2021 (10) TMI 628 - AAR - GST

GST Exemption: Mumbai Port Trust payments from MMRDA for services to Govt. Entity under Notification No. 12/2017-CTR

In Re: M/s. Mumbai Port Trust

The Authority for Advance Ruling, Maharashtra, concluded that payments received by Mumbai Port Trust (MbPT) from Mumbai Metropolitan Region Development ... Exemption from payment of GST - considerations payable to it by Mumbai Metropolitan Region Development Authority (MMRDA) in terms of Memorandum of Understanding (MOU) entered into between the MbPT (Applicant) and MMRDA - Way Leave fees & Lease rent payable every year as consideration for the grant of lease and way leave permission for the plot of land and water areas required by MMRDA for the MTHL project - Compensation in lieu of demolition of 4 existing sheds at STP yard situated on the said plot of land which is licensed to MMRDA for the purpose of the MTHL project - Compensation in lieu of decommissioning of Old Pir Pan Jetty / Berth situated on the said plot of land which is licensed to MMRDA for the purpose of the MTHL project - amount equivalent to 15% of the Security Deposit, received by MbPT from MMRDA under the name of “Way Lease Agreement Charges'' to meet the cost of execution of execution of Way lease agreement & Lease Agreement - refundable Security Deposit to be returned to MMRDA only on termination of the agreement or not - refund of Refundable Security Deposit, to meet the cost of damages during the execution of work - whether entry no. (3) of Notification No. 12/2017-CTR which provides an exemption from GST in respect of pure services supplied to Governmental Authority, by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243 W of the Constitution, is applicable or not? Grant of a lease and way leave permission to MMRDA by the Applicant - HELD THAT:- In the instant case, the supply of leasing of immovable properties and water areas within its territory by the applicant to MMRDA is nothing but supply of services. From the submissions made by the applicant it is observed that the impugned MOU does not envisage any supply of goods whatsoever, along with the supply of leasing services and therefore we conclude that the subject activity is a supply of pure services. Supply in respect of Pure Services - HELD THAT:- The impugned MOU does not envisage any supply of goods individually or along with the supply of services in the instant case. In the instant case, pure services are supplied by the applicant to MMRDA. Thus the first part of the conditions mentioned at Sr. No. 3 above is satisfied in the subject case. Whether MMRDA can be considered as a Central Government, State government or Union territory or local authority or a Governmental authority or a Government Entity? - HELD THAT:- MMRDA is a body established by the Government of Maharashtra under Mumbai Metropolitan Region Development Authority Act, 1974 ('MMRDA Act'). As per the preamble of the Act, the MMRDA has been established for the purpose of planning, coordinating and supervising the proper, orderly and rapid development of the Mumbai Metropolitan Region (MMR); to formulate and execute plans, projects and schemes for the development of the MMR and to provide for matters connected with the purposes aforesaid. Therefore, MMRDA is seen to be under the control of the Govt, of Maharashtra - MMRDA is constituted and established by the State Government of Maharashtra with 100% participation by way of Equity or Control to carry out the function entrusted to it by the State Government viz. Preparation of Regional Development Plans, Providing financial assistance for significant regional projects, Providing help to local authorities and their infrastructure projects, coordinating execution of projects and/or schemes in MMR, etc. in the State of Maharashtra and therefore MMRDA is clearly covered under the definition of 'Government Entity' as can be seen from the definition of a 'Government Entity'. The applicant is supplying pure services to a Government Entity in relation to any function entrusted to a Panchayat under article 243 G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution and therefore, as per the provisions of Entry No. (3) of Notification No. 12/2017-CT(R) dated 28.06.2017, mentioned above, the said services supplied by the applicant are exempted from GST - the 'Way Leave Agreement charges', at the rate of 15% of security deposit payable by MMRDA to MbPT (equivalent to 12 months way leave fee/lease rent), in terms of clause 10 of the MOU, being amount received in lieu of the lease of land, etc., i.e pure services rendered by the applicants will also be exempt from payment of GST under Entry No. (3) Of Notification No. 12/2017-CT(R) dated 28.06.2017. The security deposit taken by the applicant is to secure or to act as a guarantee as per the terms of the MOU against possible damages to the properties. The fact is that the amount of deposit taken by the applicant is till the time the work has not been completed by MMRDA - in the subject case, the deposit received by the applicant cannot be treated as consideration for the supply made by the applicant and therefore they will not be liable to pay GST on such deposit amount received by them. All amounts received by the applicant are in relation to pure services rendered by the applicants to a Government Entity, and will be exempt from payment of GST under Entry No. (3) Of Notification No. 12/2017-C.T(R) dated 28.06.2017. Even the refundable security deposit received by the applicant from MMRDA, as security against possible damages during the execution of works, is in relation to pure services rendered by the applicants to a Government Entity, and will be exempt from payment of GST under Entry No. (3) Of Notification No. 12/2017-CT(R) dated 28.06.2017. Even if, at the time of completion of the lease tenure, the entire deposit or a part of it is withheld and not paid back by the applicant, as a charge against damages, etc. then also such amounts not returned back will not be liable to GST in view of Entry No. (3) Of Notification No. 12/2017-CT(R) dated 28.06.2017, being amounts received from a Government Entity in respect of an activity carried out 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 243 W of the Constitution. Issues Involved:1. Exemption from GST on Way Leave Fees and Lease Rent.2. Exemption from GST on Compensation for Demolition of Sheds.3. Exemption from GST on Compensation for Decommissioning Jetty/Berth.4. Exemption from GST on Way Leave Agreement Charges.5. Exemption from GST on Refundable Security Deposit.6. Exemption from GST on Refundable Security Deposit for Damages.Detailed Analysis:1. Exemption from GST on Way Leave Fees and Lease RentThe applicant, Mumbai Port Trust (MbPT), sought an advance ruling to determine if they are entitled to GST exemption on Way Leave fees and Lease rent payable by Mumbai Metropolitan Region Development Authority (MMRDA) under Entry No. 3 of Notification No. 12/2017-CTR dated 28-06-2017. The ruling concluded that the lease of land and water areas by MbPT to MMRDA qualifies as 'pure services' and is exempt from GST as it is provided to a Government Entity (MMRDA) for activities related to functions entrusted to a Municipality under Article 243W of the Constitution.2. Exemption from GST on Compensation for Demolition of ShedsMbPT received compensation of Rs. 24.48 crores from MMRDA for the demolition of four existing sheds. The ruling determined that this compensation is also for obtaining the grant of way leave/lease, which qualifies as pure services. Hence, it is exempt from GST under the same notification.3. Exemption from GST on Compensation for Decommissioning Jetty/BerthCompensation of Rs. 64 crores was received by MbPT for the decommissioning of Old Pir Pau Jetty/Berth. The ruling found that this payment is similarly for obtaining the grant of way leave/lease, qualifying as pure services and thus exempt from GST.4. Exemption from GST on Way Leave Agreement ChargesMbPT received an amount equivalent to 15% of the Security Deposit from MMRDA as Way Leave Agreement Charges. The ruling clarified that this amount is for incurring expenses on behalf of MMRDA and does not constitute consideration for any service provided by MbPT. Therefore, it does not attract GST. Even if considered part of the lease agreement, it qualifies as pure services and is exempt from GST under the notification.5. Exemption from GST on Refundable Security DepositMbPT received a refundable security deposit equivalent to 12 months' Way Leave fee/Lease rent from MMRDA. The ruling stated that under Section 2(31) of the CGST Act, a deposit is not considered payment for supply unless applied as consideration. Since the deposit is refundable and not applied as consideration, it does not attract GST.6. Exemption from GST on Refundable Security Deposit for DamagesMbPT received a refundable deposit of Rs. 20 crores to cover potential damages during the execution of work. The ruling concluded that this deposit is also related to pure services provided to a Government Entity and is exempt from GST. The deposit is not considered consideration unless appropriated for supply, as per Section 2(31) of the CGST Act.Conclusion:The Authority for Advance Ruling, Maharashtra, concluded that all the payments received by MbPT from MMRDA under the Memorandum of Understanding (MOU) qualify as pure services provided to a Government Entity in relation to functions entrusted to a Municipality under Article 243W of the Constitution. Therefore, these payments are exempt from GST under Entry No. 3 of Notification No. 12/2017-CTR dated 28-06-2017.