RCM ON FEES TO PAID TO LOCAL AUTHORITIES

[Sadanand Bulbule]

Dear Experts

Entry No.5 of Notification No.13/2017- Central Tax [Rate] dated 28/06/2017 reads as mentioned in the table below.

But nowhere the nature of services supplied by the Central Government, State Government, Union territory or local authority are explained in the said Notification. Factual position being so, it can be inferred that the services other than specifically “excluded” services therein are taxable under RCM.

Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.

Central Government, State Government, Union territory or local authority

Any business entity located in the taxable territory.

My take:

The Local Authorities are defined under the State Town & Country Planning Act. They are Municipal Corporation, Municipal Council, Town Panchayat or Grama Panchayat. Such local authorities grant statutory permission/approval for the construction of real estate projects like residential towers, commercial complexes like shopping malls, star hotels etc., and charge fees according to the prevailing laws under the respective State Municipal Corporations.

Query:

Whether such fee paid to the local authorities for supply of service of statutory permission and approval of real estate projects is liable to RCM in the hands of business entity located in the taxable territory? If so, the relevant details please?

Experts to throw light on this issue.

[Shilpi Jain]

I agree with the view of Mr. Padmanathan on notificaiton 14/2017.

Also, the exemption notification has an exemption available for services provided by governmental authority in relation to 243G and 243W.

The plans and permissions approved will fall thereunder and would be eligible for exemption.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, I have thoroughly perused your original as well as spontaneous thoughts posted at serial no. 20 dated 25.06.24. I agree with you since the ultimate purpose of framing laws is to provide fair justice to the public.

In continuation of my views already expressed above, I further express my views on the issue raised by you in the whole discussion and in the query itself. My views are in the interest all those persons who have been show caused by the department on this very issue raised by you in the query.

(a) If the service supplied by a local authority to a business entity is covered under the category of 'exemption' or 'non-taxable' or 'non-GST supply' by virtue of any exemption notification or any Section of the Act itself, Serial no. 5 of Notification No. 13/17-CT (R) dated 28.06.17 as amended will not come into play at all. When we talk of exemption, non-taxability or non-GST supply, RCM liability is relegated to the background.

(b) Therefore, SCN cannot be issued in such a situation detailed above in (a). Anyhow, If the SCN is issued, that will be vague and lame SCN and will not be sustainable in the letter and spirit of GST laws. Such SCNs are droppable at the first stroke by the Appellate Authority (if the Adjudicating Authority is different from SCN Issuing Authority, such SCN can be dropped at the first stage.) So such SCN (if issued) can be termed as harassment to the bona fide and honest tax payers. The issuance of such SCN will also be in violation of the Central Govt's policy whereby bona fide and honest taxpayers are to be honoured.

(c) There are so many judgements wherein various High Courts and Supreme Court have passed strictures along with fine against the SCN Issuing Authority and Adjudicating Authority on the basis of issuance of vague and lame SCN. One such case law is given below :-

The Hon'ble Gujarat High Court in the case of RAFIK ALIBHAI MAKVANA Vs. STATE OF GUJARAT - 2022 (3) TMI 443 - GUJARAT HIGH COURT has held as under :

"Strictures against the department - Vagueness of Show Cause Notice and Adjudication order - In past also the department had been issuing many vague SCNs/orders which were earlier criticized and set aside by Court hundreds of times - It was beyond understanding of Court as to why State GST department was working in such high handed manner and why its officers were not ready to understand and improve - Article 226 of Constitution of India. [para 5].

(d) Liability to tax has to be proved by Revenue Authorities but to earn the exemption, the assessee has to establish his eligibility ---Nizam's Religious Endowment Trust Vs. CIT 1965 (10) TMI 22 - SUPREME COURT. There is a plethora of judgements of various courts wherein it has been held that burden to prove tax exemption under a notification is cast on the assessee who claims exemption. CC Vs. Dilip Kumar & Co. - 2018 (7) TMI 1826 - SUPREME COURT (5-Member Constitution Bench).

(e) Since the facts and circumstances of each case are not always the same so the applicability of RCM to any service received from Govt by a business entity depends on the facts and circumstances of each case.

In the absence of facts and circumstances, final and confirmed view/advice here is not possible. These views are to be read in conjunction with all the above views and not in isolation.

Disclaimer : These are my personal views and meant for academic interest and not meant for any Court proceedings.

[Sadanand Bulbule]

Dear all
The visitors may treat this product as arising out of different versions of interpretations of the contributors. That may or may not be near to the object of the law framed by Parliament. Interpretation itself is not the absolute law per se. Interpretation should not affect with overwhelming intensity of the law.

So wherever there is ambiguity in law, better to consciously understand the law as it is or its translation in pure form to reach the right possibility. Visitors need not be “obsessed ” about particular interpretation but need to be dealt with carefully.

Thanks for all visitors and contributors.

[Sadanand Bulbule]

Dear all

Please refer the following CBIC Circular on RCM on the services provided by the GOI in terms of Notification No. 13/2017 CTR dated 28/06/2017 for academic purpose and in relation to the similar issue under discussion:

Circular No.-222/16/2024-GST

[Sadanand Bulbule]

Dear all

The functions entrusted to a municipality under the Twelfth Schedule to Article 243W of the Constitution are as under:

(a) Urban planning including town planning.

(b) Regulation of land-use and construction of buildings.

(c) Planning for economic and social development.

(d) Roads and bridges.

(e) Water supply for domestic, industrial and commercial purposes.

(f) Public health, sanitation conservancy and solid waste management.

(g) Fire services.

(h) Urban forestry, protection of the environment and promotion of ecological aspects.

(i) Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

(j) Slum improvement and upgradation.

(k) Urban poverty alleviation.

(l) Provision of urban amenities and facilities such as parks, gardens, playgrounds.

(m) Promotion of cultural, educational and aesthetic aspects.

(n) Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

(o) Cattle pounds; prevention of cruelty to animals.

(p) Vital statistics including registration of births and deaths.

(q) Public amenities including street lighting, parking lots, bus stops and public conveniences.

(r) Regulation of slaughter houses and tanneries.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, This is with reference to your post at serial no. 25 dated 30.6.24.

(i) The purpose of above post indicates that you do not agree with the view, "RCM is applicable to the granting of statutory permission and approval of real estate projects." Is it right ?

(ii) Do you think that the granting of statutory permission and approval of real estate projects. is an integral part of (a) Urban Planning including town planning for the purpose of (b) mentioned in above post and highlighted by you ?

(iii) A business entity cannot provide the subject service without prior permission and approval of the real estate project. This is an undisputed fact.

Sir, I want your valuable opinion on the above for arriving at correct and concrete decision.

Thanks & regards.

[Sadanand Bulbule]

Dear all

Please find the following AAR for academic reference on the issue under discussion:

2024 (6) TMI 826 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND - IN RE: M/S UTTARAKHAND PEYJAL SANSADHAN VIKAS EVAM NIEMAN NIGAM.

AI Summary

Reverse charge on municipal permission fees may apply unless the activity qualifies as an exempt public authority function.
Fees charged by local authorities for granting statutory permissions and approvals are consideration for a supply of service and thus prima facie taxable under RCM when provided to business entities under Notification No.13/2017. RCM does not apply where the activity is treated as a non-supply or is exempt under Notification No.12/2017 or Notification No.14/2017 (functions entrusted to Panchayats/Municipalities under Articles 243G/243W), or where other specific exemptions apply. Applicability depends on service classification, the nature of the authority, and the factual matrix; claimants must establish exemption eligibility while revenue must prove taxability.