TaxTMI 
TaxTMI 
2021 (9) TMI 1287
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.... be paid by the applicant under reverse charge? 3) If tax is to be paid, then whether the applicant would be entitled for Input Tax Credit? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT: The submissions made by M/s. Nagpur Waste Water Management Private Limited, the applicant, are as under:- A. Statement of relevant facts having a bearing on the question(s) raised 2.1 M/s. Nagpur Waste Water Management Private Limited, the Applicant is registered under the Companies Act as well as the GST Act, 2017. 2.2 Nagpur Municipal Corporation (NMC) is constituted under the city of Nagpur Corporation Act, 1948. Therefore, NMC is "Local Authority". The NMC, under Article 243W of the Constitution of India, read with ....
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....ight of applicant to sell the TTW/ Treated Effluent ANCE a, to users of Nagpur has been further clarified in Clause 10.12 of the Agreement. If there is no sale of TTW no royalty is to be paid by the applicant to NMC. The sale consideration of Treated Effluent/ TTW is required to be deposited by the applicant in an ESCROW Account opened with designated bank (see Para 3.1.1 of Schedule 7). The ESCROW Bank is Trustee for NMC, the lenders representative and the concessionaire. All sale proceeds for sale of TTW is received by trustee bank in the ESCROW Account. Under the Agreement NMC is supplying only Sewage Water, the applicant is providing services of treating sewage water to NMC. The applicant is entitled for consideration in the form of CAPEX and OPEX and right to sale TTW. If there is no sale of TTW/ Effluent then NMC will pay "Net monthly operational support grant (NMOSG)" calculated as per Para 3 of the Schedule-6. However, if there is sale of treated water/effluent then the applicant will be paid "net payable monthly amount (NPMA)" only. NPMA will be calculated as per Para 4 of the Schedule-6 of Agreement which is equal to NMOSG less amount calculated as per Schedule 13 of the ....
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....under agreement as royalty. The royalty amount is required to be reduced by NMC only if treated water is sold. No royalty is paid if treated water is discharged in rivers or not sold. 2.6 The applicant has supplied/sold "TTW" to Mahagenco and raised its first invoice for this supply bearing No. NW/MHGN/2021/001 dtd.01.12.2020. Therefore, with reference to this sale of TTW to Mahagenco, the applicant is required to pay royalty to NMC. The NMC is not issuing any bill/document for this royalty but is required to adjust the same from amount payable by NMC to applicant. In order to facilitate the deduction, the applicant, for the amount payable to NMC as per Schedule-13 has issued Credit Note No. NWW/NMC/CN/01 dtd.07.12.2020. Accordingly, in relation to supply of TTW by applicant to Mahagenco vide invoice No. NW/MHGN/2021/001 dtd.01.12.2020, the applicant has calculated an amount of Rs. 15,22, 57,210/- which is to be deducted by NMC as royalty from the consideration under the contract. 2.7 The applicant is advised that no GST is payable by the applicant on this amount deducted by NMC from consideration determined as CAPEX/OPEX either under forward charge basis on or under Reverse ....
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....erated waters, not containing added sugar or other sweetening matter nor flavoured. 9 Nil 1. Entry 24 of Schedule III of Notification No. 1/2017 C.T.(Rate) dtd. 28-06-2017 which relates to "Water" was subject to amendment vide Notifications No. 06/2018-C. T. (Rate), dt. 25-01-2018. Also new entry relating to water was inserted vide same Notification at Sr. No. 46B of Schedule II of the Notification. Effect of all above mentioned notification w.e.f. 25.01.2018 on the entry 24 of Notification No. 1/2017 Central Tax (Rate) is as under: Schedule Sr. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (%) Condition (1) (2) (3) (4) (5) (6) Schedule II-6% 46B 2201 Drinking water packed in 20 litres bottles 6 Nil Schedule III-9% 24 2201 Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured other than Drinking water packed in 20 litres bottles 9 Nil #combined rate (SGST& CGST)/ IGST is 12% and 18% respectively. 2. Notification No. 02/2017-Central Tax (Rate), dtd. 28-06-2017 was i....
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....oceeds of treated water is appropriated by NMC. It could be noted that for supplying water to Mahagenco during June to Sept., 2020 the applicant will be entitled for Rs. 44,05,53,300/- from Mahagenco out of which a sum of Rs. 15,22,57,210/- is to be deducted by NMC for same duration to arrive at NPMA. Sale proceeds of TTW is required to be deposited in ESCROW account and from there NMC's share is directly appropriated as Royalty and applicant is getting rest of sales consideration. So long as the applicant is not supplying or selling TTW, the NMC will not get any amount as royalty. If such treated water is sold, then entire consideration of treated water is required to be deposited in ESCROW account. NMC after deducting amount as calculated as per Schedule-13 (termed as Royalty, will only pay net monthly operational support grant and balance sale consideration of Treated Water will be received by applicant. Therefore, it becomes clear that applicant is not paying any consideration to NMC but NMC is paying consideration for services provided by applicant. 5. The applicant believes that the NMC has basically given a right to process the natural sewage water. There is no doubt that....
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....eated Water. (ii) The NMC has basically given a right to process Natural Sewage Water. Water is goods and its processing by applicant is service. Since the service is to process the Natural Sewage Water which is tax free the service provided by the applicant is also tax free under Notification No. 12/2017 dtd.28.06.2017. No consideration is payable by the applicant to NMC for acquiring right to sale TTW. Under the contract primary arrangement is to provide service by the applicant to NMC and for that NMC will pay consideration to the applicant. However, if treated water is sold then the consideration payable by NMC will reduce. The amount though termed as royalty in fact is reduction in consideration payable by NMC to applicant as the applicant would be getting some revenue from sale of Treated Water. Thus, the arrangement between NMC and the applicant is of a revenue sharing model for sale of TTW/reduction in consideration. Therefore, the amount deducted by NMC through ESCROW arrangement is not a consideration/royalty but it is a revenue sharing arrangement/reduction in applicant's consideration for service to NMC. (B) For Question No-2. 8. In case the submission, in resp....
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.... Treatment of Sewage is a part of contract. The Sewage for this is an input. The royalty is paid by the applicant to NMC only if TTW is sold. The input for the same is Sewage Water. Since this is a single contract and for consideration received by the applicant from NMC on CAPEX/OPEX basis for operating project for 30 years and thereafter transfer the same to NMC, the applicant is paying applicable tax under GST laws. Under entire project output service i.e. setting up plant and transfer the same to NMC is taxable. Therefore, if the applicant is required to pay the tax on royalty paid under reverse charge then the applicant believes that it would also be entitled for input tax credit of that tax to be Set-off against the output tax liability of the applicant on consideration received from NMC on the CAPEX/OPEX basis. 03. CONTENTION - AS PER THE CONCERNED OFFICER: The submissions, as reproduced verbatim, could be seen thus- Submissions for question 1 are as under: 3.1 Nagpur Municipal Corporation (NMC), a local authority is required to provide the services of management of sewage system within the city of Nagpur & for this purpose decided to set up & operate the Sewage T....
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....t of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (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 It is clear from the above entry that tax shall be paid on reverse change basis by the applicant for getting service of right of sale of Tertiary Treated Water from local Authority i.e. NMC. Submissions for question 3 are as under:- 8. GST paid on goods or services under RCM is available as ITC subject to condition under section 16, 17 and 18 of GST Act. 04. HEARING 4.1 Preliminary hearing in the matter was held on 16.03.2021. Shri Ashok Chandak, CA, Shri Suresh Agrawal, Director, Shri Rajesh Kakani, Finance officer and Shri Mahesh Thakur, President appeared, and requested for admission of their application. Learned Jurisdictional Officers Shri Harish Chandra Shelke, AC....
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....of Treated Effluent/ TTW is to be deposited by the applicant in an ESCROW Account opened with the designated bank. The ESCROW Bank is Trustee for NMC, the lenders' representative and the concessionaire i.e. the Applicant. Entire sale proceeds generated out of sale (supply) of TTW is deposited by applicant in the trustee bank in the ESCROW Account. 5.4 Further, under the Agreement : the applicant is entitled for consideration in the form of the CAPEX, the OPEX and the right to sell TTW ; if there is no sale of TTW, then NMC will pay "Net monthly operational support grant (NMOSG)" calculated as mentioned in the agreement ; however, if there is sale of treated water/effluent water then the applicant will be paid "net payable monthly amount (NPMA)" only which is equal to NMOSG less amount calculated as per the agreement, based upon the quantity of water sold. There is certain amount to be deducted as per Schedule-13 which is termed as royalty payable by the applicant to NMC as per Schedule 8 of the Agreement. Therefore, royalty payment is a reduction from total consideration receivable by the applicant. 5.5.1 We observe that, the applicant has essentially asked a question which i....
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....G +Capital Grant)/ Rated Capacity of plant. Where "GAOSG" shall be as per Schedule -8. 2) Transfer of secondary Treated Effluent to Concessioning Authority up to 25 MLD (Maximum) shall be without any charge for Concessioning Authority's use or after makeup of shortfall to Mahagenco's Plant. The quantity exceeding 25 MLD shall be transfer as per this schedule. 5.5.4 Thus, hi the subject case, what is liable to tax is the act of "grant of license". The impugned agreement itself uses and defines the word "ROYALTY" as reproduced under: "Royalty" shall mean the charges payable from time to time by the Concessionaire to the Concessioning Authority against the sale of the Treated Effluent /Tertiary Treated sewage water as set out in schedule-13 and as per the provisions of this agreement. On the perusal of the above schedule and other clauses discussed in present order, it is clear that the formula arrived upon by the concerned parties to the impugned agreement, in respect of payment of 'royalty' by the applicant is in respect of the right given to applicant, by NMC, to sell the treated water. 5.5.5 In the present transaction in hand, we observe that there is tr....
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....ts made by it to NMC against licence given to them to sell the TTW which is termed as 'Royalty' in the impugned agreement. Even though this can be considered as 'Pure Service' it is seen that such services are not rendered by the applicant to a local authority (to be covered under the aforesaid Entry No. 3). Rather the said service is rendered by the local authority to the applicant and is therefore out of the purview of the said Entry No. 3. Therefore, we are not in agreement with the contention submitted by the applicant that the impugned services are exempt under the aforementioned Entry No. 3. Hence, in our opinion, the consideration paid by the applicant to NMC against receipt of 'Royalty' service is not exempt from GST. 5.5.9 The applicant is supplying TTW to Mahagenco and receiving consideration against such supply. Such supply made by the applicant has been considered as taxable by this authority and accordingly order No. GST ARA 65/2020-21/2021-22/B-35 Mumbai dated 27/07/2021, has been passed on another application filed by the applicant, wherein it is held that the supply of 'Tertiary Treated water' to the Mahagenco is 'taxable supply' and it is liable to tax @18% (9% ....
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.... Treated Water" to Mahagenco, by treating the Sewage Water supplied by NMC is liable to tax under the GST Act. 5.6 The second question raised by the applicant is whether tax is to be paid by NMC or by the recipient (applicant) under reverse charge basis. We find from the section 9(3) of CGST Act, the government may specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both. To remove the ambiguity and clear the doubt of taxpayer, Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 has been issued by the Government of India. As per this notification, it is found that Entry Serial No. 5 prescribed that "services supplied by the Central Government, State Government, Union Territory or local authority to a business entity" in that case, the liability to pay tax is on the recipient of such service on RCM basis. Hence, since NMC is a Local Authority, the liability to pay tax is cast on recipient of the supply i.e. the applicant. Hence, as per the aforesaid notification entry, applicant would be liable to pay GST on reverse charge basis under section 9(3) of CGST Act. 5....