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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 ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting, 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. 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 Whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bundied' has not been 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 fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vable 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 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 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 catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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] LevobVerzekeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 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 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 19.102023, 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 ä 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017-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. 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 Instrumenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he defect liability period. The annual/yearly O&M charges shall be fixed and as specified in the BOQ/Tender 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 2.27) 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: Consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 going through the work order awarded to the applicant' as discussed here-in-above, it is clear that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ga 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 examine 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 District Council constituted u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 19.10.2023, it is imperative to discuss the background and Minutes of Meeting of the GST Council on the recommendation of which, the instant entry was inserted. For reference, the para 5.51 and 5.52 of Minutes of 52nd GST Council Meeting held on 07.10.2023 are reproduced hereunder:- 5.51 Joint Secretary, TRU informed the Council that the next agenda item was to specify a positive list of services under Sr. No. 3 & 3A of notification No. 12/2017-CentraI Tax (Rate). She stated that this issue was discussed in earlier Council meetings and Fitment was asked to examine whether there was a need to prune the list of exempt supplies of pure services or composite supplies by way of activity in relation to functions listed in Articles 243G and 243W of the Constitution of India when supplied to Central Government, State Government or Local authority. However, during previous discussions on the same, states had opined that the list should continue as it exists. She stated that the Fitment Committee had recommended to maintain the existing list of services in 3 and 3A of Notification No. 12/2017 CTR dated 28.06.2017. 5.52 She further stated that prior to 01.01.2022, the exemption al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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