2024 (10) TMI 934 - AAR - GST

Contractor providing sewer system works to Municipal Council cannot claim GST exemption under entry 3B of Notification 12/2017-CTR

In Re: M/s. Technocraft Construction Private Limited

In Re: M/s. Technocraft Construction Private Limited - TMI Issues Involved:1. Applicability of GST exemption under Entry 3B of Notification No. 13/2023-CT (Rate) for services provided to a Governmental Authority.2. Classification of the activity as a composite supply of works contract.3. Determination of whether the services fall under the category of pure services or composite supply with goods component not exceeding 25%.Issue-wise Detailed Analysis:1. Applicability of GST Exemption under Entry 3B of Notification No. 13/2023-CT (Rate):The applicant sought clarification on whether their activity of providing, laying, jointing, testing, and commissioning of a sewer system qualifies for exemption under Entry 3B of Notification No. 13/2023-CT (Rate). This entry provides exemption for services provided to a Governmental Authority by way of water supply, public health, sanitation conservancy, solid waste management, and slum improvement and upgradation. The applicant argued that their services fall under the category of sanitation conservancy and are provided to a Governmental Authority, i.e., the Municipal Council Kotputli, thus qualifying for exemption.However, the ruling concluded that the exemption under Entry 3B is not applicable to the applicant's services. It was determined that Entry 3B is an extension of earlier entries 3 and 3A, which are applicable only to pure services or composite supplies where the value of goods does not exceed 25%. The applicant's services were found to be a composite supply involving significant goods components, thus not qualifying for exemption under Entry 3B.2. Classification as a Composite Supply of Works Contract:The applicant's activity was examined to determine if it constituted a composite supply of works contract. The definition of works contract under Section 2(119) of the CGST Act, 2017, includes contracts for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property involving the transfer of property in goods.The ruling confirmed that the applicant's services, which involve the installation and commissioning of a sewerage system, qualify as a works contract. The services provided include both goods and services for an immovable property, thus constituting a composite supply of works contract.3. Determination of Pure Services or Composite Supply with Goods Component:The ruling also addressed whether the applicant's services fall under the category of pure services or composite supply with goods component not exceeding 25%. According to the exemption notification, pure services or composite supplies with a goods component not exceeding 25% provided to the Central Government, State Government, or local authority are exempt.The ruling found that the applicant's services involve a significant supply of goods, including sewerage systems and sewage pumping stations, which exceed the 25% threshold. Therefore, the services do not qualify as pure services or composite supply with a minimal goods component, and thus, the exemption under entries 3 and 3A is not applicable.Conclusion:The ruling concluded that the applicant's activity of providing, laying, jointing, testing, and commissioning of a sewer system and all ancillary works does not qualify for exemption under Entry 3B of Notification No. 13/2023-CT (Rate). The services are classified as a composite supply of works contract involving significant goods components, and therefore, they are not exempt under the GST provisions discussed.