Survey and DPR for water supply to local bodies exempt under Notification 12/2017 and Article 243G/243W; 2% TDS not deductible.

AAR held that survey and DPR preparation for water supply schemes supplied as pure services to local bodies via the PHED qualify as activities relating to functions entrusted to Panchayats/Municipalities and thus meet the three conditions for exemption under Notification No.12/2017 (pure service, provided to govt/local authority, relates to Article 243G/243W functions). Consequently, such services are exempt from GST and TDS under the CGST Act is not deductible at 2% on payments for these exempt services, since TDS applies only to taxable goods or services that are leviable to GST.

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Issues Involved:
1. GST exemption on the services of survey and preparation of Detailed Project Report (DPR) for water supply schemes for Panchayats/Municipalities under Jal Jeevan Mission.
2. Applicability of 2% TDS deduction on the payments made for the above services.

Issue-wise Analysis:

1. GST Exemption on Services:

The applicant, M/s Aarav Consultancy Services Pvt. Ltd., sought an advance ruling on whether their services of survey and preparation of DPR for water supply schemes for Panchayats/Municipalities under Jal Jeevan Mission are exempt from GST under Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017, as amended.

- Scope of Services: The services include topographical surveys, preparation of detailed designs and cost estimates, preparation of drawings, and submission of reports and presentations. These services are classified as "Pure Services" since they do not involve the supply of materials or construction activities.

- Notification No. 12/2017-Central Tax (Rate): This notification exempts "Pure Services" provided to the Central Government, State Government, Union territory, local authority, or a Governmental authority by way of any activity related to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.

- Relevant Constitutional Articles: The services provided by the applicant are listed under the functions pertaining to Panchayats and Municipalities as per Articles 243G and 243W, respectively. Specifically, water supply services are included in these functions.

- Conclusion: The Authority concluded that the services provided by the applicant qualify as "Pure Services" and are thus eligible for GST exemption under Sr. No. 3 of Notification No. 12/2017-Central Tax (Rate).

2. Applicability of 2% TDS Deduction:

The applicant also sought clarification on whether 2% TDS on GST is applicable to the payments made by the Public Health Engineering Department (PHED) for these services.

- Section 51 of CGST Act, 2017: This section mandates TDS at the rate of 1% from the payment made to the supplier of taxable goods or services where the total value exceeds Rs. 2.5 lakhs. However, it specifies that TDS is applicable only on "taxable goods or services" and not on "taxable supply."

- Definition of Taxable Supply: As per Section 2(108) of the CGST Act, 2017, "taxable supply" means a supply of goods or services which is leviable to tax under this Act. Since the services in question are exempt from GST, they do not qualify as "taxable supply."

- Standard Operating Procedure (SOP) on TDS under GST: The SOP clarifies that TDS is not required on services that are exempt under Notification No. 12/2017-Central Tax (Rate).

- Conclusion: The Authority concluded that no deduction of TDS is warranted on the payments received by the applicant for the exempted services rendered.

Order:
Ruling:
1. The services of survey and preparation of DPR for water supply schemes for Panchayats/Municipalities under Jal Jeevan Mission provided by the applicant are eligible for GST exemption as per Sr. No. 3 of Notification No. 12/2017-Central Tax (Rate).
2. No deduction of TDS is warranted on the payments received by the applicant for these exempted services.

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