2019 (4) TMI 1400 - AAR - GST

Municipal services: GST implications on pure services & composite supplies

The ruling clarified that services received by the Municipal Corporation, including cleaning roads, gardens, toilets, and waste collection, are a mix of ... Pure services provided to a local authority - Nil rate of GST - Composite supply where value of goods does not exceed 25% - Nil rate of GST - Composite supply where value of goods exceeds 25% - taxable supply (rate as per applicable notification) - Functions entrusted to a Municipality under Article 243W of the Constitution - Tax Deduction at Source under Section 51 of the CGST/RGST ActPure services provided to a local authority - Nil rate of GST - Functions entrusted to a Municipality under Article 243W of the Constitution - Receipt by the applicant of pure services (such as cleaning of roads, gardens, toilets and waste collection) that fall within functions entrusted to a Municipality under Article 243W are nil-rated and not taxable under GST. - HELD THAT: - The services received by the applicant correspond to activities listed in the Twelfth Schedule under Article 243W (including public health, sanitation, provision of urban amenities etc.). Notification No. 12/2017-Central Tax (Rate) entry at serial no. 3 exempts pure services provided to a local authority by way of any activity in relation to functions entrusted to a Municipality under Article 243W by providing Nil rate of GST. Applying that entry, where the supply received by the applicant is a pure service (i.e., not a works contract or composite supply involving supply of goods), it attracts Nil rate and is not subject to GST.Pure services received by the applicant in relation to functions under Article 243W are Nil rated; GST is not leviable and GST TDS is not applicable.Composite supply where value of goods does not exceed 25% - Nil rate of GST - Functions entrusted to a Municipality under Article 243W of the Constitution - Composite supplies of goods and services provided to the applicant are exempt (Nil rate) where the value of the supplied goods does not exceed 25% of the total composite supply value. - HELD THAT: - Notification No. 12/2017-Central Tax (Rate) entry 3A exempts composite supplies of goods and services provided to Central/State/UT/local authorities in relation to functions entrusted to a Municipality under Article 243W where the value of goods does not exceed 25% of the composite supply. The nature of the supplier's contract must be examined activity by activity to determine the proportion of goods value. If the goods component remains within the 25% threshold, the composite supply attracts Nil rate.Composite supplies to the applicant in which the value of goods is not more than 25% of the total are Nil rated; GST is not leviable and GST TDS is not applicable.Composite supply where value of goods exceeds 25% - taxable supply (rate as per applicable notification) - Where a composite supply received by the applicant involves a goods component exceeding 25% of the total value, the supply is taxable and GST (and consequently GST TDS) applies. - HELD THAT: - The ruling recognises that many contracts involve both goods and services (for example, construction of toilets supplying materials and manpower). Notification entry 3A's exemption ceases to apply if the goods component exceeds 25% of the composite supply value. In such cases the activity will attract GST at applicable rates; the authority's order specifies that if the activity falls within the purview of Serial No. 3 of Notification 11/2017 (CT-Rate) dated 28.06.2017, GST @12% (SGST 6% + CGST 6%) will apply, and if not, GST @18% (SGST 9% + CGST 9%) will apply. Where GST is leviable, the provisions relating to TDS will be applicable.Composite supplies in which the goods component exceeds 25% are taxable; GST shall be levied at the rate applicable to the activity (as indicated in the ruling) and the applicant's obligation under GST TDS applies.Tax Deduction at Source under Section 51 of the CGST/RGST Act - The applicant, being a local authority, is covered by Section 51 and is eligible to be a TDS deductor, but the obligation to deduct TDS arises only where the payment is for taxable supplies and not where the supply is Nil rated/exempt. - HELD THAT: - Section 51 contemplates mandating certain governmental and local authorities to deduct tax at source. The authority observed that the applicant qualifies as a local authority within the scope of Section 51 and related notifications appointing categories of deductors. However, the statutory TDS obligation is conditioned upon the supplies being taxable (i.e., not Nil rated/exempt). Thus, for activities or contracts which are Nil rated under the relevant notifications (pure services or composite supplies with goods 25%), TDS provisions will not apply. For activities found to be taxable (for example, composite supplies with goods >25%), the applicant will be required to operate TDS as per Section 51 and related notifications.The applicant is eligible to be a TDS deductor under Section 51, but must deduct TDS only where the underlying supply is taxable; no TDS obligation arises for supplies that are Nil rated/exempt.Final Conclusion: The Authority rules that (a) pure services received by the Municipal Corporation in relation to functions under Article 243W are Nil rated and not subject to GST or GST TDS; (b) composite supplies with goods value not exceeding 25% are Nil rated and not subject to GST or GST TDS; (c) composite supplies where the goods component exceeds 25% are taxable (at the rates indicated in the ruling depending on the notification applicability) and attract GST TDS; and (d) the applicant, as a local authority, is within the ambit of Section 51 but its TDS obligation arises only in respect of taxable supplies. Issues:Classification of services for a Municipal Corporation under GST laws.Analysis:The Municipal Corporation sought an advance ruling on the taxability of services received from contractors for cleaning roads, gardens, toilets, and waste collection. The applicant, being a registered person under CGST and SGST Acts, was admitted for advance ruling as per Section 97(2)(a),(e), and (g). The jurisdictional officer highlighted that services to local authorities are nil-rated under Notification No. 12/2017.The applicant argued that most services received fall under Article 243W of the Constitution but were unsure if they were taxable. The services provided by the Municipality fall under the Twelfth Schedule of the Constitution, including cleaning roads, gardens, toilets, and waste collection. The ruling emphasized that services provided by the applicant are a mix of pure services and goods supply, such as construction services involving manpower and goods like bricks and pipes.The ruling referred to Notifications No. 12/2017 and 12/2017-CT (Rate) to determine the tax treatment of composite supplies. If the value of goods in a composite supply does not exceed 25%, it attracts nil GST. However, if the value exceeds 25%, GST applies at 12% or 18% based on the specific activity. The ruling also discussed the applicability of GST TDS under Section 51 of the CGST/SGST Act, noting that the applicant, as a local authority, may be eligible to deduct TDS if services are taxable.In conclusion, the ruling clarified the tax treatment for services received by the Municipal Corporation. Pure services and composite supplies with goods not exceeding 25% value attract nil GST and are exempt from GST TDS. However, if the value of goods exceeds 25%, GST applies at 12% or 18%, and provisions of GST TDS will be applicable.