2019 (6) TMI 550 - AAR - GST

River resectioning with drainage work qualifies as composite supply with service exemption under Notification 9/2017 Sl No. 3A for irrigation development

The AAR held that resectioning of river Jamuna constituted a composite supply with excavation and re-excavation of drainage channels as the principal ... Exemption under Sl No. 3A of Notification No. 9/2017 - Integrated Tax (Rate) - composite supply where value of goods does not exceed 25% - pure service versus works contract or composite supply - activity in relation to functions entrusted to Panchayats under Article 243G - activity in relation to functions entrusted to Municipalities under Article 243W - supply to State Government / governmental authority - continuity of exemption from service tax regime to GST regimeExemption under Sl No. 3A of Notification No. 9/2017 - Integrated Tax (Rate) - composite supply where value of goods does not exceed 25% - supply to State Government / governmental authority - activity in relation to functions entrusted to Panchayats under Article 243G - The Applicant's supply for resectioning of river Jamuna to the Irrigation and Waterways Directorate, Government of West Bengal is exempt from GST under Sl No. 3A of Notification No. 9/2017 - Integrated Tax (Rate). - HELD THAT: - The Authority applied the settled position that the exemption regime under GST (Sl Nos. 3 and 3A) substantially continues the service-tax exemption earlier available and that the phrase 'in relation to any function' broadens the ambit to activities performed in relation to functions entrusted to Panchayats or Municipalities. The applicability of the exemption was examined under three aspects: (1) characterisation of the supply as a pure service or a composite supply where goods do not exceed 25% of value; (2) whether the recipient is a government or governmental authority; and (3) whether the supply is in relation to a function entrusted to a Panchayat or Municipality. The contract was found to be a composite supply of services with excavation/re-excavation as the principal supply and any supply of goods incidental and not separately valued, satisfying the requirement of Sl No. 3A. The recipient was the State Government (Irrigation and Waterways Directorate). The activity-development of irrigation and waterways involving drainage of channels and riverbeds-was held to fall within the Eleventh Schedule (Sl No. 5: minor irrigation, water management and watershed development) and thus to be an activity entrusted to Panchayats under Article 243G; the recipient certified the same. Having satisfied the three aspects, the Authority concluded that the supply qualifies for exemption under Sl No. 3A of the Exemption Notification. [Paras 3]The Applicant's supply is exempt from GST under Sl No. 3A of Notification No. 9/2017 - Integrated Tax (Rate).Final Conclusion: The Advance Ruling holds that the contract for resectioning of the river Jamuna awarded to the Applicant by the Irrigation and Waterways Directorate, Government of West Bengal, is exempt from GST under Sl No. 3A of Notification No. 9/2017 - Integrated Tax (Rate); the Ruling remains valid subject to the provisions referred to in the order. Issues involved:1. Admissibility of the application2. Interpretation of exemption under Notification No 9/2017 - Integrated Tax (Rate)Admissibility of the application:The application was admitted as the concerned officer did not object to its admission, and the question raised was not pending or decided in any forum. The application was deemed admissible under the CGST Act 2017/WBGST Act 2017.Interpretation of exemption under Notification No 9/2017 - Integrated Tax (Rate):The Applicant sought a ruling on whether an exemption under Sl No. 3 or 3A of Notification No 9/2017 applies to a contract awarded by the Irrigation and Waterways Directorate, Govt of West Bengal. The Applicant argued that the work involved in the contract constitutes a pure service or a composite supply with negligible goods supply, related to functions entrusted to a panchayat or municipality under the Constitution.The Bench observed that the service tax exemption under the previous regime has been continued under GST under Sl No. 3 and 3A of the Exemption Notification. It clarified that activities related to functions of public welfare entrusted to panchayats or municipalities are exempt from GST, provided the supply is pure service or a composite supply with goods value not exceeding 25%.The Bench analyzed the nature of the contract, determining it as a composite supply of services with incidental goods supply. The functions of a panchayat under the Constitution were discussed, linking the activities of the recipient to those listed in the Eleventh Schedule. The recipient's certification confirmed that the work awarded to the Applicant was related to the functions under Article 243G of the Constitution.Based on the above analysis, the ruling stated that the Applicant's supply to the Irrigation and Waterways Directorate, Govt of West Bengal, is exempt from GST under Sl No. 3A of Notification No 9/2017 - Integrated Tax (Rate). The ruling is valid unless declared void under the provisions of the GST Act.This comprehensive analysis of the issues involved in the judgment provides a detailed understanding of the interpretation of the exemption notification and the admissibility of the application before the Authority for Advance Ruling in West Bengal.