Exemption for Operation & Maintenance Contracts with TWAD: Goods value not to exceed 25%

The ruling determined that the exemption under S.No. 3A of Notification No. 12/2017-CT(R) as amended applies to the operation and maintenance part of Contracts (2) and (3) with TWAD, provided the value of goods in each bill does not exceed 25% of the bill value.

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Issues Involved:
1. Applicability of Notification No. 12/2017-CT(R) as amended by Notification No. 02/2018-CT(R) dated 25.01.2018 S.No.3A to the operation and maintenance part of contracts entered prior to the implementation of GST.
2. Applicability of Notification No. 12/2017-CT(R) as amended by Notification No. 02/2018-CT(R) dated 25.01.2018 S.No.3A to the operation and maintenance part of contracts entered post-implementation of GST.

Detailed Analysis:

Issue 1: Applicability of Notification No. 12/2017-CT(R) as amended by Notification No. 02/2018-CT(R) dated 25.01.2018 S.No.3A to the operation and maintenance part of contracts entered prior to the implementation of GST.

The applicant, M/s. Indian Hume Pipe Company Limited, entered into contracts with the Tamil Nadu Water Supply and Drainage Board (TWAD) for water supply schemes before the implementation of GST. The contracts included two parts: construction (Section-I) and operation and maintenance (Section-II). The ruling sought to clarify whether the operation and maintenance part of these contracts would attract tax at 12% or be exempt under Notification No. 12/2017-CT(R) as amended by Notification No. 02/2018-CT(R) dated 25.01.2018.

The Authority examined the definition of "supply" under Section 7 of the CGST Act, 2017, and "composite supply" under Section 2(30) of the CGST Act. It was observed that the operation and maintenance activities are composite supplies and taxable under GST. However, for Contract (1), the applicant did not furnish the RA bills/invoices to establish the time of supply, and hence, the applicability of GST on the operation and maintenance part was not discussed.

For Contract (2), the RA bill-29 raised on 28.03.2018 included operation and maintenance charges, making it evident that GST is leviable on the operation and maintenance part. For Contract (3), the operation and maintenance charges were not billed yet, and services were yet to be supplied, indicating GST applicability.

Issue 2: Applicability of Notification No. 12/2017-CT(R) as amended by Notification No. 02/2018-CT(R) dated 25.01.2018 S.No.3A to the operation and maintenance part of contracts entered post-implementation of GST.

The Authority considered whether the exemption under S.No. 3A of Notification No. 12/2017-CT(R) as amended by Notification No. 02/2018-CT(R) applies to the operation and maintenance part of contracts entered post-GST implementation. The conditions for the exemption include:
1. Time of supply should be after 25.01.2018.
2. The supply should be a composite supply of goods and services in which the value of goods does not constitute more than 25% of the total value.
3. Supply must be made to the Central Government, State Government, Union Territory, Local Authority, Government Authority, or Government Entity.
4. The supply should relate to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.

It was established that TWAD is a "Governmental Authority" as defined in the Notification, and the supplies were in relation to functions entrusted to Panchayats or Municipalities. For Contract (2), the exemption applies if the total value of goods in the RA bills raised after 25.01.2018 does not exceed 25% of the bill value, provided all other conditions are met. Similarly, for Contract (3), the exemption applies if the value of goods in each bill does not exceed 25% of the bill value, provided all conditions are met.

Ruling:
1. The exemption under Sl.No. 3A of Notification No. 12/2017-CT(R) as amended is applicable to the operation and maintenance part of Contract (2) entered into with TWAD, provided the value of goods in each bill does not exceed 25% of the bill value.
2. The exemption under Sl.No. 3A of Notification No. 12/2017-CT(R) as amended is applicable to the operation and maintenance part of Contract (3) entered into with TWAD, provided the value of goods in each bill does not exceed 25% of the bill value.

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