2019 (6) TMI 1342 - AAR - GST

AAR West Bengal grants GST exemption for drainage channel sectioning and waterway development under Notification 2/2018-IT

AAR West Bengal ruled that a contract for sectioning drainage channels and waterway development work qualified for GST exemption under Sl No. 3A of ... Government entity - composite supply - works contract predominantly earthwork - taxability under rate notifications - exemption under Sl No. 3A of the Exemption Notification - function entrusted to a Panchayat under Article 243G - value of goods not exceeding 25% in a composite supplyGovernment entity - Recipient (Orissa Construction Corporation Ltd) is a government entity for the purposes of the Exemption Notification - HELD THAT: - The Authority examined the ROC filings and balance sheet showing state ownership of 99.98% and concluded that the recipient falls within the definition of a government entity under clause 2(zfa) of Notification No. 9/2017. The finding is recorded as determinative for the applicability of rate and exemption notifications to supplies made to that recipient. [Paras 4]Recipient is a government entity in terms of clause 2(zfa) of Notification No. 9/2017.Composite supply - works contract predominantly earthwork - taxability under rate notifications - The Applicant's contract is a composite works contract predominantly involving earthwork and its taxability at different rates for specified periods - HELD THAT: - On the description of activities (desiltation by dredging, building of bunds, surveys, clearing water hyacinth) and material supplied, the Authority concluded the supply is a composite works contract with around 98% related to dredging/earthwork and material component being about 5% of contract value. Applying the Rate Notification as amended, the supply was taxable at the pre-amendment rate until 12/10/2017, and at the reduced rate applicable from 13/10/2017 pursuant to Notification No. 39/2017. [Paras 4]Supply is a composite works contract predominantly earthwork; taxable at the earlier rate till 12/10/2017 and at 5% from 13/10/2017 to 24/01/2018 in terms of the Rate Notification as amended.Exemption under Sl No. 3A of the Exemption Notification - function entrusted to a Panchayat under Article 243G - value of goods not exceeding 25% in a composite supply - Whether the supply is exempt under Sl No. 3A of Notification No. 9/2017 with effect from the amendment dated 25/01/2018 - HELD THAT: - The Authority applied the three-part test for Sl No. 3A: (i) the supply is a composite supply where goods constitute not more than 25% of the value (material component ~5%); (ii) the recipient is a government entity; and (iii) the supply is in relation to a function entrusted to a Panchayat under Article 243G. The works (dredging, improving channels for irrigation/waterways) were held to pertain to 'minor irrigation, water management and watershed development' listed at Sl No. 5 of the Eleventh Schedule, thereby satisfying the constitutional function nexus. Consequently, the supply falls within the exemption introduced by Notification No. 2/2018 effective 25/01/2018. [Paras 4]Supply is exempt under Sl No. 3A of Notification No. 9/2017 as amended with effect from 25/01/2018.Final Conclusion: Orissa Construction Corporation Ltd is a government entity; the Applicant's dredging/works-contract supply is a composite contract predominantly earthwork taxable at the earlier notified rates (till 12/10/2017 and at 5% from 13/10/2017 to 24/01/2018) and, following the amendment effective 25/01/2018, the supply is exempt under Sl No. 3A of Notification No. 9/2017. Issues:1. Admissibility of the applicationAdmissibility of the application:The Applicant sought a ruling on the taxability of the supply contract awarded by a government entity under specific GST notifications. The application was admitted as it fell under the purview of section 97(2)(b) of the GST Act and was not objected to by the Revenue officer.Submissions of the Applicant:The Applicant argued that the recipient was a government entity based on supporting documents and communications received from the Executive Engineer. The work undertaken was related to a function entrusted to a Panchayat under the Constitution.Submission of the concerned officer from the Revenue:The Revenue officer refrained from offering any comment on the merit of the issue.Observations and findings of the Bench:The Bench analyzed the nature of the work contract, which predominantly involved earthwork related to dredging channels and riverbeds. It was noted that the recipient was indeed a government entity. The work being part of an irrigation project under the Department of Water Resources made it taxable at 5% under specific GST notifications.The Bench delved into the applicability of the Exemption Notification, emphasizing the importance of the value of goods in the composite supply and the functions entrusted to Panchayats under the Constitution. The ruling concluded that the Applicant's supply qualified for exemption under the relevant notification.Ruling:The ruling declared the recipient as a government entity and detailed the taxability of the supply contract under different GST notifications. The Applicant's supply was initially taxable at 18% and later at 5%, eventually being exempted under a specific provision. The ruling's validity was subject to the provisions of the GST Act until declared void under the relevant sections.