2021 (1) TMI 427 - AAR - GST

University ineligible for GST exemption under Notification No. 12/2017-Central Tax (Rate)

The university, not meeting the criteria of a 'governmental authority,' was deemed ineligible for claiming exemption on legal services under Sr. No. 45 of ... Exemption for legal services under the exemption notification - reverse charge mechanism (RCM) for legal services - definition of 'governmental authority' under IGST Act - exemption for services in relation to functions entrusted to a municipality under Article 243W - educational institution exemption for services to students, faculty and staff - tax deduction at source (TDS) under Section 51 and notification for deductors - applicability of participation/ownership threshold to bodies set up by statuteExemption for legal services under the exemption notification - reverse charge mechanism (RCM) for legal services - definition of 'governmental authority' under IGST Act - applicability of participation/ownership threshold to bodies set up by statute - Nirma University is not eligible for exemption in respect of procurement of legal services under Sr. No.45 of Notification No.12/2017-Central Tax (Rate). - HELD THAT: - The Authority examined whether a body set up by a State Legislature falls within the definition of 'governmental authority' so as to attract exemption for legal services. It relied on the Circular clarifying that the qualifying condition relating to percentage participation/control applies to both bodies 'set up by an Act of Parliament or a State Legislature' and those 'established by any Government.' The facts show Nirma University is a private university created by a State Act with zero government participation. Therefore it does not satisfy the participation/control requirement in the definition and cannot be treated as a 'governmental authority' for the purpose of the exemption. Consequently, legal services procured by the University remain liable under the reverse charge mechanism and the exemption at Sr. No.45 is not available to it. [Paras 49, 50]Applicant not eligible for exemption under Sr. No.45 for legal services; answer in negative.Exemption for services in relation to functions entrusted to a municipality under Article 243W - educational institution exemption for services to students, faculty and staff - Services of higher education provided by Nirma University do not qualify for exemption under Sr. No.4 of Notification No.12/2017-Central Tax (Rate). - HELD THAT: - The entry at Sr. No.4 exempts services by specified public authorities 'by way of any activity in relation to any function entrusted to a municipality under Article 243W.' The Authority found that the applicant is not a Central/State/UT/local authority or a 'governmental authority' as defined. Further, higher education is not specified in Article 243W as an activity that would, on the facts, attract the Sr. No.4 exemption. However, the Authority observed that services provided by an 'educational institution' to its students, faculty and staff are exempt under Sr. No.66, and that only education delivered as part of a curriculum leading to a qualification recognised by law falls within that educational-institution exemption. [Paras 52, 53, 54, 55]Higher education services by the applicant do not qualify for exemption under Sr. No.4; answer in negative (but curriculum-based education leading to recognized qualifications may fall under the educational institution exemption at Sr. No.66).Tax deduction at source (TDS) under Section 51 and notification for deductors - applicability of participation/ownership threshold to bodies set up by statute - Nirma University is not required to register as a Deductor under GST and is not covered by the persons mandated to deduct TDS under Section 51. - HELD THAT: - Section 51 and the relevant notification mandate TDS by certain authorities/boards/bodies which are either set up by statute or established by Government but only where the Government has fifty-one percent or more participation by equity or control. The Authority relied on the CBEC Circular clarifying that the participation threshold applies to both categories. As Nirma University was constituted by a State statute but has zero percent government participation, it does not fall within the notified category of deductors and therefore has no TDS registration obligation under Section 51. [Paras 56, 57]Applicant not liable to register as a Deductor under GST; answer in negative.Final Conclusion: The Authority ruled that (i) Nirma University is not eligible for the exemption for legal services under Sr. No.45 and must comply with RCM where applicable; (ii) its higher education services do not qualify for exemption under Sr. No.4 (though curriculum-based courses leading to qualifications recognised by law may be exempt under the educational institution entry); and (iii) the University is not required to register as a Deductor under Section 51/TDS notifications. Issues Involved:1. Eligibility for claiming exemption for legal services under Sr. No. 45 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017.2. Exemption of services provided by the university under Sr. No. 4 of Notification No. 12/2017-Central Tax (Rate).3. Requirement for the university to be registered as a Deductor under GST as per Section 24 of the CGST Act.Issue-wise Detailed Analysis:Issue 1: Eligibility for Exemption for Legal ServicesThe applicant, a university established by a special Act of the Gujarat State Legislative Assembly, sought clarity on whether it could claim an exemption for legal services under Sr. No. 45 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017. The applicant argued that it should be considered a 'governmental authority' as it was set up by a State Legislature Act. However, the authority concluded that the applicant does not qualify as a 'governmental authority' under Section 2(16) of the IGST Act, 2017, as it does not have 90% or more participation by way of equity or control by the government. Consequently, the applicant is not eligible for the exemption and must discharge tax liability on legal services under the reverse charge mechanism.Issue 2: Exemption of Services Provided by the UniversityThe applicant sought an exemption for its higher education services under Sr. No. 4 of Notification No. 12/2017-Central Tax (Rate). The authority noted that this exemption applies to services by Central Government, State Government, Union Territory, local authority, or governmental authority by way of any activity related to functions entrusted to a municipality under Article 243W of the Constitution. Since the applicant is not classified as any of these entities and higher education is not a function under Article 243W, the services provided by the university do not qualify for this exemption. However, the authority clarified that services provided by the university as part of a curriculum for obtaining a qualification recognized by law are exempt under Sr. No. 66 of the same notification.Issue 3: Requirement to be Registered as a Deductor under GSTThe applicant sought clarity on whether it needed to register as a Deductor under GST. According to Section 51 of the CGST Act and Notification No. 50/2018-Central Tax, certain entities are required to deduct TDS under GST. The authority clarified that only entities with 51% or more participation by way of equity or control by the government are required to register as Deductors. Since the applicant university has zero percent government participation, it does not fall under this category and is not required to register as a Deductor under GST.Ruling:1. The university is not eligible for claiming the benefit of the exemption for legal services under Sr. No. 45 of Notification No. 12/2017-Central Tax (Rate).2. The services provided by the university are not exempt under Sr. No. 4 of Notification No. 12/2017-Central Tax (Rate).3. The university is not required to be registered as a Deductor under GST as per the provision of Section 24 of the CGST Act.