System integrator services for water revenue management and meter reading attract 18% GST under SAC Code 998633

The AAR Haryana ruled that services provided by a system integrator to Municipal Corporation Gurugram for water revenue management system implementation, database creation and maintenance, and meter reading/bill distribution services constitute taxable supply under GST. The Authority determined these services are not "pure services" exempt under notification 12/2017 clause 3, as they are support/add-on activities rather than integral functions entrusted to municipalities under Article 243W of the Constitution. The services attract 18% GST under SAC Code 998633, with no exemption available.

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Issues Involved:
1. Engagement of system integrator for implementation of water revenue management system, creation and maintenance of database, spot billing/meter reading, and bill distribution (MRBD) services for water supply & sewerage connections under the jurisdiction of Municipal Corporation, Gurugram.
2. Determination of the liability to pay tax on the above services.
3. Exemption status of the services under clause 3 of notification 12/2017 dated 28.06.2017.

Issue-Wise Detailed Analysis:

1. Engagement of System Integrator for Implementation of Water Revenue Management System:
The applicant is engaged in providing maintenance of a database, spot billing, meter reading, and bill distribution services to the Municipal Corporation, Gurugram for water supply and sewerage connections. These services include the creation and maintenance of a database, generation of data for spot billing, and provision of web-based software for billing and collection of payments. The applicant has received a work order from the Municipal Corporation for these services, which involve using software and manpower to support water distribution services.

2. Determination of the Liability to Pay Tax:
The applicant sought a ruling on the liability to pay tax on the aforementioned services. The relevant provisions under the CGST Act, 2017, including definitions of "business," "consideration," "exempt supply," and "supplier," were examined. According to Section 7 of the CGST Act, 2017, all forms of supply of goods or services made for a consideration in the course or furtherance of business are included in the scope of supply. The authority concluded that the services provided by the applicant to the Municipal Corporation, Gurugram, are taxable and not exempt under the GST Act, 2017. The SAC Code for these services is 998633, and the applicable rate of output tax liability is 18%.

3. Exemption Status Under Notification 12/2017:
The applicant contended that their services are pure services covered under serial no. 3 of Notification no. 12/2017-Central Tax (Rate) and related to municipal functions as enumerated in the Twelfth Schedule of Article 243W of the Constitution. However, the authority found that the services provided by the applicant, which include software services and manpower for spot billing and collection of payments, do not qualify as pure services. These services are support services and not integral to the water distribution system itself. The exemption under notification no. 12/2017 dated 28.06.2017 applies to pure services provided to a local authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution. Since the applicant's services are not part and parcel of the water supply system but rather support services, they are not exempt under this notification.

Conclusion:
Based on the detailed analysis and legal provisions, the authority ruled that the services provided by the applicant to the Municipal Corporation, Gurugram, are taxable. The SAC Code for these services is 998633, the applicable rate of output tax liability is 18%, and the services are not exempt under clause 3 of notification 12/2017 dated 28.06.2017.

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