Gujarat Maritime Board dredging services denied exemption under serial 3A of notification 9/2017-IT as board deemed body corporate not government entity

The AAR Gujarat ruled that the applicant was not eligible for exemption under serial No. 3A of N/N. 9/2017-IT (Rate) for dredging services supplied to the Gujarat Maritime Board. The Authority determined that the Gujarat Maritime Board is a body corporate, and the term "government entity" was omitted from the exemption notification. The ruling emphasized that advance rulings are binding only on the specific applicant under Section 103 of the CGST Act, 2017.

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1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Authority for Advance Ruling (AAR) was whether the supply of dredging services undertaken by the applicant, provided to the Gujarat Maritime Board (GMB) through a contract awarded by the Fisheries Department (a government entity), qualifies for exemption under serial No. 3A of Notification No. 9/2017-IT (Rate) dated 28.6.2017, as amended by Notification No. 2/2018-IT (Rate) dated 25.1.2018. Specifically, the issues involved were:

• Whether the dredging service constitutes a composite supply of goods and services with the value of goods not exceeding 25% of the total supply value;
• Whether the recipient of the service qualifies as Central Government, State Government, Union Territory, or local authority as per the exemption notification;
• Whether the dredging activity relates to a function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution of India;
• Whether the applicant's reliance on the term "government entity" is valid in light of amendments to the exemption notification;
• Whether the Gujarat Maritime Board qualifies as a local authority under Section 2(69) of the CGST Act, 2017;
• Whether the precedent advance rulings cited by the applicant are applicable to the present facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Composite Supply and Value of Goods

Relevant legal framework and precedents: Serial No. 3A of Notification No. 9/2017-IT (Rate) requires that the supply be a composite supply of goods and services where the value of goods does not exceed 25% of the composite supply. The applicant submitted a certificate from the Chief Engineer of Fisheries certifying that the dredging work does not constitute more than 25% of the value of goods supplied.

Court's interpretation and reasoning: The tender documents describe the dredging work as involving soil dredging using excavators and machinery, mobilization and demobilization, loading and unloading onto barges, and transportation of dredged material. This confirmed the composite nature of the supply. However, during the hearing, the applicant's representative conceded that the certificate's wording was ambiguous and possibly a drafting error.

Application of law to facts: Despite the ambiguity, the applicant accepted the condition was met. Therefore, the first two conditions under serial No. 3A-composite supply and goods value not exceeding 25%-were deemed satisfied.

Issue 2: Recipient Qualification as Government or Local Authority

Relevant legal framework and precedents: Serial No. 3A requires the supply to be made to the Central Government, State Government, Union Territory, or local authority. The term "government entity" was introduced in Notification No. 33/2017 but was subsequently omitted from serial No. 3A by Notification No. 16/2021.

Court's interpretation and reasoning: The applicant claimed the Fisheries Department is a government entity and thus eligible. However, the Authority noted that the term "government entity" no longer appears in serial No. 3A, thus the applicant's argument based on this term fails. Further, the dredging services were actually received by the Gujarat Maritime Board (GMB), which owns the port.

Key evidence and findings: The Port Policy of December 1995 and GMB's website confirmed that Porbandar port is owned by GMB, a body corporate established under the Gujarat Maritime Board Act, 1981. The Act states that GMB is a corporate body with perpetual succession and power to contract.

Application of law to facts: GMB does not fall within the definition of Central Government, State Government, Union Territory, or local authority under Section 2(69) of the CGST Act, 2017. Therefore, the third condition of serial No. 3A is not satisfied.

Treatment of competing arguments: The applicant's reliance on the Fisheries Department being a government entity was rejected as the actual recipient of the service is GMB, which does not qualify under the exemption notification.

Issue 3: Relation of the Activity to Panchayat or Municipality Functions

Relevant legal framework: The exemption applies only to supplies related to functions entrusted to Panchayats under Article 243G or Municipalities under Article 243W of the Constitution. The XIth Schedule lists fisheries as a function under Panchayats.

Court's reasoning: Since the third condition was not satisfied, the Authority did not examine whether the dredging activity relates to a Panchayat function. This was considered an academic exercise and thus not necessary to decide.

Issue 4: Applicability of Precedent Advance Rulings

Applicant's submissions: The applicant cited three advance rulings where dredging services rendered to government entities were held exempt under similar notifications.

Court's analysis: The Authority distinguished the present case on facts. The cited rulings involved recipients clearly defined as government entities under the exemption notification, whereas the term "government entity" is omitted in the current notification. Further, advance rulings are binding only on the applicant and do not establish binding precedent.

Conclusion: The prior rulings did not support the applicant's claim in the present factual and legal context.

3. SIGNIFICANT HOLDINGS

The Authority held that the supply of dredging services undertaken by the applicant, provided to the Gujarat Maritime Board, is not covered under serial No. 3A of Notification No. 9/2017-IT (Rate) dated 28.6.2017 as amended. The crucial legal reasoning includes the following verbatim excerpts:

"The term 'government entity' having been omitted from Serial No. 3A, vide notification No. 16/2021-IT(Rate) dated 18.11.2021, the averment of the applicant fails."

"GMB does not fall within the ambit of either the Central Government, State Government or Union Territory or local authority. Thus, the third condition that the supply is to be provided to the Central Government, State Government or Union Territory is not satisfied."

"GMB is not a local authority in terms of section 2(69) of the CGST Act, 2017. Thus, the condition not having been fulfilled, the applicant is ineligible for the benefit of the notification."

"The composite supply so provided should be by way of an activity in relation to any function entrusted to a Panchayat under Article 243G, or Municipality under Article 243W, respectively, is not being examined, as it is only an academic exercise."

Core principles established:

• Exemption under serial No. 3A requires the recipient to be Central Government, State Government, Union Territory, or local authority as defined in the CGST Act; mere receipt by a government department does not suffice if the actual recipient is a corporate body like GMB.
• The term "government entity" is not operative in serial No. 3A post amendment and cannot be relied upon for exemption.
• Advance rulings are binding only on the applicant and are not binding precedents for other cases.
• Where a condition precedent to exemption is not satisfied, the Authority need not examine other conditions.

Final determination:

The supply of dredging services by the applicant to the Gujarat Maritime Board is not exempt under serial No. 3A of Notification No. 9/2017-IT (Rate) dated 28.6.2017 as amended, and therefore, the applicant is not entitled to the benefit of exemption under GST for the said supply.

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