2021 (11) TMI 395 - AAR - GST

Reimbursements for consultancy services to government entity exempt from GST under Notification 12/2017-CT(R).

The Authority determined that reimbursements received by the applicant from MMRDA for consultancy services are subject to GST. However, since the services ... Levy of GST - reimbursement of expenses such as salaries, rent, training, staff welfare expenses etc. - Rate of GST - Government Entity or not - HELD THAT:- The amounts received by the applicant may be against actual expenses incurred but appear to be given to the applicant in lieu of consultancy services rendered by the applicant to MMRDA. Thus in the subject case, consideration is received by the applicant for supply of services and such consideration is in the form of reimbursement of expenses. Hence, the applicant's claim to treat the amounts received from MMRDA, as 'grants', cannot be agreed upon. Thus the amounts received from MMRDA by the applicant are nothing but consideration received for providing consultancy services. The consultancy services are in the nature of preparation of transport studies such as comprehensive mobility plan, transit oriented development plan, NMT plan and consultancy services of transaction advisors, etc. and as per the applicant's submissions, at present there is no supply of goods. Thus, the applicant is rendering Pure Services to MMRDA. Whether 'MMRDA' would be covered under the definition of 'Government Entity' as given in Notification No. 31/2017 dated 13.10.2017? - 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 - It is clarified that 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'. Further, Section 46A of the MMRDA Act provides for control by the State Government in regard to its powers and duties. The applicant is supplying pure services to a Government Entity in relation to any function entrusted to a Panchayat 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, the said amounts received by the applicant are not liable to tax. As per applicant's submissions the only activity being carried out is consultancy services and accordingly it is held that the provisions of Entry No. (3) Of Notification No. 12/2017-CT(R) dated 28.06.2017, is applicable to the present case - as and when the supply as mentioned in para 5.25.1 is undertaken by the applicant, the situation will change and this order will not be applicable in that particular situation/case. Issues Involved:1. Applicability of GST on reimbursement of expenses such as salaries, rent, training, staff welfare expenses.2. Determination of GST rate if applicable.Detailed Analysis:Issue 1: Applicability of GST on Reimbursement of ExpensesApplicant's Submissions:The applicant, M/s. MAHA MUMBAI METRO (M3) OPERATION CORPORATION LIMITED, is a wholly-owned subsidiary of the Mumbai Metropolitan Region Development Authority (MMRDA). The applicant is engaged in providing local land transport services, including metro operations. They incur various expenses like salaries, rent, training, and staff welfare, which are reimbursed by MMRDA at cost without generating any additional revenue.The applicant argued that these reimbursements should not be subject to GST, citing definitions and interpretations from various legal dictionaries and past judicial decisions. They referenced the concept of 'pure agent' and the Supreme Court's interpretation of 'reimbursement' in Tata Iron and Steel Co. Ltd. v. Union of India, which denotes restoration of something paid in excess.The applicant also cited previous rulings, such as the case of M/s. HABUFA MEUBELEN B.V., where reimbursements were not considered liable to GST as no consideration for services was charged. They further argued that their activities fall under exemptions provided in Notification 12/2017-Central Tax (Rate), which exempts services provided by a governmental entity in relation to functions entrusted to a municipality under Article 243W of the Constitution.Authority's Observations and Findings:The Authority noted that the applicant is engaged in providing consultancy services related to transport studies, which are considered pure services. These services are provided to MMRDA, a government entity, and fall under the functions entrusted to a municipality under Article 243W of the Constitution.The Authority observed that the amounts received by the applicant from MMRDA, although termed as reimbursements, are essentially considerations for the consultancy services rendered. Therefore, these amounts are subject to GST.Conclusion:The Authority concluded that the reimbursements received by the applicant from MMRDA are indeed considerations for the consultancy services provided. However, since these services are pure services provided to a government entity in relation to functions entrusted to a municipality, they are exempt from GST under Notification No. 12/2017-CT(R) dated 28.06.2017.Issue 2: Determination of GST Rate if ApplicableConclusion:Since the answer to the first question was in the negative (i.e., the reimbursements are not subject to GST), the second question regarding the GST rate was not addressed.Order:Question 1: Whether GST is applicable on reimbursement of expenses such as salaries, rent, training, staff welfare expensesRs.- Answer: Answered in the negative.Question 2: If above answer is affirmative, at what rate GST should be chargedRs.- Answer: Not answered due to the negative response to Question 1.