Municipal Solid Waste Processing facility services classified under SAC 9994 attract 18% GST as mixed supply

The AAR, West Bengal ruled that DBFOT services for Municipal Solid Waste Processing facility fall under SAC 9994 and attract 18% GST. The supply was classified as waste management services, not pure services, since it involves supply of goods including construction materials and packaging for bye-products. The applicant failed to qualify for exemption under serial number 3 of the exempt notification as the services weren't pure services and SUDA, being a registered society rather than a local authority as defined under GST Act, couldn't be treated as government/local authority for exemption purposes.

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Issues Involved:
1. Classification of goods/services as per work order.
2. Applicable GST rate for the job.
3. Eligibility for exemption under specific GST notifications.

Detailed Analysis:

1. Classification of Goods/Services as per Work Order:

The applicant has been contracted by the State Urban Development Authority (SUDA) for the design, build, finance, operate, and transfer (DBFOT) of a Municipal Wet Waste processing facility based on Composting and/or Bio-methanation Technology, setting up a Semi-Automatic Material Recovery Facility for Dry Waste, and constructing a Sanitary Landfill, along with operation & maintenance for 10 years under Swachh Bharat Mission/Mission Nirmal Bangla.

The revenue officer opined that the applicant's activities entail a construction work involving the supply of materials and services, classifiable as a composite supply under Section 2(30) of the CGST Act, 2017. The composite supply consists of Construction services under Heading 9954 and Sewage and waste collection, treatment, and disposal and other environmental protection services under Heading 9994, with the latter being the principal supply.

2. Applicable GST Rate for the Job:

The services provided by the applicant fall under SAC 9994, which includes 'waste collection services' and 'waste treatment and disposal services'. According to serial number 32 of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, these services are taxable at 18% (9% CGST and 9% SGST).

3. Eligibility for Exemption under Specific GST Notifications:

The applicant sought exemption under serial numbers 3 and 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended. These entries exempt pure services and certain composite supplies provided to the Central Government, State Government, Union territory, or local authority by way of activities related to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.

Observations and Findings:

Pure Services Exemption (Serial No. 3):
- The term 'pure services' implies services without any supply of goods. The applicant's scope of work includes constructing a sanitary landfill and selling and disposing of by-products, which involve the supply of goods. Hence, the supply does not qualify as pure services.

Composite Supply Exemption (Serial No. 3A):
- To qualify, the value of goods in the composite supply must not exceed 25% of the total value. The applicant did not provide sufficient documentation to ascertain this value.
- The supply must be to the Central Government, State Government, or local authority. SUDA, being a registered society, does not qualify as a local authority under Section 2(69) of the GST Act.

Conclusion:

The supply of services by the applicant to SUDA for the design, build, finance, operate, and transfer of the Municipal Wet Waste processing facility and related activities is classified under SAC 9994 as 'sewage and waste collection, treatment and disposal and other environmental protection services'. The applicable GST rate is 18% (9% CGST and 9% SGST). The supply does not qualify for exemption under serial numbers 3 or 3A of Notification No. 12/2017-Central Tax (Rate) as SUDA is not a local authority and the supply involves goods beyond the permissible limit for composite supply exemption.

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