2019 (6) TMI 1483 - AAAR - GST

Appellate authority modifies Advance Ruling on NDDB's tax exemption eligibility under Central Tax Rate Notification

In Re: M/s. National Dairy Development Board

The appellate authority modified the Advance Ruling by holding that: 1. In the absence of sufficient information, it cannot be determined whether NDDB is ... Governmental Authority or not - National Dairy Development Board - renting of immovable property service provided by NDDB to an educational institute, Anandalaya Educational Society - exempt under Sr. 4 of Notification No. 12/2017-Central Tax (Rate) or not - Challenge to AAR decision. HELD THAT:- The said Sr. 4 of Notification No. 12/2017-Central Tax (Rate) provides exemption to services by governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the Constitution - The activity of ‘Renting of Immovable Property’ is not a function entrusted to a municipality under article 243W of the Constitution. Therefore, services by NDDB by way of ‘Renting of Immovable Property” cannot be said to be service in relation to any function entrusted to a municipality under article 243W of the Constitution. The phrase ‘in relation to any function’ refers not to what activities the recipient of the service is engaged in, but to what service the supplier is providing. In order to be covered under Sr. 4 of Notification No. 12/2017-Central Tax (Rate), the service by a ‘governmental authority’ itself should relate to an activity listed under Article 243W read with Twelfth Schedule of the Constitution. ‘Renting of Immovable Property’ is not covered under Article 243W read with Twelfth Schedule of Constitution. Thus, the exemption provided vide Sr. 4 of Notification No. 12/2017-Central Tax (Rate) is not admissible to appellant for providing service of ‘Renting of Immovable Property’ to ‘Anandalya Educational Society’ - decision of AAR upheld. Issues Involved:1. Whether NDDB qualifies as a 'governmental authority' from GST perspective.2. Whether renting of immovable property service provided by NDDB to an educational institute is exempted under Sr. 4 of Notification No. 12/2017-Central Tax (Rate).Issue-wise Detailed Analysis:1. Qualification of NDDB as 'Governmental Authority':The appellant, M/s. National Dairy Development Board (NDDB), argued that it qualifies as a 'governmental authority' under Section 2(16) of the Integrated Goods and Services Tax Act, 2017, as it is set up by an Act of Parliament. NDDB contended that the condition of 'ninety percent or more participation by way of equity or control' is not applicable to bodies established by an Act of Parliament, relying on the decision of the Hon'ble High Court of Patna in Shapoorji Paloonji & Company Ltd. Vs. CCE, Patna.The Gujarat Authority for Advance Ruling (GAAR) ruled that NDDB would qualify as a 'governmental authority' only if it fulfills the condition of ninety percent or more participation by way of equity or control.The appellant challenged this ruling, arguing that the conditional ruling is improper and against legal provisions. It was submitted that the ruling has accepted that NDDB carries out functions entrusted to a municipality under Article 243W of the Constitution, and the appeal is to determine the requirement of ninety percent or more participation by way of equity or control.The appellant argued that the word 'or' between clauses (i) and (ii) in the definition means the condition of ninety percent or more participation applies only to bodies established by the government, not those set up by an Act of Parliament. They cited several judgments to support this contention.The appellant also submitted that NDDB is fully controlled by the Central Government, citing provisions of the NDDB Act, 1987, which include the appointment of directors by the Central Government, approval of auditors, and laying of audit reports before Parliament.Findings:The appellate authority considered the submissions and noted that the definition of 'Governmental Authority' includes a condition applicable to both sub-clauses (i) and (ii) that the body should have ninety percent or more participation by way of equity or control. The authority held that NDDB satisfies the first part of the definition as it is set up by an Act of Parliament. However, it was noted that the appellant did not provide sufficient evidence to determine if it satisfies the condition of being set up to carry out functions entrusted to a municipality under Article 243W of the Constitution.The appellate authority concluded that in the absence of sufficient information, it is not possible to determine whether NDDB qualifies as a 'Governmental Authority' as per the definition provided in Notification No. 12/2017-Central Tax (Rate).2. Exemption for Renting of Immovable Property Service:The appellant sought exemption for renting of immovable property service provided to Anandalaya Educational Society under Sr. 4 of Notification No. 12/2017-Central Tax (Rate), which provides exemption to services by a governmental authority related to functions entrusted to a municipality under Article 243W of the Constitution.The GAAR ruled that the exemption would be available if NDDB qualifies as a 'governmental authority'.The appellant contended that renting of immovable property for educational purposes falls under the function of 'promotion of cultural, educational, and aesthetic aspects' as per Article 243W of the Constitution.Findings:The appellate authority found that renting of immovable property is not a function entrusted to a municipality under Article 243W of the Constitution. Therefore, services by NDDB by way of renting of immovable property cannot be considered as services related to any function entrusted to a municipality under Article 243W. The exemption under Sr. 4 of Notification No. 12/2017-Central Tax (Rate) is not admissible for providing the service of renting of immovable property to Anandalaya Educational Society.Conclusion:The appellate authority modified the Advance Ruling by holding that:1. In the absence of sufficient information, it cannot be determined whether NDDB is a 'Governmental Authority' as per the definition provided in Notification No. 12/2017-Central Tax (Rate).2. The exemption under Sr. 4 of Notification No. 12/2017-Central Tax (Rate) is not admissible to NDDB for providing the service of renting of immovable property.Separate Judgment:One member of the appellate authority agreed with the findings of the GAAR that NDDB did not submit sufficient documents to substantiate its claim of being a governmental authority. The member noted that the appeal only challenged the ruling on the qualification as a governmental authority and not the exemption for renting of immovable property service. The member stated that the ruling does not debar the appellant from proving its case before the jurisdictional officer.As the members of the appellate authority differed, Section 101(3) of the CGST Act, 2017, shall apply.