Works contract services for waterbody rejuvenation project exempt from GST under Serial No. 3A notification

The AAR, West Bengal ruled that works contract services for rejuvenating Lamphelpat waterbody to alleviate urban flooding, provide sustainable water source for Imphal City, and promote eco-tourism are exempt from GST. The authority determined that while dredging cannot be considered removal of encroachment on public property, the project objectives of improving water security and environmental enhancement fall under functions entrusted to municipalities under Article 243W of the Constitution. Therefore, the supply qualifies for exemption under Serial No. 3A of relevant GST notifications.

---

---

Issues Involved:

1. Determination of whether the supply of works contract services by the applicant is covered under Sl. No. 3A of Notification No. 9/2017 Integrated Tax (Rate) or Notification No. 12/2017-Central Tax (Rate).
2. Determination of the effective GST tax rate applicable to the supply.

Issue-wise Detailed Analysis:

1. Coverage under Notification No. 9/2017 or 12/2017:

The applicant provides works contract services to the Government of Manipur for the development of a water body at Lamphelpat, Imphal. The primary activities include dredging and earthwork excavation, with the cost of construction material being less than 5% of the total work order value. The applicant seeks to determine if these services are exempt under Sl. No. 3A of Notification No. 9/2017 or Notification No. 12/2017, which exempts composite supplies where the value of goods does not exceed 25% of the total value, provided to government entities for functions entrusted to Panchayats or Municipalities under the Constitution.

The Authority examined whether the services are a composite supply, if they are provided to a government entity, and if they relate to functions entrusted to Panchayats or Municipalities. It was established that the services are composite, provided to the State Government, and relate to functions under Article 243W, such as water supply and environmental protection. Therefore, the supply is exempt under the mentioned notifications.

2. Effective GST Tax Rate:

Given the exemption under Sl. No. 3A of the notifications, the effective GST tax rate applicable to the applicant's supply of services is 0%, as the supply is exempt from tax.

Observations and Findings:

The Authority confirmed that the applicant's services to the Government of Manipur involve the rejuvenation of the Lamphelpat water body, which aligns with the functions listed under the Twelfth Schedule of Article 243W of the Constitution. The project aims to alleviate urban flooding, improve water security, and promote eco-tourism, which are considered functions of a municipality. Consequently, the supply is exempt from GST under the specified notifications.

Ruling:

The supply of services by the applicant for the rejuvenation of the Lamphelpat water body to the State Government of Manipur is exempt from payment of tax under Sl. No. 3A of Notification No. 12/2017-Central Tax (Rate) and Notification No. 9/2017 Integrated Tax (Rate), as amended.

---