, Hence the given services as supplied by the applicant to the municipal council by way of sanitation conservancy by commissioning of sewerage system is exempt under entry 3B of NN 13/2023-CT (Rate) dated 19.10.2023. 2.50 Without prejudice to above, alternatively if it is held that the given exemption is not available, then in that case the applicant submits that the rate of tax in given service shall be determined in accordance with the Notification No 11/2017-CT (Rate) dated 28.06.2017, as amended from time to time. APPLICANT S UNDERSTANDING That in case of above contract the entire work to be awarded shall be composite supply of works contract and the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] laa Words or a Governmental authority or a Government Entity omitted by Notification No. 16/2021-Central Tax (Rate) dated 18-11-2021 w.e.f. 1-1-2022 2 Inserted by Notification No 2/2018-Central Tax (rate) dated 25-1-2018 w.e.f. 25-1-2018 2a Inserted by Notification No 13/2023-Central Tax (rate) dated 19-10-2023 w.e.f. 20-10-2023 2. The entries that have been entered at S. No. 3, 3A and 3B, it would not be appropriate to read the applicability of these entries in isolation or individuality, these are inter-related and the entry at S. No. 3B is only the expanded form of entry no. 3 and 3A and these entries go hand. So, the entry no. 3B cannot be interpreted in isolation. 3. In the referred application of applicant, the applicant was awarded work for: Providing, laying, jointing, testing and commissioning of sewer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 : Entry at 3B (presently in discussion) is nothing but only the extension of earlier entries at 3 and 3A. The taxpayer was paying tax because he himself was clear that he does not fall under the category at S.No. 3 3A because his supply does not fall under the category of pure services (defined in entry no 3) and his composite supply contains the value of goods more than 25% of the values of composite supply (defined in Entry at S. No, 3A), Now suddenly how the taxpayer can come under the category of services (defined in Entry at S. No. 3B). So, the scope of work carried out by the taxpayer does not fall under the entry at S.No. 3B of notification dated 19-10-2023. In view of above, the said notification no 13/2023-Central Tax (Rate) dated 19-10-2023 is not applicable to the work and scope carried out by the taxpayer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge system installation and commissioning etc. hence it is a service by way of sanitation conservancy. Thug 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, outset first we discuss the bidding documents enclosed With the application (NIB No. 08/2023-24) for Providing, laying, jointing, testing and commissioning of sewer system and all ancillary works along with Design, construction, supply, installation, testing and commissioning (Civil, Electrical, Mechanical and Instrumentation and other necessary works) of SPS, MPS and 10 MLD capacity STP based on SBR process with provision of 1 year defect liability and there after 10 years O M for Kotputli town, Jaipur District, Rajasthan. a) In Section 1 instructions to bidders the clause 3.5.3 says that All duties, taxes and other levies payable by the Bidder under the contract, or for any other cause, shall be included in the rates and prices, and the total Bid Price submitted by the Bidder. b) As mentioned in a letter -of acceptance No. 1016 (10.07.2023) that total contract amount Rs. 1839205484 (One hundred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) d) The objective Of the project is defined as under:- 3.2 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 Green Tribunal in this case, for discharge of in the water bodies / reuse applications. 3.4 Treatment Objective: Considering the raw sewage quality and the required treated effluent quality, the process train proposed by the contractor shall achieve the following objectives: 1. To achieve guaranteed treated effluent quality or even better. 2. To ensure that the upgradation of the treatment process is the most appropriate and State of the art in terms of both efficiency of treatment, performance and operating cost. 3. To ensure that the process is cost effective from both capital and running costs, considering that is power consumed. 3.9 For Instrumentation and Electrical works, in general bidder shall follow specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-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 going through the work order awarded to the applicant as discussed here-in-above, it is clear that in the instant case the applicant is engaged in providing works contract services . The applicant also admits the fact that they are engaged in supply of goods along with services for an immovable property. Thus, the services provided by the applicant are found to be works contract services, where goods along with services are supplied. 7) Now, we examine the exemption notification No. 12/2017-CT(R) dated 28.06.2017 which is reproduced as under: Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate Condition 3 Chapter 99 Pure services (excluding works contract service or other composite supplies invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on; (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 District Council constituted under the Sixth Schedule to the Constitution; Article 243P in constitution of India In this Part, unless the Context otherwise requires, (e) Municipality means an institution of self-government constituted under article 243Q; 243Q. Constitution of Municipalities. (1) There shall be constituted in every State,- (a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say an area in transition from a rural area to an urban area; (b) a Municipal Council for a smaller urban area; and (c) a Municipal Corporation for a larger urban area, B) The notification of Law Department is as under:- LAW (LEGISLATIVE DRAFTING) DEPARTMENT (GROUP-II) NOTIFICATION Jaipur, September 11, 2009 No. F. 2 (21) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2017 CTR dated 28.06.2017. 5.52 She further stated that prior to 01.01.2022, the exemption also covered services supplied to Governmental authority and Governmental entities also. The Fitment Committee had also recommended to create a new entry 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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