Services from non-taxable territory under reverse charge mechanism qualify for GST exemption under notification 9/2017 IGST

The AAAR, MP held that services received by appellant from a non-taxable territory provider under reverse charge mechanism qualify for GST exemption. The services, relating to functions under Article 243G of the Constitution, fall within entry 3 of notification 9/2017 IGST (Rate) and are exempt from GST. Under section 5(3) of IGST Act 2017, the appellant becomes a supplier through reverse charge provisions, making it a case of "no supply" under notification 11/2017 IGST (Rate), thereby exempting the transaction from GST liability.

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Issues Involved:
1. Applicability of IGST on import of services under Reverse Charge Mechanism.
2. Classification of activities performed by the appellant as business or non-business.
3. Eligibility for exemption under Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.

Detailed Analysis:

1. Applicability of IGST on Import of Services under Reverse Charge Mechanism:
The appellant sought clarification on whether services received from a provider located in a non-taxable territory attract IGST under the Reverse Charge Mechanism (RCM) as per Notification No. 10/2017-IGST (Rate) dated 28.06.2017. The Authority for Advance Ruling (AAR) ruled that the appellant is liable to pay IGST on the import of services under RCM. The Appellate Authority for Advance Ruling (AAAR) upheld this decision, confirming that the services received from ITE Education Services Pte. Ltd. (ITEES), a Singapore-based consultancy, fall under the RCM provisions of Section 5(3) of the IGST Act, 2017.

2. Classification of Activities Performed by the Appellant as Business or Non-Business:
The appellant argued that their activities do not constitute business as defined under Section 2(17) of the CGST Act, 2017, and are in line with the functions entrusted to the government under the Constitution of India. The appellant emphasized that the project aims to provide vocational and technical education without any commercial motive, thus should not be considered a business activity. The AAAR, however, did not delve deeply into whether the appellant's activities constitute business, focusing instead on the applicability of exemptions under the relevant notifications.

3. Eligibility for Exemption under Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017:
The appellant contended that the services received from ITEES should be exempt under Entry 10 of Notification No. 9/2017-Integrated Tax (Rate), which exempts services received by the government for non-commercial purposes. The AAR initially ruled against this exemption, stating the services were for business purposes. However, the AAAR considered an alternative plea under Entry 3 of the same notification, which exempts "pure services" provided to the government related to functions entrusted under Article 243G of the Constitution.

The AAAR found that the services provided by ITEES to the Directorate of Skill Development (DoSD) align with the functions listed under Article 243G, specifically "Technical training and vocational education." Thus, these services qualify as "pure services" and are exempt from GST under Entry 3 of Notification No. 9/2017-Integrated Tax (Rate).

Additionally, the AAAR noted that as per Notification 11/2017-IGST (Rate), services related to functions entrusted under Article 243G or 243W of the Constitution are considered neither a supply of goods nor services, further supporting the exemption.

Conclusion:
The AAAR ruled that the services received by the appellant from ITEES qualify for exemption under Entry 3 of Notification No. 9/2017-Integrated Tax (Rate) and are not subject to GST. This decision was based on the classification of the services as "pure services" related to functions entrusted under Article 243G of the Constitution, thus falling within the scope of the exemption.

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