2022 (7) TMI 499 - AAR - GST

AAR rules manpower supply for electricity bill preparation includes goods component, disqualifying GST exemption under Notification 12/2017

In Re: M/s. Keshav Projects

AAR Andhra Pradesh ruled that applicant's supply of manpower for preparation and serving of electricity bills to APCPDCL does not qualify as 'pure ... Classification of services - pure services or not - Supply of Manpower for preparation and serving of spot Electricity Bills' services provided to Andhra Pradesh Central Power Distribution Corporation Limited for Andhra Pradesh Rural Electrification including distribution of electricity (APCPDCL) - APCPDCL is a 'Local Authority' or not - eligible for exemption from Central Goods and Service Tax and SI.No.3 (Chapter 99) of table mentioned in G.O.Ms.No.588 - (Andhra Pradesh) State Tax (Rate) Dated 12/12/2017 and accordingly eligible for exemption from Andhra Pradesh Goods and Service Tax or not. Whether the services of the applicant are 'Pure Service'? - HELD THAT:- 'Pure services' are not defined in the Act, but as per common parlance they cover all the contracts where there is no supply of goods i.e., to say any supply which is either deemed as services under Schedule II of CGST Act or which are not covered under the definition of goods shall be categorized as pure services - In the instant case, the Scope of the supply as mentioned by the applicant includes supply of both goods and services. Thus the transaction covers the procurement of goods as well in addition to the services, disqualifying the present supply to be covered under the concept of 'pure services'. Hence the exemption clause under entry SI.No.3- (Chapter 99) of table mentioned in Notification No.12/2017- Central Tax (Rate) dated 28.06.2017 is not applicable for the instant case. In view of the above, the rest of the issues like APCPDCL being a 'Local Authority' or the supply being one of the functions entrusted to panchayat under Article 243G of the Constitution, find no relevance to take up for further discussion. ISSUES PRESENTED AND CONSIDERED 1. Whether the supply of manpower for preparation and serving of spot electricity bills constitutes 'pure services' within entry 3 (Chapter 99) of Notification No.12/2017-i.e., services exempted when provided to government/local authorities in relation to functions entrusted to Panchayats/Municipalities under Articles 243G/243W. 2. Whether the service recipient qualifies as a 'local authority' / 'governmental authority' for the purpose of entry 3 (Chapter 99) of Notification No.12/2017. 3. Whether the services supplied are 'in relation to' any function entrusted to a Panchayat under Article 243G (specifically rural electrification, including distribution of electricity). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the supply of manpower for spot bill preparation and serving is a 'pure service' Legal framework: Entry 3 (Chapter 99) of Notification No.12/2017 grants nil-rate treatment to 'Pure services (excluding works contract service or other composite supplies involving supply of any goods)' provided to government/local authorities in relation to functions entrusted to Panchayats/Municipalities. 'Works contract' is defined in Section 2(119) of the CGST Act as a contract for various operations on immovable property wherein transfer of property in goods is involved. 'Pure services' is not defined in the Act or notification; administrative guidance (CBEC FAQ) treats 'pure services' as supplies not involving supply of goods (examples: manpower for cleanliness, consulting services), and distinguishes them from works contracts or composite supplies involving goods. Precedent treatment: No judicial or binding precedent was cited or applied in the ruling; the Authority relied on statutory definitions and the CBEC FAQ for conceptual clarity. Interpretation and reasoning: The Authority examined the contract terms and scope of work. The contract required the agency to procure handheld computers, stationery and spot-billing machines (SBMs) and to keep such equipment to meet contingencies. These contractual obligations involved the provision or procurement of tangible goods in addition to manpower services. On the Authority's analysis, the presence of procurement/provision of equipment (hand-held computers, SBMs, stationery) converts the contract into one that involves supply of goods as part of the overall supply and therefore disqualifies it from being a 'pure service' under the notification. The Authority contrasted such composite/combined supply with the concept of pure service as understood under the CBEC FAQ and the statutory works-contract definition. Ratio vs. Obiter: Ratio - The supply is not a 'pure service' where the contractual obligations include procurement/provision of goods (hand-held machines, stationery and SBMs); such presence of goods excludes the supply from entry 3 (Chapter 99) exemption. Obiter - General observations as to the meaning of 'pure services' drawn from CBEC FAQ are explanatory and non-binding but were used for interpretation. Conclusion: The supply of manpower for preparation and serving of spot electricity bills, as contracted (which requires procurement/maintenance of hardware and stationery), is not a 'pure service' and therefore does not qualify for the exemption under entry 3 (Chapter 99) of Notification No.12/2017. Answer to the primary question: Negative. Issue 2 - Whether the service recipient qualifies as a 'local authority' / 'governmental authority' Legal framework: Definitions in Notification No.11/2017/12/2017 and Section 2(69) CGST: 'Governmental Authority' includes bodies set up by government with 90%+ participation by way of equity/control; 'Local authority' has an inclusive statutory definition (panchayat, municipality, municipal committees, etc.). Entry 3 requires the services be provided to Central/State/UT/local authority or government authority. Precedent treatment: No specific precedent applied; the Authority relied on statutory definitions and factual shareholding/control details. Interpretation and reasoning: The record showed the service recipient is a company formed by the State/Department with 99% shareholding vested effectively in the State (Governor). On these facts the entity meets the statutory/notification threshold for being a 'governmental authority' or 'local authority' insofar as it is set up/controlled by the State for public functions (electricity distribution). The Authority found that, on merits, the recipient would qualify as a local/governmental authority. Ratio vs. Obiter: Obiter with respect to the operative ruling - although the Authority concluded the recipient qualifies as a local/governmental authority, it treated this finding as not determinative because the primary disqualifying factor was non-'pure service' character. Thus the qualification of the recipient is an affirmed factual-legal observation but not relied upon to grant exemption. Conclusion: The recipient, given predominant State ownership/control and public-function role (distribution of electricity), qualifies as a 'local authority'/'governmental authority' under the applicable notification/CGST definitions; however, this finding is not sufficient to attract the exemption because the supply fails the 'pure services' limb. Issue 3 - Whether the services are 'in relation to' functions entrusted to Panchayats under Article 243G (rural electrification, including distribution) Legal framework: Article 243G and the Eleventh Schedule list subjects entrusted to Panchayats; item 14 includes 'Rural Electrification, including distribution of electricity.' Entry 3 requires the service to be in relation to functions so entrusted. Precedent treatment: No judicial authority cited; analysis is textual and fact-based. Interpretation and reasoning: The Authority noted that the contractual activity (spot billing in rural areas) falls within the domain of rural electrification/distribution which appears in the Eleventh Schedule. Therefore, on the facts, the services-if rendered in rural areas for distribution/billing-would be 'in relation to' an entrusted Panchayat function. Nevertheless, because the supply involved goods and therefore failed the 'pure service' requirement, the question of being 'in relation to' such Panchayat functions became moot for the purpose of granting exemption. Ratio vs. Obiter: Obiter - the conclusion that the services are in relation to functions in the Eleventh Schedule is a factual-finding that the Authority accepted but did not form part of the operative ratio enabling exemption, owing to the negative finding on Issue 1. Conclusion: The services, insofar as performed in rural areas and related to distribution/billing, are in relation to a function listed in Article 243G (Eleventh Schedule). This factual relationship does not, however, lead to exemption because the supply fails to qualify as 'pure services.' Final Determination Because the contractual arrangement includes procurement/provision of goods (handheld machines, SBMs, stationery), the supply of manpower for preparation and serving of spot electricity bills is not a 'pure service' within entry 3 (Chapter 99) of Notification No.12/2017. Consequently, the supply is not eligible for exemption under that entry despite the recipient qualifying as a governmental/local authority and the service relating to a function listed in Article 243G. The Authority therefore ruled negatively on the exemption claim.