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of <h1>GST applies at 18% on Municipal reinstatement and access charges under Notification 11/2017, not exempt under Article 243W</h1> <h3>In Re : Reliance Infrastructure Limited</h3> In Re : Reliance Infrastructure Limited - 2018 (13) G.S.T.L. 449 (A. A. R. - GST) ISSUES: Whether reinstatement charges paid to Municipal Authorities for restoration of roads damaged due to excavation work are liable to Goods and Services Tax (GST)?Whether access charges paid to Municipal Authorities for right of way to carry out excavation work are liable to GST? RULINGS / HOLDINGS: Reinstatement charges paid to Municipal Authorities are liable to GST. The service of restoration of roads in the context of excavation by a business entity does not constitute an activity in relation to any function entrusted to a municipality under Article 243W of the Constitution when performed for commercial purposes, and therefore does not qualify for exemption under Entry 4 of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017.Access charges paid to Municipal Authorities for right of way are also liable to GST. Due to insufficient information regarding the nature of these charges across different Municipal Authorities, and considering the commercial nature of the service, GST liability arises under the reverse charge mechanism. RATIONALE: The legal framework applied includes Section 97 and 98 of the Central Goods and Services Tax Act, 2017, Notification No. 12/2017 - Central Tax (Rate), Notification No. 13/2017 - Central Tax (Rate), and relevant provisions of the Constitution of India, specifically Articles 243P, 243Q, and 243W along with the Twelfth Schedule.Entry 4 of Notification No. 12/2017 exempts from GST 'services by Central Government, State Government, Union territory, local authority or governmental authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution.' The functions listed in the Twelfth Schedule include 'Roads and Bridges.'The Court interpreted the term 'function entrusted to a municipality' as sovereign functions performed for the community at large, such as construction and maintenance of roads, which are not commercial in nature.The activity of restoring road patches damaged due to excavation by private business entities is not considered a sovereign function but a commercial service provided to the entity, thus falling outside the exemption.The Court distinguished between the sovereign function of constructing and maintaining roads and the restoration work done specifically for private entities, holding that the latter is taxable.Notification No. 13/2017 provides that services supplied by local authorities to business entities are subject to GST on a reverse charge basis, making the recipient liable to pay tax.The concept of 'composite supply' under Section 2(30) and Section 8 of the CGST Act was considered but found inapplicable to exempt access charges due to the commercial nature of the supply.The Court noted that exemption notifications must be strictly construed and that the exemption under Entry 4 of Notification No. 12/2017 excludes services provided to business entities, as clarified by an exclusionary clause in the same notification.The Court rejected the applicant's reliance on judicial precedents and broad interpretations of 'in relation to' and 'functions entrusted,' emphasizing the specific wording and legislative intent behind the exemption.No dissenting or concurring opinions were recorded.
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