In re Unique Aqua Systems (GST AAAR Tamilnadu)
The issue is not answered and is deemed to be that no ruling is issued under Section 101(3) of CGST/TNGST Act 2017 because of the difference of opinion between the members.
FULL TEXT OF THE ORDER OF AUTHORITY OF APPELLATE ADVANCE RULING,TAMILNADU
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
The subject appeal has been filed under Section 100(1) of the Tamilnadu Goods & Services Tax Act, 2017/Central Goods &, Services Tax Act 2017 by M/s. Unique Aqua Systems (herein after referred as the Appellant), having their registered office at No.26, Sri Sakthi Nagar Main Road, Opp to Metro Rail Pillar 93, Arumbakkam, Chennai 600106 are engaged in Operation and Maintenance of High Quality Treated Drinking Water Plant and are registered under GST vide Registration No. 33AADPU9240M1ZV. The appeal is filed against the Order No. 09/AAR/2021 Dated: 30.03.2021 passed by the Tamil Nadu State Authority for Advance ruling on the application for advance ruling filed by the appellant.
2.1 The Appellant has stated that they have entered into a contract with the Greater Chennai Corporation based on which they have been awarded with the project of Supply, Installation, Commissioning & Operation and Maintenance of High Quality ‘treated Drinking Water Plant (RO Plant) for the “Amma Kudineer (Drinking Water Plant) Project”. As per the Contractual conditions of work order, they have supplied, installed and commissioned high quality drinking water plants at different locations as required by the Greater Chennai Corporation (herein after referred as “GCC”) on the land allotted to them. They have been provided with raw water and electricity free of cost for the operation and maintenance of the drinking water plant to dispense treated water to the General Public. The consideration for the above mentioned service is paid on a fixed cost & a variable cost based on the quantity of treated water dispensed to the General Public: The beneficiaries are identified by GCC based on their residential status of the Ward in which the water treatment plant is located. The treated water is distributed by way of smart card issued by the appellant to the beneficiaries identified by GCC.
2.2. The applicability of benefit of exemption under Serial No. 3 of the Notification No. 12/2017-CT (rate) dated 28.06.2017 for the service provided is the issue on which advance ruling was sought by them. They had submitted that the government as empowered under Section 11 of the CGST Act 2017, exempts supply of services vide Notification No. 12/2017-CT (rate) dated 28.06.2017 as amended from time to time and one of such exemptions is provided to pure services provided to the Central Government, State Government or Union Territory or local Authority or a Governmental Authority at SI.No.3 of the said Notification. It could be seen that only supply of services for a consideration without involvement of supply of goods can be termed as pure services and in the present case, no supply of goods is involved as the applicant is only providing an operation and maintenance service to GCC for dispensing treated water to the general public for consideration and hence the service provided by the applicant is a pure service.
2.3 The appellant has stated that in order to avail the benefit of the above mentioned exemption, they have to satisfy the following two conditions:-
(1) The Service recipient should be Central Government or State Government or local authority or a Governmental authority or a Government Entity.
(2) It should carry out any Junction entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution
In the Instant case, it could be seen from the contract that, the service is provided to the Greater Chennai Corporation i.e Municipal Corporation of the city of Chennai. The Greater Chennai Corporation is established in India on the 29th September 1688 and it is wholly owned and under the control of the Tamil Nadu Government. As per entry no. 5 of the Twelfth schedule, the functions entrusted to the Municipality includes “Drinking Water” and “Water supply for domestic, industrial and commercial purposes” which are being undertaken by them based on the contract entered with GCC and thus the second part of the condition mandated under No. 3 of Notification No. 12/2017-CT (rate) dated 28.06.2017 is also satisfied.
2.4 Further the appellant has placed reliance on the recent ruling given by the Authority for Advance Ruling in Gujarat in the case of M/s. A B enterprise reported in 2020 TlOL 143 AAR GST wherein if is held that applicant will be eligible to claim exemption benefit under Sr.No.3 of Notification No. 12/2017-CT (rate) dated 28.06.2017 for pure services provided to local authorities when they are provided 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. In view of the above, the applicant has submitted that, the service provided by them by way of treating the water supplied to it by GCC against consideration received from GCC and dispensing treated water to the general public as directed by GCC is a pure service provided to the local authority by way of activity in relation to functions entrusted to a Municipality under article 243W of the Constitution and hence they are eligible for exemption provided under No. 3 of Notification No. 12/2017-CT (rate) dated 28.06.2017.
3. The Appellant had sought Advance Ruling on the following questions:
Whether the Services provided by the applicant to the recipient i.e. The Greater Chennai Corporation is a pure service provided to the local authority by way of activity in relation to functions entrusted to a Panchayat. under article 243G and Municipality under article 243W of the Constitution and eligible for benefit of exemption provided under Serial No. 3 of Notification No. 12/2017-CT (rate) dated 28.06.2017?
4. The AAR pronounced the following rulings:
The Supply provided by the applicant to the recipient i.e. The Greater Chennai Corporation based on the agreement to provide RO Plant and undertake O & M of the same, being not a “Pure service” but a composite supply of goods & Services, they are not eligible for benefit of exemption provided at Serial No. 3 of Notification No. 12/2017-CT (rate) dated 28.06.2017
5. Based on the above decision, the Appellant has filed the present appeal. The grounds of appeal are paraphrased as follows:
The appellant wish to submit that the above ruling issued be the Authority for Advance Ruling (AAR) is not sustainable in law and liable to be set. aside for the following grounds.
In para 7.4 of the impugned order, the AAR has referred to the Tender floated by the Greater Chennai Corporation bearing No. P.D.T.D.C. No. A 1 /0481 /2016 (Page Nos. 42 to 63) and observed that the scope of the work involves, supply, installation and commissioning of the Reverse Osmosis Plant, issue of smart card to beneficiaries, updating various information in the software, supply of treated water to beneficiaries, by way of running the Plant. The AAR has observed that since the supply, installation and commissioning of the Water Treatment Plant is also involved in the contract, it cannot be considered as a “pure service”. The AAR observed that, the supply, installation and commissioning of the Plant and O & M of the same are awarded together and they constitute a composite supply. The AAR further observed that even if the Supply, Erection, commissioning and installation of the plant and O & M of the plant are considered as separate activities, the O & M activity also involves supply of purified water (which is goods) to the beneficiaries through wending machines; supply of Smart cards, which is again goods and hence the activity cannot be considered as “pure servicers” for claiming exemption. Accordingly, the AAR has come to the conclusion that the appellant is not entitled for claiming the above exemption from payment of GST.
In so her as the three locations, for which the contract was awarded to the appellant, the supply, installation and commissioning of the RO plant was completed by the appellant much before introduction of GST (appropriate VAT has been paid) and only the Operation and Maintenance work was being done by the appellant, during the period july 2017.
When the project of supply of treated drinking water to the poor section of the population was introduced, the RO plants have to first be set up and Operation and Maintenance of the same shall also be taken up. Once the RO plant is set up, thereafter it requires only operation and maintenance and the said operation and maintenance work alone was awarded to various parties. Wherever new locations are added, the RO plant has to be first set up and thereafter operation and maintenance has to be carried out. It is also clear wherever tenders are floated for (i) Supply, erection, Commissioning of RO plants and (ii) operation and maintenance of the same, the scope of these work were separately identified along, with separate value. There are instances, where the appellant did not get the supply contract, but only O & M contract when such O & M Contracts were floated separately for subsequent periods.
From the above narration of facts, the scope of work undertaken by the appellant comprises following.-
(i) Where the supply, installation and commissioning was completed by the appellant prior to introduction of GST and O & M was being undertaken by the appellant during the period after 01.07.2017.
(ii) Where both works, viz., the supply, installation and commissioning and O & M was being undertaken by the appellant after 01.07.2017, under distinct contracts awarded.
(iii) Where only O & M work was awarded to the appellant after 01.07.2017, in respect of existing RO plants.
The AAR has come to the conclusion wherever the contracts involve both (i) supply, installation and commissioning of RO plants and (ii) Operation and maintenance of such plants, the exemption under S.No. 3 of Notification 11/2017 could not. be claimed, in as much as the scope of work of the appellant involves supply also and it is not “pure service” as contemplated in S.No. 3 of Notification 11/2017. The AAR has observed that the work undertaken by the appellant in pursuance of the contracts awarded to them are composite in nature, where the supply, installation and commissioning part and O & M Part, cannot be vivisected and since such composite supply, is not “pure service” but also involves supply, installation and commissioning of RO plant, the benefit of the exemption is not entitled.
In this connection, the appellant wish to submit that in respect of those contracts, where the supply, installation and commissioning was undertaken and completed prior to 01.07.2017 and O & M work was being carried out after 0 1.07.2017, such activities cannot be; treated as a “composite supply” as defined under GST law, in as much as the CGST Act., which came into force from 01.07.2017 cannot be made to apply retrospectively, so that the activities undertaken prior to 01.07.2017 would determine the rate of tax or exemption available under the GST law. In such eases, what is relevant is only the activities undertaken after 0 1.07.2017 mid if the said activity is a “pure service” as envisaged in S.No.3 of Notification No. 12/2017-CT (rate) dated 28.06.2017, the benefit of exemption shall be extended. A supply, which has been made prior to 01.07.2017 and assessed as per the law prevailing during the time, cannot once again be assessed, by treating it as a composite; supply, along with the; activities undertaken post 01.07.2017.
The above two activities, viz., (i) Supply, installation and commissioning of RO plant; and (ii) Operation and Maintenance of the same have to be treated individually for the purpose of assessment under GST law and the rate of tax and eligibility for exemption have to be considered independently. While supple of various equipment and commissioning and installation thereto could be considered as a composite supply, the operation and maintenance of such equipment cannot be treated as forming part of the composite supply.
Further, wherever the Supply, installation and commissioning has been completed prior to 01.07.2017, the benefit of exemption for the O & M carried out after 01.07.2017 cannot be denied by considering the activity of supply, installation and commissioning, which has been completed prior to 01.07.2017, as part of the composite supply along with the O &. M undertaken post. 01.07.2.017 as it would amount to giving retrospective effect to the GST law.
Further, the AAR has also held in para 8.2 of the impugned order that, even if it is considered that the supply of RO plant and O & M of such plant are two different supplies, the appellant is supplying purified water through the vending machines to the beneficiaries; issue smart cards to the beneficiaries; and these water and smart card are goods; and also provides various services and hence the activities undertaken by the appellant are not “pure services” and for this reason also the appellant is not entitled for exemption.
ln the instant case, the raw water is supplied by GCC, which is treated by the appellant, by operating and maintaining the RO plant set up for this purpose and as per the directions of GCC, the treated water is supplied to the beneficiaries, who are identified by the smart, cards issued to them. It may be observed that the scope of supply in the hands of the appellant is treatment of the water, by operating the RO plant, ensuring proper maintenance of the RO plant and distributing such water to the beneficiaries. The water does not belong to the appellant, but the same is made available to the appellant by GCC. The fact that the treated water is distributed to the beneficiaries by the appellant, would not make the services supplied by the appellant to GCC as not being pure services, as no transfer of property in goods is happening from the appellant to in favour of GCC. The raw water is the property of the GCC, which is treated and distributed to the beneficiaries by the appellant. Further, the issue, of smart card is part of the Supply contract and not part of the O & M contract, as can be observed from the tender documents.
Without prejudice to the above, the appellant also wish to submit that with effect from 25.01.2018, S.No. 3A has been introduced in Notification No. 12/2017-CT (rate) dated 28.06.2017, vide Notification 2/2018 Central Tax (Rate) Dt. 25.01.2018, which reads as,
