2018 (5) TMI 904 - AAR - GST

Railway cleaning services to government not exempt from GST under Notification 9/2017 despite minimal consumables involved

The Delhi AAR ruled that cleaning services provided to Northern Railways are not exempt from GST under Notification No. 9/2017. While the authority ... Levy of GST on Service contract with railways - cleaning, sanitation, manpower supply, washing, housekeeping, etc. in Delhi and outside Delhi - pure service contract or works contract - N/N. 9/2017-Integrated Tax (Rate) dated 28.06.2017 - Whether the contract for Railway station sanitation and / or cleaning, Train cleaning & Railway Premises cleaning would be exempt from GST vide S. No. 3 of N/N. 9/2017 - Integrated Tax (Rate) dated 28.06.2017 (as intimated by Northern Railway vide its letter dated 20.11.2017), what would be the impact of GST exemption, if the above contract is pure service contract or work contract (involving sanitation labour and material)? Whether 'pure services' or the same also involve supply of any goods? - Held that: - the cleaning contracts of the applicant with the Northern Railways, which may involve use of consumables such as soap/ detergent/ chemicals of a minimal quantity and of a very nominal value are 'pure service' contracts, in terms of S. No. 3 of Notification No. 9/2017 - Integrated Tax (Rate) dated 28.06.2017 as amended by Notification No. 2/2018 - Integrated Tax (Rate) dated 25.01.2018 and parallel CGST and SGST notifications. Whether the service receiver i.e. Northern Railways is covered in 'Central Government' or 'State Government' or 'Union Territory' or 'Local Authority' or a 'Governmental Authority' or a 'Government Entity' or not? - Held that: - as per Section 3(8) of the General Clauses Act, 1897, the 'Central Government' means the President. Therefore, the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of President are also covered in 'Central Government'. It is observed that contracts by Northern Railway to the applicant have been awarded in the name of the President of India - Hence, it is held that Northern Railway is covered in the said Notification as 'Central Government'. Whether the cleaning services rendered by the applicant are in relation to any function entrusted to a Municipality under Article 243W of the Constitution? - Held that: - The Railways cannot be called a Municipality under Articles 243P and 243Q of the Constitution of India. Further, the functions of Railways i.e. transport of goods or passengers are not covered in Schedule XII of the Constitution which covers the constitutional functions of Municipalities. The cleaning services supplied to Railways i.e. cleaning of locomotives, railway stations, railway lines provided by the applicant cannot be said to be covered in Clause (6) of Schedule XII of the Constitution which covers 'public health, sanitation conservancy and solid waste management' functions of the Municipalities. The Municipalities are constitutionally entrusted with such functions in relation to urban areas but they are not entrusted with such functions in relation to Railway properties. It is observed that, Northern Railway has informed their sanitation contractors vide No. C-12/San/Misc/2017 dated 20.11.2017 that contracts for station sanitation would be exempt from GST, provided it is a pure service contract and no supply of goods are involved - Since, under Section 103 of the CGST Act, 2017, this ruling is binding only on the applicant and the jurisdictional officers, the Northern Railways is free to contest the same. However, the applicant is required to deposit GST as per this Ruling. Ruling: - The cleaning services supplied by the applicant to the Northern Railways are not exempted under S. No. 3 of the Notification No. 09/2017 - Integrated Tax (Rate) dated 28.06.2017, as amended by Notification No. 2/2018 - Integrated Tax (Rate) dated 25.01.2018 and parallel Notifications of CGST and SGST. Issues Involved:1. Classification of the services provided by the applicant.2. Applicability of GST exemption under S. No. 3 of Notification No. 9/2017 - Integrated Tax (Rate) dated 28.06.2017.3. Determination of whether the services provided are 'pure services' or works contract services/composite supplies.4. Examination of whether Northern Railways qualifies as 'Central Government' under the relevant notification.5. Analysis of whether the services provided relate to functions entrusted to a Municipality under Article 243W of the Constitution.Issue-wise Detailed Analysis:1. Classification of the Services Provided by the Applicant:The applicant is engaged in providing various cleaning and sanitation services, including mechanized cleaning at railway stations, on-board housekeeping services in trains, and comprehensive cleaning of railway colonies. These services are classified under the service category of 'cleaning activity,' which is defined under the Finance Act as services related to cleaning commercial or industrial buildings and premises.2. Applicability of GST Exemption:The core issue is whether the services provided by the applicant to Northern Railways are exempt from GST under S. No. 3 of Notification No. 9/2017 - Integrated Tax (Rate) dated 28.06.2017. This notification exempts pure services provided to the 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.3. Determination of 'Pure Services' vs. Works Contract Services:The judgment discusses whether the cleaning services provided by the applicant are 'pure services' or works contract services involving the supply of goods. The applicant contends that their services are pure services, as the chemicals and materials used are minimal and completely consumed in the process. The Delhi High Court in a previous ruling held that such consumables do not constitute a transfer of property and thus qualify as pure services. The FAQ issued by CBEC also supports this view, stating that services without the supply of goods are treated as pure services.4. Northern Railways as 'Central Government':The judgment confirms that Northern Railways qualifies as 'Central Government' under Section 3(8) of the General Clauses Act, 1897, as the contracts are awarded in the name of the President of India. Therefore, Northern Railways falls within the scope of the entities mentioned in the exemption notification.5. Functions Entrusted to a Municipality under Article 243W:The judgment analyzes whether the cleaning services provided to Northern Railways relate to functions entrusted to a Municipality under Article 243W of the Constitution. It is concluded that the primary function of Railways is the transportation of goods and passengers, which is not a function entrusted to Municipalities under Article 243W. The functions of Municipalities under Article 243W, such as public health, sanitation conservancy, and solid waste management, do not extend to railway properties. Therefore, the services provided by the applicant do not qualify for the GST exemption under the said notification.Conclusion:The cleaning services provided by the applicant to Northern Railways are not exempt from GST under S. No. 3 of Notification No. 9/2017 - Integrated Tax (Rate) dated 28.06.2017. The services are taxable and will attract GST at the rate of 18% under the service classification code Chapter heading 9994. The ruling is binding on the applicant and the jurisdictional officers, and Northern Railways is free to contest the same.