2019 (2) TMI 1603 - AAAR - GST

AAAR ruling: Services to OKCL not exempt under Entry 72. Supply not to Govt, title transfer = supply of goods.

The Appellate Authority for Advance Ruling (AAAR) upheld the ruling that services provided by the Appellant to Odisha Knowledge Corporation Limited (OKCL) ... Exemption under Entry No.72 of Notification No.12/2017-Central Tax (Rate) - services under any training programme - service recipient - government versus corporate implementing agency - total expenditure borne by government - composite supply - transfer of title under BOOT model as supply of goods under Schedule II - operation and maintenance of self owned equipment - supply to third partyService recipient - government versus corporate implementing agency - exemption under Entry No.72 of Notification No.12/2017-Central Tax (Rate) - Services supplied by the appellant to Odisha Knowledge Corporation Limited do not qualify as services provided to the State Government for the purpose of Entry No.72 - HELD THAT: - The notification requires the supply to be to the Central Government, State Government or Union Territory administration. OKCL is a body corporate incorporated under the Companies Act and, despite being promoted by a government department, is legally distinct from the State. The appellant did not produce documentary evidence to treat supplies to OKCL as supplies to Government and failed to show that OKCL is the Government or part of the Government for the purposes of the notification. The contractual and funding arrangements relied upon by the appellant (including that OMSM would step in if OKCL defaulted) did not establish that the appellant had supplied services to the Government rather than to OKCL. Consequently the appellant does not satisfy the primary condition of Entry No.72 that the recipient be the Government. [Paras 4]The supplies to OKCL are not supplies to the Central or State Government for Entry No.72 and therefore the appellant fails the primary condition for exemption.Transfer of title under BOOT model as supply of goods under Schedule II - exemption under Entry No.72 of Notification No.12/2017-Central Tax (Rate) - Transfer of title at a future date under the BOOT contract constitutes supply of goods under Schedule II - HELD THAT: - The agreement provided for transfer of the infrastructure to the State at the end of the contract period at zero value. Schedule II(1)(c) treats any transfer of title in goods under an agreement which stipulates that property shall pass at a future date upon payment (or as agreed) as a supply of goods. The appellant's own pleadings accepted that title would transfer after five years unconditionally; accordingly the consideration received is in respect of supplies that include goods and are taxable as such. This characterization supports the view that the transaction is not purely a service covered by Entry No.72. [Paras 1, 4]The future transfer of title under the BOOT model is a supply of goods under Schedule II and the consideration is accordingly in respect of such supplies.Operation and maintenance of self owned equipment - supply to third party - composite supply - Maintenance/operation undertaken by the appellant cannot be treated as non supply to a third party where the contract stipulates eventual transfer and the appellant treats the assets as its own for the contract period - HELD THAT: - The appellant argued that operation and maintenance of equipment owned by it during the contract period did not amount to supply of services to a third party. However, the contract simultaneously provided for unconditional transfer of the infrastructure at the end of the period. The appellant also recorded the assets and claimed depreciation, indicating ownership during the period but accepted transfer later. This inconsistency led to the conclusion that the activities and the consideration fall within the ambit of supply (including goods), and cannot be treated as mere maintenance of self owned equipment outside the tax net. The AAR's finding that the arrangement involved distinct components and was not exclusively a training programme was affirmed on this basis. [Paras 4]The appellant's maintenance/operation activities, viewed in the contractual context of eventual transfer, constitute part of the taxable supplies and are not excluded as services on the basis of being carried out on self owned equipment.Final Conclusion: The Appellate Authority for Advance Ruling upheld the AAR, Odisha. The appellant failed to establish that the recipient was the Government or that the supplies fell within Entry No.72; the contractual transfer of title was held to be a supply of goods under Schedule II and the activities could not be treated as non taxable maintenance of self owned equipment. The appeal is rejected (condonation of delay allowed). Issues Involved:1. Applicability of Entry No. 72 of Notification No. 12/2017-Central Tax(Rate) to the services provided under the ICT @ School Project.2. Determination of whether the services provided are under a training program.3. Clarification on whether the services are provided to the Government.4. Assessment of whether the total expenditure is borne by the Government.5. Consideration of the composite supply and supply of goods during the contract period.6. Condonation of delay in filing the appeal.Issue-wise Detailed Analysis:1. Applicability of Entry No. 72 of Notification No. 12/2017-Central Tax(Rate):The Appellant sought an advance ruling on whether the services provided under the ICT @ School Project qualify for GST exemption under Entry No. 72 of Notification No. 12/2017-Central Tax(Rate). This entry exempts services provided to the Central Government, State Government, or Union territory administration under any training program where the total expenditure is borne by the government.2. Determination of Whether the Services Provided Are Under a Training Program:The Appellant argued that their activities, including installation, commissioning, site maintenance, and operation, were naturally bundled with the principal supply being computer training. They emphasized that the infrastructure was developed to provide computer training to students and teachers, and the ICT project aimed to promote computer literacy. The Appellant contended that during the contract period, the infrastructure was owned by them, and maintenance activities were performed to ensure smooth training delivery.3. Clarification on Whether the Services Are Provided to the Government:The Appellant provided services to Odisha Knowledge Corporation Limited (OKCL), a body corporate. The AAR held that OKCL, being a corporate entity, does not qualify as the Government. The Appellant's argument that OKCL acted as an implementing agency on behalf of the Government was rejected. The AAR concluded that services provided to OKCL do not meet the primary requirement of being services provided to the Government.4. Assessment of Whether the Total Expenditure Is Borne by the Government:The Appellant contended that the expenditure for implementing the ICT project was borne by the Central and State Governments in a 75:25 ratio. However, the AAR noted that the payment responsibility was vested in OKCL, and thus, the condition that the total expenditure must be borne by the Government was not satisfied.5. Consideration of the Composite Supply and Supply of Goods During the Contract Period:The AAR observed that the supply undertaken by the Appellant was a composite supply, including goods and services that were not naturally bundled. The Appellant's claim that there was no supply of goods during the contract period was contradicted by their admission that the ownership of infrastructure would be transferred at the end of the contract period. The AAR held that the transfer of title in goods at a future date constitutes a supply of goods.6. Condonation of Delay in Filing the Appeal:The Appellant requested condonation of a 5-day delay in filing the appeal, citing technical factors and transit delays. The AAAR found the reasons satisfactory and allowed the condonation of delay.Conclusion:The AAAR upheld the AAR's ruling that the services provided by the Appellant to OKCL do not qualify for exemption under Entry No. 72 of Notification No. 12/2017-Central Tax(Rate). The appeal was rejected on the grounds that the services were not provided to the Government, and the total expenditure was not borne by the Government. The AAAR also noted that the supply included goods and services that were not naturally bundled, and the transfer of title in goods constitutes a supply of goods. The delay in filing the appeal was condoned.