2020 (3) TMI 445 - AAR - GST

Court exempts solid waste management services to municipal corporation from GST under specific notifications

The court found the Applicant's supply of solid waste management and sewer cleansing services to a municipal corporation exempt from GST under specific ... Exemption for supplies to Government, local authority or governmental authority in relation to functions entrusted to a Panchayat or Municipality under Articles 243G/243W - exemption for pure service or composite supply where value of goods does not exceed 25% - pure service versus composite supply (goods constitute not more than 25% of value) - local authority as recipient - functions under the Twelfth Schedule (public health, sanitation, conservancy, solid waste management) - TDS deduction under section 51 of the Central Goods and Services Tax Act and corresponding TDS notificationsExemption for supplies to Government, local authority or governmental authority in relation to functions entrusted to a Panchayat or Municipality under Articles 243G/243W - pure service versus composite supply (goods constitute not more than 25% of value) - functions under the Twelfth Schedule (public health, sanitation, conservancy, solid waste management) - local authority as recipient - The Applicant's supply to the Howrah Municipal Corporation is exempt under SI No. 3 of Notification No. 12/2017 (Rate). - HELD THAT: - The Authority applied the statutory scheme and the Governmental Circular to conclude that SI No. 3/3A of the Exemption Notification continues, in substance, the earlier service-tax exemption for services in relation to functions such as public health, sanitation, conservancy and solid waste management. The recipient is a municipal corporation and therefore a local authority. The work orders and specifications show the Applicant performs compaction, transport of compacted garbage, sewer cleaning and desilting using machinery and vehicles supplied by the Applicant, while diesel, oil and spares are provided by the municipal corporation; there is no transfer of property in goods to the municipal corporation and the consideration relates to performance of the work (quantity of garbage compacted). On that material the supply is a pure service (not a transfer of goods) and falls within functions listed in the Twelfth Schedule and entrusted to Municipalities under Article 243W. Consequentially the supply qualifies for exemption under SI No. 3 of the Exemption Notification (a composite supply test under SI No. 3A was unnecessary once the supply is a pure service). [Paras 3]The Applicant's described supply to HMC is a pure service in relation to a municipal function and is exempt under SI No. 3 of Notification No. 12/2017 (Rate).TDS deduction under section 51 of the Central Goods and Services Tax Act and corresponding TDS notifications - The TDS Notifications and the provisions of section 51 do not apply to the Applicant's exempt supply. - HELD THAT: - Section 51 and the TDS Notifications mandate deduction of TDS by specified payers only in respect of taxable supplies. Since the Authority has held the Applicant's supply to the municipal corporation to be exempt from GST under SI No. 3, there is no taxable supply on which TDS under section 51 can be deducted. Therefore the notifications that bring section 51 into force for specified persons and prescribe the TDS mechanism are not applicable to the Applicant's exempt supply. [Paras 3]Section 51 and the TDS Notifications do not apply to the Applicant's exempt supply to HMC; no TDS is deductible under those provisions in respect of this supply.Final Conclusion: The Authority ruled that the Applicant's services to the Howrah Municipal Corporation, as described, qualify as a pure service in relation to municipal functions (public health, sanitation, conservancy and solid waste management) and are exempt under SI No. 3 of Notification No. 12/2017 (Rate); consequently the provisions of section 51 and the connected TDS notifications are not attracted to these payments. Issues:1. Admissibility of the Application2. Submissions of the Applicant3. Observations and findings of the BenchAdmissibility of the Application:The Applicant provides solid waste management and sewer cleansing services to a municipal corporation, which deducts TDS. The Applicant seeks a ruling on the exemption of these supplies under specific notifications. The questions are deemed admissible under the GST Act, and the application is admitted.Submissions of the Applicant:The Applicant argues that the services provided fall under the exemption notifications applicable to pure services or composite supplies with limited goods value. The Applicant establishes that the recipient, a municipal corporation, qualifies as a local authority, supporting the claim for exemption under the relevant provisions.Observations and findings of the Bench:The Bench refers to Circulars clarifying the continuation of exemptions under GST for services like solid waste management provided to local authorities. The analysis focuses on the nature of the supply, the recipient's status, and the function's relation to a local authority. Detailed examination of the work orders and constitutional provisions confirms the Applicant's services qualify as pure services under the exemption notification.The judgment concludes that the Applicant's supply to the municipal corporation is exempt from GST under the specified notification. Since the supply is exempt, the TDS provisions do not apply to the Applicant's transactions. The ruling ensures the validity of the exemption subject to relevant provisions of the GST Act.This comprehensive analysis delves into the admissibility of the application, the Applicant's submissions, and the Bench's detailed observations leading to the final ruling on the exemption of the Applicant's services from GST and the inapplicability of TDS provisions.