2021 (1) TMI 538 - AAR - GST

Applicant's Composite Supply Exempt from GST; Public Health Dept. Not Liable for TDS

The applicant's activities were deemed to qualify as a composite supply of goods and services exempt from GST under entry No. 3A of Notification No. ... Composite supply of goods and services - Work Contract allotted by Public Health Department, Government of Haryana - Operation & maintenance of structures/components, Staff Quarters, Pump Chamber, Boundary Wall, Distribution System, Tube wells, Pumping Machinery, OHSR etc under Water Supply Scheme, Samalkha Town, Haryana - Operation & maintenance of various sizes of sewer lines, repair of civil structures, supply of consumables etc., qualify to be a composite supply of goods and services - applicability of Sl. No. 3A of Notification No. 12/2017-CT (Rate), dated 28.06.2017 as amended by Notification No. 2/2018-CT, dated 25.01.2018 - deduction of TDS - whether service recipient, Public Health Department, State of Haryana, is required to deduct TDS under Section 51 of the CGST Act, 2017 given the fact that as per applicant's version his aforementioned services are exempt from GST under Notification No. 12/2017-CT(R), dated 28.06.2017 as amended Notification No. 2/2018-CT(R), dated 25.01.2018? HELD THAT:- The applicant has entered into a contract agreement with Public Health Department, Government of Haryana for Water Supply Scheme and Sewarage Scheme at Samalkha Town, Distt. Panipat (Haryana) - The Public Health Department is under the Ministry of Health of the Government of Haryana and hence, it is a State Government within the meaning of and for the purpose of Entry No. 3A of Notification No. 12/2017-CT(Rate), dated 28.06.2017 as amended by Notification No. 2/2018-CT, dated 25.01.2018 [Corresponding State Notification No. 47/ST-2, dated 30.06.2017 as amended by Notification No. 22/ST-2, dt. 25-01-2018]. It is evident that the said work order is in the nature of composite supply of work contract providing both goods and services. Supply of goods includes consumables such as diesel, petrol, grease, transformer oil, copper wires, nut bolts, rubber sheets etc. for repair/maintenance of water supply system. For sewerage system, consumables are kits and masks for sever men, diesel & Mobil oil used in engines for cleaning of sever lines, appliances for cleaning of blocked sever lines, dewatering pumps etc. These goods are primarily for upkeep, repair and maintenance of the civil structures already in existence such as tube wells, pump chambers, boundary walls, repair and reconstruction of manholes on severe lines, replacement and repair of defective sever lines etc. The Service portion includes deployment of manpower such as tubewell operators, fitters, electricians, helpers, key men, valve operators, supervisors, bill clerks, bill distributors, bill collectors etc. for water supply system, and sever men, daily wagers, machine operators, supervisors, tractor drivers, electricians, fitters, fitter- helpers for operating sewerage system - the major part of the contract involves services i.e. more than 75% of the work involves services which is required for fulfilment of this notification, we hold the same. Since the major part of the contract, i.e. more than 75% is 'Services', we find that the said contract qualifies for the benefit of Serial No. 3A of Notification 12/2017-CT(R), dated 28.06.2017 as amended by Notification No. 2/2018-CT(R), dated 25.01.2018issued under GST Act, being Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. Therefore, the above supply is exempt from GST. As per Section 51 of the CGST Act, 2017, a government entity is entitled to deduct tax at source under GST at the rate of 1% on payments made to the supplier of taxable goods and/or services or both, under a contract if it exceeds ₹ 2,50,000 - In the present case, Public Health Department being a government entity and applicant being a contractor in terms of work contract allotted to them, TDS in terms of Goods & service tax is liable to be deducted but as the services are exempt from GST, hence there is no requirement to deduct tax at source in this case. Issues Involved:1. Whether the applicant's activities qualify as a composite supply of goods and services exempt from GST under entry No. 3A of Notification No. 12/2017-CT(R), dated 28.06.2017 as amended by Notification No. 2/2018-CT(R), dated 25.01.2018.2. Whether the service recipient, Public Health Department, State of Haryana, is required to deduct TDS under Section 51 of the CGST Act, 2017 given the applicant's services are exempt from GST.Issue-wise Detailed Analysis:1. Composite Supply and GST Exemption:- Nature of Contracts: The applicant, a civil contractor, engaged in executing government works, sought an advance ruling for two contracts: the Water Supply Scheme and the Sewerage Scheme at Samalkha Town, Panipat, Haryana.- Contract Details:- Water Supply Scheme: Total cost Rs. 376.95 lacs, with 20.07% towards supply of goods and 79.93% towards supply of services.- Sewerage Scheme: Total cost Rs. 66.35 lacs, with 2.04% towards supply of goods and 97.92% towards supply of services.- Applicant's Interpretation: The applicant argued that the contracts qualify as composite supplies with the value of goods not exceeding 25% of the total value, thus exempt under entry No. 3A of Notification No. 12/2017-CT(R).- Legal Provisions: Entry No. 3A of Notification No. 12/2017-CT(R) exempts composite supplies to the government where the value of goods is =25% of the total value, related to functions under Articles 243G and 243W of the Constitution.- Authority's Findings: The contracts were found to be composite supplies with major portions being services (more than 75%). The activities were related to functions under Articles 243G and 243W, qualifying for exemption under entry No. 3A of Notification No. 12/2017-CT(R).2. TDS Deduction Requirement:- Applicant's Position: The applicant contended that since their services are exempt from GST, the Public Health Department should not deduct TDS under Section 51 of the CGST Act, 2017.- Legal Provisions: Section 51 of the CGST Act mandates TDS deduction by government entities for contracts exceeding Rs. 2,50,000, unless the services are exempt from GST.- Authority's Findings: Since the services provided by the applicant are exempt from GST under Notification No. 12/2017-CT(R), the Public Health Department is not required to deduct TDS.Conclusion:- Ruling on Composite Supply and GST Exemption: The applicant's activities qualify as a composite supply of goods and services exempt from GST under entry No. 3A of Notification No. 12/2017-CT(R).- Ruling on TDS Deduction: The Public Health Department, State of Haryana, is not required to deduct TDS under Section 51 of the CGST Act, 2017 for the applicant's exempt services.Ordered Accordingly: The advance ruling confirmed the exemption from GST for the applicant's services and clarified the non-requirement for TDS deduction by the Public Health Department.