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

AAR West Bengal ruled that desilting and cleaning services for Najafgarh Drain provided to Delhi Government's Irrigation and Flood Control Department ... Composite supply - exemption for composite supply to Central/State/Union Territory or local authority for functions entrusted under Article 243W - value of supply of goods not more than 25 per cent test - Public health, sanitation, conservancy and solid waste management (Twelfth Schedule, Article 243W)Public health, sanitation, conservancy and solid waste management (Twelfth Schedule, Article 243W) - Whether the desilting and cleaning of Najafgarh Drain undertaken by the applicant falls within the ambit of public health, sanitation, conservancy and solid waste management listed in the Twelfth Schedule (Article 243W). - HELD THAT: - The Authority examined the nature and scope of the work - removal of silt/earth/manure/sludge by dredging, leveling and dressing of stacking areas, construction of dykes and environmentally safe disposal - and compared it with established meanings of 'sanitation' and 'conservancy' including treatment of drainage and storm water. Having regard to the functions performed and authoritative definitions cited, the Authority concluded that the activity is concerned with drainage and sanitation services and therefore falls within the matter listed at serial number 6 of the Twelfth Schedule (Article 243W). [Paras 4]The desilting and cleaning work constitutes 'Public health sanitation conservancy and solid waste management' under the Twelfth Schedule (Article 243W).Composite supply - value of supply of goods not more than 25 per cent test - exemption for composite supply to Central/State/Union Territory or local authority for functions entrusted under Article 243W - Whether the supply by the applicant is a composite supply qualifying for exemption under Sl. No. 3A of the Notification (composite supplies to Government/local authorities in relation to functions entrusted under Article 243W) and the applicable GST consequence. - HELD THAT: - The Authority considered the contractual certificate that the works contract consists mainly of dredging and earthwork excavation (pure service) and that material transferred and consumed is less than five per cent of the contract value, establishing that there is a small element of goods. On this basis the supply was held to be a composite supply in which the value of goods does not exceed 25 per cent of the composite supply. Applying the exemption entry at Sl. No. 3A of the relevant Notification, which exempts composite supplies (where goods 25% of value) provided to the Central/State/Union Territory or local authority in relation to functions entrusted to a Municipality under Article 243W, the Authority held the supply eligible for exemption. The Authority therefore applied the statutory test (goods component percentage and function entrusted under Article 243W) and granted the exemption. [Paras 4]The supply is a composite supply with the goods component not exceeding 25% and, being provided to the Government in relation to a function under Article 243W, is covered by Sl. No. 3A of the Notification and is exempt from tax.Final Conclusion: The Authority ruled that the applicant's desilting and dredging services for Najafgarh Drain fall within 'Public health sanitation conservancy and solid waste management' under Article 243W, constitute a composite supply with goods component not exceeding 25%, and are exempt from GST under Sl. No. 3A of the Notification. 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.