Architectural consultancy services to municipal corporation for hospital construction exempt from GST under notification 12/2017-Central

The AAR, Gujarat ruled that architectural consultancy services provided to Surat Municipal Corporation for hospital construction qualify as pure services exempt from GST under notification 12/2017-Central (Rate). The authority determined that supply of drawings, samples, and physical models cannot be considered goods supply, making it a pure service. However, the AAR refused to rule on sub-contractor exemption matters, stating the applicant lacked locus standi to seek rulings on behalf of sub-contractors. The authority clarified that sub-contractors providing services to main contractors rather than directly to local authorities would not qualify for the exemption.

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Issues Involved:
1. Whether the 'Architectural Consultancy Service' provided by the applicant to Surat Municipal Corporation (SMC) for the construction of SMIMER Hospital & College Campus is exempt under entry no. 3 of notification No. 12/2017-Central (Rate).
2. If the exemption is applicable to the applicant, whether the 'pure services' provided by a sub-contractor to the applicant are also exempt.
3. If the exemption is not applicable, the applicable HSN/SAC code and tax rate for the services provided by the applicant.

Summary:

Issue 1: Exemption under Entry No. 3 of Notification No. 12/2017-Central (Rate)
The applicant provides architectural consultancy services to SMC for the construction of SMIMER Hospital & College Campus. The applicant contends that their services are taxable under entry no. 21 of notification No. 11/2017-Central Tax (Rate) at 18%, whereas SMC claims exemption under entry no. 3 of notification No. 12/2017-Central (Rate), as the project falls under the 12th Schedule of Article 243W of the Constitution of India.

The Authority examined the conditions for exemption under entry no. 3, which requires the service to be a pure service, provided to a local authority, and related to functions entrusted to a Municipality under Article 243W. The Authority concluded that the services provided by the applicant are pure services without any supply of goods, and they are provided to SMC, a local authority, for a function listed in the 12th Schedule. Therefore, the services are exempt from GST.

Issue 2: Exemption for Sub-Contractors
The applicant sought clarification on whether the exemption available to them under entry no. 3 of notification No. 12/2017-Central (Rate) extends to their sub-contractors. The Authority refused to answer this question, stating that the applicant has no locus standi to seek a ruling on behalf of their sub-contractors.

The second part of the question was whether the applicant, as a sub-contractor to another contractor of SMC, would be eligible for the exemption. The Authority referred to the Supreme Court's ruling in Dilip Kumar & Company, which mandates strict interpretation of exemption notifications. Since the applicant, as a sub-contractor, would be providing services to the main contractor and not directly to a local authority, they would not qualify for the exemption under entry no. 3 of notification No. 12/2017-Central (Rate).

Issue 3: Tax Rate and HSN/SAC Code
Since the Authority ruled that the services provided by the applicant are exempt under entry no. 3 of notification No. 12/2017-Central (Rate), the question regarding the applicable HSN/SAC code and tax rate became infructuous.

Ruling:
1. The 'Architectural Consultancy Service' provided by the applicant to SMC for the construction of SMIMER Hospital & College Campus is covered under entry no. 3 of notification No. 12/2017-Central (Rate) and is thus exempt from GST.
2. The Authority refused to answer whether the exemption would apply to the sub-contractor of the applicant.
3. If the applicant provides sub-contract of pure services to another contractor of SMC, the supply would not be exempt under entry no. 3 of notification No. 12/2017-Central (Rate) and would be subject to GST.
4. The third question regarding the tax rate and HSN/SAC code is moot, given the exemption ruling.

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