2024 (1) TMI 1092 - AAR - GST

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

In Re : M/s. Dredging And Desiltation Company Private Limited

AAR West Bengal ruled that desilting and cleaning services for Najafgarh Drain provided to Delhi Government's Irrigation and Flood Control Department ... Scope of supply - Composite supply or not - Government of Delhi - services provided by the applicant for desilting and cleaning the Najafgarh Drain, awarded by the Irrigation and Flood Control Department - comes under the purview of Union Territory - Exemption from GST under Sl. No. 3 of Notification No. 9/2017 Integrated Tax (Rate) dated 28.06.2017- or Sl. No. 3A of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 as amended from time to time? - rate of GST - HELD THAT:- The instant work falls within the ambit of matter listed at Sl. No. 6 of the Twelfth Schedule of 243 W of the Constitution of India, i.e. “Public health sanitation conservancy and solid waste management”. The records submitted by the applicant also includes certificate dated 07.08.2023 under No. F.22(113)/2022-23/AB-CD-I/3889, issued by the Executive Engineer, Civil Division-I, Irrigation & Flood Control Department, Government of NCT of Delhi, New Delhi, wherein he has certified that “the works contract constitutes mainly of dredging and earthwork excavation which is pure service work and the cost of material transferred and consumed for execution and completion of the work contract is less than 5 (five) percent of the total work order value, if any required”. This clearly establishes that there is an element of goods also in the supply, although in a small percentage - the instant supply is found to be a composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply. Entry at Sl No. 3A of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017, as amended [Sl. No. 3A of Notification No. 12/2017-Central Tax (rate) dated 28.06.2017, as amended] describes that Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution is exempted. 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.