2023 (5) TMI 285 - AAR - GST

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

In Re: Ajit Babubhai Jariwala (Trade Name : M/s. Tathastu Architects)

The AAR, Gujarat ruled that architectural consultancy services provided to Surat Municipal Corporation for hospital construction qualify as pure services ... Classification of services - pure services or not - Architectural Consultancy Service provided by the applicant to Surat Municipal Corporation for construction of SMIMER Hospital & College Campus - exemption under entry no. 3 of notification No. 12/2017-Central (Rate) dated 28.6.2017 - HELD THAT:- supply goods along with services in the form of providing of various physical models of the medical college block, hospital block and residential campus; that various samples of the hardware materials, sanitary items, electrical items, various knobs, handles and all sample of ELV system, all are required to be supplied in the form of samples; that they also supply series of drawings in form of hard copy (print outs) and multiple tender books/documents The supply of drawings, samples, physical models etc can by no stretch of imagination be termed as supply of goods. Thus, the service rendered by the applicant is a ‘pure service’ not involving any supply of goods. The pure services [excluding works contract service or other composite supplies involving supply of any goods] provided to the local authority [i.e. in this case to the SMC] by way of any activity in relation to a function entrusted to a Municipality under article 243 W of the Constitution of India is exempt from GST. Having said so the supply by the applicant to SMC being a pure service meets the criterion set out vide Sr. No. 3 of notification No. 12/2017-CT(Rate), dated 28.6.2017, and hence, the supply is exempt from GST. Exemption in relation to Pure Service - ‘pure services’ provided by a sub contractor of the applicant. - HELD THAT:- We find that [a] the applicant before us is seeking a ruling on behalf of his sub-contractor and is hence is not the supplier of the service in the case wherein the supply is provided by the sub-contractor and [b] that the ruling sought by the applicant is not for admissibility of input tax credit in respect of supply received by the applicant from his sub-contractor. This being the factual matrix, we find that the applicant before us has no locus standi in seeking a ruling in the facts of the present case. In view of the foregoing, we refuse to answer this portion of the second question. Supply of pure services as a Sub-contractor to another contractor of the SMC - whether he as a sub-contractor can avail the exemption provided the exemption is available to the direct contractor of SMC? - HELD THAT:- The Apex Court in Dilip Kumar and Company, [2018 (7) TMI 1826 - SUPREME COURT], has already held that exemption notifications are to be interpreted strictly & the burden of proving applicability would be on the assessee to show that his case comes within the ambit of the conditions specified in the exemption notification. In the preceding paragraphs, while examining the applicability of the GST on the supply by the applicant we have already held that 3 conditions need to be satisfied - The fact that in the hypothetical situation of the applicant being a sub- contractor when he has provided the services/supply to the main contractor and not to the Central Government, State Government or Union Territory or Local authority or a Governmental authority or a Governmental entity directly would clearly take him out from the ambit of exemption provided vide Sr. No. 3 of the notification No. 12/2017-CT(Rate). The main contractor if exempt would not lead automatically to a sub-contractor providing service to the main contractor being exempt as has been held by the AAR in the case of M V Infra Services P Ltd [2020 (3) TMI 70 - AUTHORITY FOR ADVANCE RULING, KARNATAKA] If the entry number 3 of the notification No. 12/2017-Central (Rate) dated 28.6.2017 is not applicable to the applicant then accordingly the services provided by the applicant will be taxed under which HSN/SAC code and the rate of tax thereof? - HELD THAT:- Since it is already held that the supply made by the applicant would fall within the ambit of Sr. No. 3 of notification No. 12/2017-CT(Rate), this question becomes infructuous. 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-ContractorsThe 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 CodeSince 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.