Taxability of LAD Fund collected for solar park services under GST

The amount collected towards the Local Area Development Fund (LAD Fund) by a joint venture company for a solar park forms part of the value of the rental/lease service provided to Solar Power Developers (SPDs) and is taxable under the forward charge mechanism. The Service Accounting Code (SAC) applicable is 997212. The exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) does not apply as the activity does not qualify as a pure service provided to a government entity. Additionally, GST under Reverse Charge Mechanism (RCM) on payments directed by the Committee for Local Area Development is not applicable as the Committee's directions do not constitute a supply under the CGST Act 2017.

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Issues Involved:
1. Whether the amount collected towards Local Area Development Fund (LAD Fund) is considered a supply under CGST/KGST/IGST Act 2017 and subject to tax.
2. Classification of the service if the LAD Fund collection is treated as a supply.
3. Eligibility of the LAD Fund collection for exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate).
4. Applicability of GST under Reverse Charge Mechanism (RCM) on payments made at the direction of the Committee for Local Area Development.

Detailed Analysis:

Issue 1: Whether the LAD Fund Collection is Considered a Supply and Subject to Tax
- The applicant, a joint venture company formed to establish a solar park, collects an amount towards LAD Fund from Solar Power Developers (SPDs) as per the guidelines of the Ministry of New & Renewable Energy (MNRE).
- The applicant argues that the LAD Fund is not related to any supply made by them to the SPDs and is intended for local area development.
- However, the ruling states that the amount collected towards the LAD Fund is directly linked to the rent/lease payable by the SPDs and is part of the value of the rental/lease service provided by the applicant.
- According to Section 15(2)(a) of the CGST Act 2017, any amount collected under any law other than GST-related Acts is includible in the value of supply.
- Therefore, the amount collected towards the LAD Fund forms part of the value of the rental/lease service and is taxable under forward charge mechanism.

Issue 2: Classification of the Service if LAD Fund Collection is Treated as a Supply
- The amounts collected towards the LAD Fund are considered part of the value of the rent/lease service.
- The applicable Service Accounting Code (SAC) for the rental/lease service is 997212.

Issue 3: Eligibility for Exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate)
- The exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) applies to pure services provided to the Central Government, State Government, Union Territory, Local Authority, or a Government Entity by way of any activity in relation to any function under Article 243 G or 243 W of the Constitution of India.
- In this case, the LAD Fund collection is part of the value of the rental/lease service provided by the applicant to the SPDs and not to any government entity.
- Therefore, the exemption is not applicable to the LAD Fund collection.

Issue 4: Applicability of GST under Reverse Charge Mechanism (RCM) on Payments Directed by the Committee
- The applicant questioned whether payments made at the direction of the Committee for Local Area Development should be considered as a service rendered by the Government to the applicant, subject to GST under RCM.
- The ruling clarifies that the Committee merely gives directions for the usage of the LAD Fund and does not involve a transaction of supply of goods or services.
- The Committee does not receive any consideration for its directions and is not engaged in the course or furtherance of business.
- Therefore, the activity of giving directions by the Committee does not amount to a supply as per Section 7(1)(a) of the CGST Act 2017.
- Consequently, the entry number 5 of Notification No. 13/2017-Central Tax (Rate) is not applicable, and the payments made at the direction of the Committee are not subject to GST under RCM.

Ruling:
1. The amount collected towards the LAD Fund forms part of the value of the rental/leasing service and is taxable under the forward charge mechanism.
2. The applicable SAC for the activity is 997212.
3. The exemption under SI.No.3 or 3A of Notification 12/2017-Central Tax (Rate) is not applicable as the activity does not qualify as a pure service provided to a government entity.
4. GST under RCM on payments directed by the Committee for Local Area Development is not applicable, as the Government of Karnataka/Local Authority are not involved in the provision of any service.

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