Pure Services─Pre-Requisites For Leviability To GST

ARA, Rajasthan has pronounced judgment on 06.09.2021, in the case of Consulting Engineers Group Ltd. (2021) 36 J.K.Jain’s GST & VR 352, that;

“a) Project Management Consultancy’ services provided to Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation (RUDSICO) under Rajasthan Secondary Towns Development Sector Project, where Invoice is raised by the Applicant to the Leading Member, who further raise invoice to RUDSICO of complete amount, can not be termed as “Pure Services” as referred in S.No.3 (Chapter 99) of Table per notfn No.12/2017-CT(R) dated 28.6.2017 and accordingly not eligible for exemption from CGST/ SGST.

b) Rajasthan Urban Drinking Water Sewerage & Infrastructure Corporation Ltd.(RUDSICO) is not a Governmental authority.”

1. Background.─The applicant has contended that The “Project Management & Consultancy services” provided by the Applicant has no component of supply of goods and is eligible to be a Pure Service.

Considering the definitions of Governmental Authority and the facts of RUDSICO. RUDSICO qualifies to be a ‘Governmental Authority’, with more than 90 percent of State Govt. equity.

The services provided by the Applicant to RUDSICO is Project Management & Consultancy Services is in relation to Rajasthan Sector Towns Development Sector Project (RSTDSP) for rehabilitation and expansion of water supply network, rehabilitation and expansion of sewerage network, modernization and construction of new water supply and wastewater treatment plants which is listed in Twelfth Schedule to Article 243W of the Constitution.

Considering the abovementioned, the PMC services provided by the Applicant to RUDSICO is a “Pure Service” eligible for exemption under notfn No.12/2017-CT(R) dated 28.6.2017, irrespective of the way of raising Invoice as stated in the Joint Venture Agreement.

Now the issue to be decided is whether the applicant is eligible for exemption undernotfn No.12/2017-CT(R) dated 28.6.2017 or otherwise.

2. Findings by ARA.─ The relevant portion of the notfn No.12/2017-CT(R) dated 28.6.2017 is reproduced as under:……………………

“In exercise of the powers conferred by S.11(1), CGST Act. 2017, the Central Govt., [.1.], [.2.], hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon u/s 9(1), of the said Act, as is in excess of the said tar calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:–

3. Analysis by ARA.─From the above notfn, it is seen that the following three conditions are to be fulfilled to be eligible for taking the benefit of the exemption from GST under the above notfn:

(i) Pure services are to be provided.

(ii) Such services provided should be by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India; and

(iii) Service recipient should either be Central Govt. or State Govt. or Union territory or Local authority or Governmental authority.

So, the first condition to be discussed is as to what is meant by pure service? Since pure service has not been defined under GST, the same can be construed in general terms as any supply, which is either deemed as services under Schedule II of CGST Act or which are not covered under the definition of goods shall be categorized as pure services. However, as per the notfn, works contract services or other composite supplies involving supply of any goods are not covered in S.No.3. In other words, if a person provides only service to any person without involvement of supply of goods, then the same would be termed as supply of pure service. Ongoing through the contract agreement submitted by the applicant with regard to services provided to the RUDSICO, it is seen that the services provided are of only consultancy services. The applicant has also declared that PMC services provided by them has no component of supply of goods. Since there is no involvement of supply of goods in the services, the services would be termed as ‘pure services’. Hence, the first condition is fulfilled.

Now, we come to second condition. The exemption is available only when pure services are provided 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. We find that under the aforesaid contract, the applicant has to provide Project Management Consultancy services to RUDSICO. The RUDSICO has launched a project under which, they will invest in the rehabilitation and expansion of water supply network for reduction of non-revenue water under (NRW), 24×7 water supply, rehabilitation and expansion of sewerage network, modernization and new construction of water supply and wastewater treatment plants and wastewater pumping stations, faecal sludge management and decentralized wastewater management systems in the projected towns. The project will include O&M embedded construction contracts combining design, construction and O&M for water supply and wastewater contracts for a period of      10 years. This will support the municipalities O&M responsibility and improve the quality of service delivery by providing continuity in system operation as well as O&M. In view of the above, we conclude that the supply of Consultancy services by the applicant are in relation to function of town planning and water supply.

The Twelfth Schedule (Article 243W) of the Constitution list out the matters for economic development. The relevant extract of the schedule has been stated hereunder:

“1. Urban planning including town planning…..

5. Water supply for domestic, industrial and commercial purposes.

In view of the above the service supplied by applicant is in relation to any function entrusted to a municipality under Article 243W of the Constitution. Thus, the second condition is also fulfilled.

The third condition to be satisfied is whether recipient of the service viz., Rajasthan Urban Drinking Water Sewerage & Infrastructure Corporation Ltd. (RUDSICO) qualifies as “Governmental authority”.

The definition of “Governmental Authority” as per the definition given under notfn No.11/2017-CT(R) and notfn No.12/2017-CT(R) dated 28.6.2017 is as under:–

“Governmental Authority” means an authority or a board or any other body,–

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Govt.,

with 90% or more participation by way of equity or control, to carry out any function entrusted to a Municipality u/Article 243W of the Constitution or to a Panchayat under Article 243G of the Constitution.

4. Conclusion by ARA.─In the instance case, as per the master data submitted by the applicant, the ARA found that the total authorized capital is Rs.50 crores and the paid up capital is Rs.48.67 crore. the ARA further found that total paid up capital, wherein, only Rs.41 crore holding with Govt. of Rajasthan through H.E. governor of Rajasthan, which is less than 90%, as per the definition given under notfn No.11/2017-CT(R)and notfn No.12/2017-CT(R) dated 28.6.2017 as stated above, the recipient of the service viz., Rajasthan Urban Drinking Water Sewerage & Infrastructure Corporation Ltd. (RUDSICO) is not a Governmental authority.

Therefore, they are not eligible for exemption under notfn No.12/2017-CT(R) dated 28.6.2017.

Ruling.─Based as above discussion & findings, the ARA ruled as under:–

28. Whether the ‘Project Management Consultancy’ services provided to Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation (RUDSICO) under Rajasthan Secondary Towns Development Sector Project, where Invoice is raised by the Applicant to the Leading Member, who further raise invoice to RUDSICO of complete amount, can be termed as “Pure Services” as referred in S.No.3 (Chapter 99) of Table mentioned in notfn No.12/2017-CT(R) dated 28.6.2017 and accordingly eligible for exemption from CGST/SGST?

Answer: No.