Desilting and cleaning services for drain qualify as composite supply with GST exemption under Notification 9/2017 and 12/2017

AAR West Bengal ruled that desilting and cleaning services for Najafgarh Drain provided to Delhi Government's Irrigation and Flood Control Department constitutes a composite supply of goods and services. The work involves dredging and earthwork excavation with material costs under 5% of total value, qualifying as goods supply not exceeding 25% of composite supply value. The supply falls under public health sanitation activities listed in Twelfth Schedule of Article 243W of Constitution. The composite supply qualifies for GST exemption under Notification No. 9/2017 and 12/2017 as it relates to constitutional functions entrusted to municipalities.

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Issues involved:
The judgment involves issues related to the applicability of GST on a contract awarded by the Government of Delhi for desilting work and the classification of the supply as a composite supply of goods and services.

Details of the Judgment:

Issue 1 - Applicability of GST on the Contract:
The applicant was awarded a work order by the Government of Delhi for desilting work along the Najafgarh Drain. The applicant contended that the work order constituted pure service work with minimal material cost. The applicant sought clarification on the applicability of GST on the supply made to the Government of Delhi.

Issue 2 - Classification of Supply as Composite Supply:
The Authority examined whether the desilting and cleaning work on the Najafgarh Drain fell under the purview of "Public health sanitation conservancy and solid waste management." The Authority considered the nature of the work undertaken by the applicant to determine if it constituted a composite supply of goods and services.

Observations and Findings:
The Authority reviewed the contract details and the functions of the Irrigation and Flood Control Department of the Government of Delhi. It was noted that the work involved desilting and cleaning the Najafgarh Drain, which aligned with the category of "Public health sanitation conservancy and solid waste management" as per the Constitution of India.

The Authority also considered the percentage of material cost in the total work value, which was less than 5%, indicating a predominantly service-oriented contract. Based on the records submitted, it was established that the supply was a composite supply of goods and services, with the value of goods not exceeding 25% of the total value.

Judgment:
The Authority ruled that the supply of services for desilting work at Najafgarh Drain to the Government of Delhi would be exempt from GST payment under Sl. No. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. The classification as a composite supply of goods and services influenced this exemption decision.

This comprehensive judgment clarifies the GST applicability and classification aspects of a contract awarded by the Government of Delhi for desilting work, providing guidance on the exemption criteria based on the nature of the supply.

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