In re Khilari Infrastructure Private Limited (GST AAR Maharashtra)
Question -1 -Determination of GST leviable on operation and maintenance work order given by such Municipal Corporation.
Answer : – Under GST Act, 2017, their services attracted CGST & SGST @ 9% each with effect from 01.07.2017 and CGST & SGST @ 6% each with effect from 22.08.2017. Post 25.01.2018, their services would be exempt only subject to fulfilment of conditions that the value of supply of goods does not exceed 25% of value of composite supply.
Question-2– Admissibility of ITC (input Credit tax) of purchases against such work order.
Answer:- The applicant is eligible for availing ITC (input Credit Tax) of purchases against such work order under the GST Act/Rules subject to the terms and conditions mentioned in section 16 to 22 of the GS T ACT and rules 36 to 45 of the GST Rules ,2017.
Question – 3 :- Determination of responsibility of municipal authority of discharging such GST Liability payable to the contractor.
Answer :- The liability to pay GST is on the supplier, being a legal liability and no comments are offered in respect of recovery or otherwise from the recipient.
Question – 4 : Further, we seek guidance from GST Council/ Appropriate authority towards applicability of GST on Service Contract where labour job Contribute 95% to 98% if Contract Value and 2-3% as Oil and Lubricant and pertains to consumable Purchase to operate the Existing Plant.
Answer:- Under GST Act, 2017, their services attracted CGST& SGST @ 9% each with effect from 01.07.2017 and CGST & SGST @ 6% each with effect from 22.08.2017. Post 25.01.2018, their services would be exempt only subject to the fulfilment of condition that the value of supply of goods does not exceed 25% of value of composite supply.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA IS AS FOLLOWS:-
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by KHILARI INFRASTRUCTURE PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the applicability of GST on:
1) Determination of GST leviable on operation and maintenance work order given by municipal corporations.
2) Admissibility of ITC (input Credit tax) of purchases against such work order.
3) Determination of responsibility of municipal authority of discharging such GST Liability payable to contractor.
4) Applicability of GST on Service Contract where labour job Contribute 95% to 98 of Contract Value and 2-3% as Oil and Lubricant and pertains to consumable Purchase to operate the Existing Plant.
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 such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
1. Appellant Company is a registered Civil Contractor, carrying out the business of
a. Construction, erection, commissioning of sewerage treatment plant.
b. Operation & Maintenance of Sewerage Treatment and Disposal Plants.
as per the Work awarded by various Municipal Corporations / Councils/Local Authority.
2. During the FY 2016-17 appellant had made the Total Contract Receipts amounting to Rs.200,89,26,040/-, which included
a. Rs.1,78,11,70,457/- in respect of civil construction contract work for Solid Waste Management and
b. Rs. 22,77,55,583/- in respect of Operation & Maintenance work for Sewerage Treatment and Disposal Plant.
3. During the year under consideration FY 2017-18 Appellant Company has been awarded work order of Operation & Maintenance contract from various Municipal Corporations and the details are as under:
I. NAVI MUMBAI MUNICIPAL CORPORATION (NMMC);
a. Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site Nerul STP Agreement dated 30.11.2017 against Letter of Acceptance vide Ref. No. NMMC/CE/1432/2017 dated 29.11.2017 for Tender vide Ref. No. B-2/ACE/10(011/2015-16 detailing terms of work for Operation & Maintenance as under:
as per Annexure – 9.
Scope of Work page no. 136 para no. viii.
Contract Price page no. 126 para no. 27.
Operator Responsibility (i.e. NMMC) page no. 121 para no. 20 include Replacement of Machinery is not the part of Contract. Pls. refer Page No-121 Point no.20.2.
As per the above work order of Operation & Maintenance of STP, the major portion of work being labor oriented i.e. 95%) of Sewerage Treatment and Disposal Plant and balance 5% consumables are Adhesives, Grease, Oil and lubricants. Land & Building and Plant & Machinery owned by Municipal Corporation floated tender to optimize the solution under SWM Rule-2000. In all such contract the responsibility of Contractor is to run the plant effectively using his own Skill set & Manpower to maintain the quality of treated sewage within the standard Prescribed under SWM Rule-2000.
The Appellate had prepared and submitted the financials bid for the Operation & Maintenance work order considering the old Indirect Tax Laws wherein, Service Tax was exempt as per Notification no.25/2012 dated 20.06.2012 entry no. 12.
On Implementation of GST, 2017 the said Operation & Maintenance work was taxed as per notification no. 11/2017 dated 28.06.2017 and notification no. 20/2017 dated 22.08.2017. However, the Municipal Corporation has disregarded levying of GST on the said work saying it is exempt under section 243 (W). During the course of discussion with the Municipal Corporation the appellant has submitted the local authority copy of relevant portion of the GST Act, 2017 and also the amended portion, however the local authority have rejected the claims made by appellant. As per discussion with NMMC all such contract related to Operation and Maintenance of STP Plant comes under Rule 243 W and Not Applicable for GST. The service of Operation and Maintenance of STP Plant related to Public Interest and no GST is applicable for all such Job. As per Annexure – 17.
Similar to the above Operation & Maintenance work order for STP’s we have work Order for below sites
b. Comprehensive Contract for Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site Vashi STP Agreement dated 30.11.2017 against Letter of Acceptance vide Ref. No. NMMC/CE/1408/2017 dated 27,11.2017 for Tender vide Ref. No. B-2/ACE/10(021/2015-16. As per. Annexure -10.
c. Comprehensive Contract for Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site Airoli STP Agreement dated 12.12.2017 against Letter of Acceptance vide Ref. No. NMMC/CE/1534/2017 dated 12,12.2017 for Tender vide Ref. No. B-2/ACE/10(031/2015-16. As per Annexure – 11.
d. Comprehensive Contract for Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site CBD Belaour STP Agreement dated 19.12.2017 against Letter of Acceptance vide Ref. No. NMMC/E.E. (Bl/124/2017 dated 12.12.2017 for Tender vide Ref. No. B-2/ACE/16(011/2014-15. As per Annexure – 12.
e. MUNICIPAL COUNCIL (PANDHARPUR); Comprehensive Contract for Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site PANDHARPUR Agreement dated 25.01.2015 against work order vide Ref. No. OUTNO./PNP/WS/19/15 dated 25.01.2015 for Tender vide Ref. NO. OUTNO./ PNP/ WS/708/14. As per Annexure – 13.
f. PANVEL MUNICIPAL COUNCIL RAIGAD; Comprehensive Contract for Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site PANVEL Agreement dated 09.09.2015 against Letter of Acceptance vide Ref. No. OUTNO./PNP/WS/5233/15 dated 15.09.2015 for Tender vide Ref. No. OUTNO./PNP/WSS/7/15. As per Annexure -14
II. NAVI MUMBAI MUNICIPAL CORPORATION (NMMC);
Daily O & M of Solid Waste Processing Plant (Compost plant) at Site Turbhe SWM dumping yard site Agreement dated 21.08.2017 against Letter of Acceptance vide Ref. No. NMMC/CE/1572/2017 dated 19.08.2017 for Tender vide Ref. NO. NMMC/C1TY ENGINEER/77/2016-17 detailing terms of work for Operation & Maintenance as under: As per Annexure – 15.
Scope of Work page no. 232.
Contract Price (Provisional Sums) page no. 313.
Tax clause 98 & 99 page no. 312 and 313.
As per the above work order of Operation & Maintenance of Solid Waste Processing Plant, the major portion of work being labor oriented i.e. 98%) Disposal Plant and balance 2% consumables. The Applicant had prepared and submitted the financials bid for the Operation & Maintenance work order considering the old Indirect Tax Laws wherein, Service Tax was exempt as per Notification no.25/2012 dated 20.06.2012 entry no. 12.
III. CITY AND INDUSTRIAL DEVELOPMENT CORPORATION OF MAHARASHTRA LIMITED (CIDCO);
Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site Ulwe STP against Letter of Acceptance vide Ref. No. CIDCO/CE/fNMV 2014/243 dated 25.07.2014 for Tender vide Ref. No. 02/ClDCO/SE(ULWE)/EE(UL-ll)/2013-14 detailing terms of work for Operation & Maintenance as under:
As per Annexure – 16
Scope of Work clause no. 2 and section 4 page no. 469
Contract Price clause 32. page no. 491
Taxes & Reimbursement of Tax clause no. 70.2 & 71.1 page no. 448
As per the above work order of Operation & Maintenance of Sewerage Treatment and Disposal Plant, the major portion of work being labor oriented i.e. 95%) of Sewerage Treatment & Disposal Plant and balance 5% consumables are Adhesives, Oil & Lubricants.
The Appellate had prepared and submitted the financials bid for the Operation & Maintenance work order considering the old Indirect Tax Laws wherein, Service Tax & VAT was exempt as per Notification no.25/2012 dated 20.06.2012 entry no. 12.
4. As per the Earlier Indirect Tax Laws i.e. Service Tax (Finance Act,1994) the Operation & Maintenance Service of Sewerage Treatment and Disposal Plant was exempt Under Notification no.25/2012 dated 20.06.2012 entry no. 12 as per Annexure – 3.
5. As per the Goods & Service Tax Act, 2017 notification no. 11/2017 dated 28.06.2017 and notification no. 20/2017 dated 22.08.2017 read as below; complete notification as per Annexure – 4 & Annexure – 5.
6. As per the notification no. 12/2017 of GST Act, 2017 dated 28.06.2017 exempt list of services issued by GST Council read as below; complete notification as per Annexure – 6 and Article list under 243W of the constitution of India is as per Annexure – 7.
7. For the betterment development of Town, City & Villages and in Public Interest we feel that all such Contracts related to Operation & Maintenance of STP Plants and Solid waste Management should come under Rule 243 W and Not Applicable for GST.
8. There is lack of clarity about GST chargeability on the Operation & Maintenance contract service provided to Local Authorities (Where Major Portion of work being Labour oriented i.e. 95% & other 5% is consumable expenses to operate the Plant).
In respect to the above, appellant has made its best efforts, pursuing the Municipal Corporation/Councils/Local Authority in connection to levy of GST on the relevant contracts with the appellant during the year. However in spite of repeated reminders the Municipal Corporation/Councils/Local Authority failed to adhere the same.
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-Accordingly, the Para-wise comments on the application filed by M/s Khilari Infrastructures Pvt. Ltd are as follows:-
Sr. No. 1 to 13.- No Comments.
Question -1 -Determination of GST leviable on operation and maintenance work order given by such Municipal Corporation.
Comments:- The application and the documents submitted by them have been examined in light of the provisions for Municipal Corporation / of the CGST Act, 2017. Prior to 01.07.2017, their services i.e. operation and maintenance work were exempt from Service Tax vide Notification No. 25/2012 Service Tax dated 20.06.2012. They are now registered under CGST Act and falling under the jurisdiction of Range III of Belapur Dn-1. Under GST law, their services attracted CGST under Not. No. 11/2017-Central Tax (Rate) dated 28.06.2017 @9% with effect from 01.07.2017 and @6% with effect from 22.08.2017 vide Notification No. 11/2017-Central Tax dated 28.06.2017 as amended vide notification no. 20/2017 dated 22.08.2017. However, vide Exemption Notification No. 2/2018 Central Tax (Rate) dated 25.01.2018 this service is exempted with effect from 25.01.2018 provided the value of supply of goods does not exceed 25% of value of composite supply.
Question-2– Admissibility of ITC (input Credit tax) of purchases against such work order.
Comments:- The applicant is eligible for availing ITC (input Credit Tax) under the CGST Act, 2017 read with the CGST, Rules 2017.
Question – 3 Determination of responsibility of municipal authority of discharging such GST Liability payable to the contractor.
Comments:- As regards the claim of the Municipal authorities that the services under reference are covered by Article 243W of the Constitution and hence exempt from GST does not appear to be correct. As per Not No. 12/2017-Central Tax (Rate) dated 28.06.2017 with effect from 01.07.2017, pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Govt, State Govt or Union Territory or local Authority or a Governmental Authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243 W of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution are exempt from tax. It can be seen from the submission of the applicant that they use some consumables such as oil, lubricant etc. As such their services cannot be termed as pure services attracting exemption under Not No. 12/2017 and the applicant will have to pay the GST on the services provided by them.
However, their services have been exempted from GST vide Notification No. 2/2018 Central Tax (Rate) dated 25.01.2018 which reads as below:
“Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent, of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.”
In view of the above, prior to 25.01.2018, the services of M/s Khilari Infrastructures Pvt. Ltd were taxable as detailed in Comments on Questions Nos 1 & 3 above.
Question – 4 Further, we seek guidance from GST Council/Appropriate authority towards applicability of GST on Service Contract where labour job Contribute 95% to 98% if Contract Value and 2-3% as Oil and Lubricant and pertains to consumable Purchase to operate the Existing Plant.
Comments:- As explained in comments on Question No. 3 above.
In view of the above, the application, filed by M/s Khilari Infrastructures Pvt. Ltd, may be rejected for the period from 01.07.2017 to 24.01.2018.
Sr.No. 15:- No Comments as these are facts.
Sr.No. 16 to 18: No Comments.
04. HEARING
The case was taken up for hearing on dt. 30.01.2018 when Sh. Rohidas Sanap, Chief Financial Officer alongwith Sh. Sidddharth Kheria, (C.A.) appeared and they were orally informed that their application was not specific with respect to contract entered into and their queries are very general queries without putting the factual position as per contract entered into before the ARA . In view of this they agreed to submit full details and file revised application with complete details latest by 05.02.2018, otherwise their application was liable to be treated as rejected. In view of this, the applicant has filed fresh application on 05.02.2018.
The final hearing was held on 21.02.2018 when Sh. Sidddharth Kheria, (C.A.) along with Sh. Roshan Mene, Accountant appeared and submitted copy of Notification 2/2018 dated 25th January 2018. Jurisdictional Officer Sh. R. M. Gangreddiwar, Asstt. Commissioner, Belapur – Division-I alongwith Ms. S. V. Tambe, Inspector attended and furnished a written submission.
05. OBSERVATIONS
We have gone through the facts of the case, documents on records and submissions made by the Applicant. The primary issue put before us is whether the Applicant is exempted from payment of GST on Operation and Maintenance contracts/work orders entered into by them with Navi Mumbai Municipal Corporation (NMMC), Panvel Municipal Corporation (PMC), Municipal Council, Pandharpur (MCP) and City & Industrial Development Corporation of Maharashtra, Ltd. (CIDCO). The other issue raised before us is whether the Applicant is entitled to Input Credit Tax (ITC), of purchases against such work order and whether it is the responsibility of municipal authority to discharge such GST Liability’ payable to the Applicant.
The Applicant has submitted that their Company is a registered Civil Contractor, carrying out the business of Construction, erection, commissioning of sewerage treatment plant and Operation & Maintenance of Sewerage Treatment and Disposal Plants work, which is awarded to them by the various Municipal Corporations/Councils/Local Authority, as mentioned above. For the year under consideration FY 2017-18 they have been awarded work order of Operation & Maintenance contract by various Municipal Corporations, details of which have been submitted by them. As per their submissions the
Operation & Maintenance Service of Sewerage Treatment and Disposal Plant was exempt from service tax under Notification no.25/2012 dated 20.06.2012 entry no. 12 as per Annexure – 3, of the Erstwhile Finance Act, 1994. They have further submitted that all such Contracts related to Operation & Maintenance of Sewage Treatment Plants (STP) and Solid Waste Management (SWM) are under the purview Rule 243 W of the Constitution of India and therefore should not attract GST. They have also submitted that there is lack of clarity about GST chargeability on the Operation & Maintenance contract services provided to Local Authorities, where the major portion of work comprises of labour i.e. 95% & the remaining 5% comprises of consumable expenses i.e. Adhesives, Oil & Lubricants, to operate the Plant.
The Applicant has given details of the work order in respect of Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site Nerul STP Agreement dated 30.11.2017, against Letter of Acceptance vide Ref. No. NMMC/CE/1432/2017 dated 29.11.2017 for Tender vide Ref. No. B; 2/ACE/101011/2015-16 which they have entered into with NMMC. They have submitted that as per the above work order of Operation & Maintenance of STP, the major portion of work is labor oriented i.e. 95% of Sewerage Treatment and Disposal Plant and balance 5% pertain to consumables like Adhesives, Grease, Oil and lubricants. Land & Building and Plant & Machinery are owned by NMMC. In this contract it is the applicant’s responsibility to run the plant effectively using their own Skill set & Manpower. They have also submitted that, on the implementation of GST, 2017 the said Operation & Maintenance work was taxed as per notification no. 11/2017 dated 28.06.2017 and notification no. 20/2017 dated 22.08.2017. However, NMMC has disregarded levying of GST on the said work saying it is exempt under section Rule 243 (W) of the Constitution of India. Similar work orders have been purportedly received by them from other Local Bodies.
They have further cited another work order vide agreement dated 21.08.2017,with NMMC, in respect of Solid Waste Processing Plant (Compost plant) at Site Turbhe SWM dumping yard site, against Letter of Acceptance vide Ref. No. NMMC/CE/1572/2017 dated 19.08.2017 for Tender vide Ref. NO. NMMC/CI1TY ENGINEER/77/2016-17 detailing terms of work for Operation & Maintenance. Wherein they have stated that the Scope of Work and Contract Price (Provisional Sums) are mentioned at page no. 232 and page no. 313, respectively. Here they have submitted that as per the said work order, the major portion of work is labor oriented i.e. 98% and balance 2% consumables. In this case too they have stated that, on the implementation of GST, 2017 the said Operation & Maintenance work was taxed as per notification no. 11/2017 dated 28.06.2017 and notification no. 20/2017 dated 22.08.2017 and NMMC has disregarded levying of GST on the said work saying it is exempt under section Rule 243 (W) mentioned above.
The third work order cited by them pertains to work order received from CIDCO for Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site UIweSTP against Letter of Acceptance vide Ref. No. ClDCO/CE/lNMl72014/243 dated 25.07.2014 for Tender vide Ref. No. 02/C1DCO/SEOJLWE1/ EEfUL-in/2013-14 detailing terms of work for Operation & Maintenance. Here also they have submitted that as per this work order of Operation & Maintenance of Sewerage Treatment and Disposal Plant, the major portion of work is labor oriented i.e. 95% and balance 5% consists of consumables i.e. Adhesives, Oil & Lubricants.
The department has contended that it can be seen from the submission of the applicant that they use some consumables such as oil, lubricant etc. As such their services cannot be termed as pure services attracting exemption under Not No. 12/2017 and they will have to pay the GST on the services provided by them. Under GST law, the Applicant’s services attract CGST under Not. No. 11/2017-Central Tax (Rate) dated 28.06.2017 @ 9% with effect from 01.07.2017 and @ 6% with effect from 22.08.2017 vide Notification No. 11/2017-Central Tax dated 28.06.2017 as amended vide Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017. However, vide Exemption Notification No.2/2018 Central Tax (Rate) dated 25.01.2018 this service is exempted with effect from 25.01.2018 provided the value of supply of goods does not exceed 25% of value of composite supply.
Now we take up and examine the terms and conditions of the two agreements mentioned below (the other agreements have not been submitted in full), submitted by the Applicant for detailed analysis as follows:-
I. Agreement dated 30.11.2017 with NMMC in respect of Operation & Maintenance of Sewerage Treatment and Disposal Plant at Site Nerul STP, Sector 50, Nerul Mumbai against Letter of Acceptance vide Ref. No. NMMC/CE/1432/2017 dated 29.11.2017 for Tender vide Ref. No. B-2/ACE/10(01)/2015-16
As per the conditions of the said work order/contract :-
