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

In Re: M/s. Arihant Dredging Developers Private Limited

The AAR held that resectioning of river Jamuna constituted a composite supply with excavation and re-excavation of drainage channels as the principal ... Pure service or a composite supply - recipient of service is the State Government / Govt Entity - Exemption under Sl No. 3 or 3A of Notification No 9/2017 - Integrated Tax (Rate) dated 28/06/2017 - Works contract services - composite contracts - contract for resectioning of river Jamuna from the upstream of Charghat Bridge to the downstream of Ghonja Haspur Bridge in Block and P.S Swarupnagar, Habra - 1 and Gaighata in North 24 Parganas - functions of a panchayat under the Constitution HELD THAT:- It is evident from the description of the work that it is a composite supply of various services, where excavation and re-excavation of the drainage channel is the principal supply. Supply of goods, if any, is purely incidental, and is not accounted for separately in the price schedule. The recipient is engaged in the development of irrigation and waterways, which includes activities in relation to the function listed under Sl No. 5 of the Eleventh Schedule, and, therefore, entrusted to a panchayat under Article 243G of the Constitution of India. The recipient certifies that the work awarded to the Applicant, involving drainage of channels and riverbeds, is an activity undertaken in relation to the function. The Applicant’s service to the recipient, therefore, is exempt under Sl No. 3A of the Exemption Notification. 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.