2021 (2) TMI 1249 - AAR - GST

GST not exempt for sewage treatment plant operation & maintenance services due to value threshold

The court held that the outward supply for the operation and maintenance of a sewage treatment plant was not exempt from GST under specified notifications ... Exemption from CGST/SGST and IGST - outward supply for operation and maintenance of sewage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh, Dehradun, State of Uttarakhand, India to Uttarakhand Pay Jal Nigam (an entity working under the Ministry of Drinking Water & Sanitation, Govt, of Uttarakhand as an undertaking of Uttarakhand Government) - N/N. 2/2018-Central Tax (Rate) dated 25.01.2018, 2/2018-Integrated Tax (Rate) dated 25.01.2018 and 138/2018/18(20)/ XXVH(8)/ 2017/ CTR-2, Dehradun dated 06.02.2018 - Whether the inward supplies directly received for above services by the applicant are also exempt from GST? HELD THAT:- The operation & maintenance cost of ₹ 53,94,51,394.98 is not only for the operation & maintenance of sewage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh as is claimed by the applicant but this cost includes the operation & maintenance of the total contract as mentioned at first para of the said contract comprising works shown at part (A) &part (B) whereas the applicant in their letter dated 19.11.2020 has shown this amount of ₹ 53,94,51,394.98 towards the operation & maintenance of only sewage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh which is not correct and thus the bifurcation of the cost of each item including cost of goods given in their letter dated 19.11.2020 cannot be relied upon - as per contract, design build cost of ₹ 72,42,94,625/- is not only for the (A) part of the said contract but it also includes the cost of design build cost of sewage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh as shown at (B) part of the said contract. Besides Operation & Maintenance of sewerage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh for 15 years, the applicant has also to design and build the same which is a composite supply for that particular work also and as per Contract, design build cost of ₹ 72,42,94,625/- and operation & maintenance cost of ₹ 53,94,51,394.98 are inclusive of design build cost and O&M cost of sewerage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh and therefore value of supply of goods in the outward supply for operation & maintenance of sewerage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh cannot be justified below 25 per cent of the value of that particular composite supply. Whether the outward supply of operation & maintenance of sewerage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh is being provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity 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 243W of the Constitution? - HELD THAT:- It is evident that UPJN has been entrusted with the function of all the necessary services in regard to sewerages which is an activity in relation to any function entrusted to a Municipality under article 243W of the Constitution - though outward supply of operation & maintenance of sewerage treatment plant to UPJN is exempt under entry no.3A of the notification no. 2/2018-Central Tax (Rate) dated 25.01.2018 and 2/2018-Integrated Tax (Rate) dated 25.01.2018 yet this exemption is available only if value of supply of goods constitutes not more than 25 per cent, of the value of the said composite supply. In the instant case, the applicant could not bifurcate the operation & maintenance cost particularly for their outward supply for operation & maintenance of sewerage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh. Operation & Maintenance cost mentioned in the contract dated 24.05.2018 (date as per stamp paper) is for the total contract mentioned at first para consisting the works mentioned at (A)& (B) and thus value of supply of goods cannot be justified below 25 per cent, of the value of the said composite supply. Whether the in supplies directly received for the services by the applicant are also exempt from GST? - HELD THAT:- It is obvious that when the main supply is not exempt from GST then inward supplies directly received for the main supply of services are also not exempted. Issues Involved:1. Applicability of GST exemption on outward supply for operation and maintenance of the sewage treatment plant.2. GST exemption on inward supplies directly received for the above services.Issue-wise Detailed Analysis:Issue 1: Applicability of GST exemption on outward supply for operation and maintenance of the sewage treatment plantThe applicant sought an advance ruling on whether their outward supply for the operation and maintenance of a sewage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh to Uttarakhand Pey Jal Nigam (UPJN) is exempt from GST under specific notifications.The relevant notifications include:- Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018- Notification No. 2/2018-Integrated Tax (Rate) dated 25.01.2018- Notification No. 138/2018/18(20)/XXVII(8)/2017/CTR-2, Dehradun dated 06.02.2018The notifications stipulate three conditions for exemption:1. The supply must be a composite supply of goods and services where the value of goods does not exceed 25% of the total value.2. The recipient must be a Government entity, such as the Central Government, State Government, Local Authority, Governmental Authority, or a Government Entity.3. The services must relate to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.The contract between the applicant and UPJN includes:- Survey, design, and construction of sewer lines and pumping stations.- Design, build, operate, and transfer of a sewage treatment plant with 15 years of operation and maintenance.The total contract value is Rs. 126,37,46,020, with design build cost of Rs. 72,42,94,625 and operation and maintenance cost of Rs. 53,94,51,394.98.The authority determined that the operation and maintenance services are part of a composite supply where the principal supply is the design and building. The operation and maintenance are considered supplementary and ancillary to the primary supply. The value of goods in the composite supply exceeds 25% of the total value, disqualifying it from exemption under the specified notifications.The authority also noted that the applicant attempted to split the contract to show only the operation and maintenance part, which is not permissible. The entire contract value must be considered, and the value of goods exceeds the 25% threshold, making the supply taxable.Issue 2: GST exemption on inward supplies directly received for the above servicesThe applicant also sought clarification on whether inward supplies directly received for the services are exempt from GST.Since the main supply of operation and maintenance of the sewage treatment plant is not exempt from GST, the inward supplies directly received for these services are also not exempt.Order:1. The outward supply of operation and maintenance of the sewage treatment plant of 26 MLD capacity at LakkarGhat, Rishikesh, Dehradun, State of Uttarakhand to Uttarakhand Pey Jal Nigam is not exempted under the specified notifications.2. The inward supplies directly received for the above supply of services are also not exempted.