In re Directorate of Skill Development (DoSD) (GST AAAR Madhya Pradesh)
The project for the Establishment of Center for Occupational Skills Acquisition within the Global Skills Park (hereinafter referred as GSP) in Bhopal, Madhya Pradesh was given to Directorate of Skill Development, Department of Technical Education, Skill Development & Employment (DoSD), Government of Madhya Pradesh.
The said Project is to assist the Government of Madhya Pradesh (GOMP) in transforming its technical and vocational education and training (TVET) system to create a skilled workforce that meets the evolving development needs of the State.
The project will establish a new advanced TVET institute of international standards to introduce a high quality, technology-oriented skills training for the State’s priority sectors.
ITE Education Services Pte. Ltd, a Singapore based Consultancy Company (ITEES) having its registered office at ITE Headquarters, Blk A, A2-01, 2 Ang Mo Kio Drive Singapore 567720 as per agreement with Government of Madhya Pradesh is to provide Consulting Services to the Directorate of Skill Development for the said Project. An agreement was executed on 28.09.2018 between Directorate of Skill Development, Department of Technical Education, Skill Development & Employment, Government of Madhya Pradesh (“client”) and ITE Education Services Pte. Ltd, the Singapore (ITEES) based Consultancy Company.
The Appellant desired to know, whether the services received by it from a provider of service located in a non-taxable territory would attract the provision of sec 5(3) read along with notification No. 10/2017 IGST(Rate) dated 28.06.2017. In other words, whether Applicant is liable to pay tax under reverse charge mechanism on the transaction mentioned above?
AAAR held that The aforementioned pure services received by appellant from ITEES being mentioned at entry XVIII of Eleventh Schedule of Constitution of India qualify for reverse charge under sub-section (3) of section 5 of IGST Act, 2017 read with notification 10/2017 IGST (Rate) dated 28.06.2017 and the appellant, the recipient of services, is exempt from GST as per entry 3 of notification 9/2017 IGST (Rate) dated 28.06.2017.
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FULL TEXT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING, MADHYA PRADESH
1. At the outset, we would like to make it clear that the provisions of both the CGST Act and the MPGST Act are similar except for certain specific provisions. Therefore, unless a specific mention is made to such dissimilar provisions, a reference to the CGST Act would mean a reference to the similar provisions under the MPGST Act and vice-versa.
2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act, 2017 and the Madhya Pradesh Goods and Services Tax Act, 2017 [hereinafter also referred to as “the CGST Act and MPGST Act”] by DIRECTORATE OF SKILL DEVELOPMENT, DEPARTMENT OF TECHNICAL EDUCATION SKILL DEVELOPMENT AND EMPLOYMENT, GOVT. OF MADHYA PRADESH . (hereinafter also referred to as the “appellant”) against the order of Authority of Advance Ruling No. 10/2019/AAR /R-28/23 dated 18.07.2019.
1. BRIEF FACTS OF THE CASE
1. Appellant having their registered office at Global Skill Park ITI Building, Raisen Road, Govindpura, Bhopal, Madhya Pradesh is a part of State Government and has not taken registration under GST law.
2. The project for the Establishment of Center for Occupational Skills Acquisition within the Global Skills Park (hereinafter referred as GSP) in Bhopal, Madhya Pradesh was given to Directorate of Skill Development, Department of Technical Education, Skill Development & Employment (DoSD), Government of Madhya Pradesh.
3. The said Project is to assist the Government of Madhya Pradesh (GOMP) in transforming its technical and vocational education and training (TVET) system to create a skilled workforce that meets the evolving development needs of the State.
4. The project will establish a new advanced TVET institute of international standards to introduce a high quality, technology-oriented skills training for the State’s priority sectors.
5. ITE Education Services Pte. Ltd, a Singapore based Consultancy Company (ITEES) having its registered office at ITE Headquarters, Blk A, A2-01, 2 Ang Mo Kio Drive Singapore 567720 as per agreement with Government of Madhya Pradesh is to provide Consulting Services to the Directorate of Skill Development for the said Project. An agreement was executed on 28.09.2018 between Directorate of Skill Development, Department of Technical Education, Skill Development & Employment, Government of Madhya Pradesh (“client”) and ITE Education Services Pte. Ltd, the Singapore (ITEES) based Consultancy Company.
6. The total consideration has been decided to be USD $38,12,740/- which is to be paid in 11 installments. Appellant has reproduced the Clause 38.1 of the Agreement describing the consideration agreed between the parties.
7. The Contract price is US $ 38,12,740 (Inclusive of consultant country taxes). The lump sum amount is exclusive of provisional sums and contingency, which will be covered separately under the project, if required. The lump-sum amount is exclusive of all Indian taxes, levies and duties imposed by the applicable law. If the applicable law requires any Indian taxes, levies or duties to be paid, the consultant shall be entitled to invoice the client for a higher amount such that, after the payment/withholding of the relevant Indian taxes, levies or duties, the consultant shall receive the original amounts as stated in Appendix C of application.
8. The GSP will impart training to 10,000 students every year by trainers of international standard. The park will function on the spirit of ‘With Industry-For Industry’ and the trained students will be given placement in India and outside India at international level.
9. Some Key features of GSP are: –
a. International Training Method with On-Job trainings.
b. World Class Industrial machinery, tools, and equipment.
c. State of art classrooms, workshops and other facilities for students.
d. Partnership with Institute of Technical Education Singapore for course curriculum and teacher training.
To promote this objective skilled manpower is the need of the hour keeping this objective in mind the GSP is being established. There is no commercial or business motive behind establishment of this GSP. Hence the activity being performed by the DoSD is the execution of functions entrusted to the government hence it cannot be considered as business activity.
2, QUESTION RAISED BEFORE AUTHORITY FOR ADVANCE RULING (AAR)
Relevant question decided against appellant before AAR is as under: –
The Appellant desired to know, whether the services received by it from a provider of service located in a non-taxable territory would attract the provision of sec 5(3) read along with notification No. 10/2017 IGST(Rate) dated 28.06.2017. In other words, whether Applicant is liable to pay tax under reverse charge mechanism on the transaction mentioned above?
3. RULLING PRONOUNCED BY AAR
1. The Applicant shall be liable to pay IGST on import of Service under Reverse Charge Mechanism in terms of Notification No.10/2017-IT(R).
2. This ruling is valid subject to provisions under section 103(2) until and unless declared void under section 104(1) of the GST Act.
4. QUESTION RAISED BEFORE THE APPELLATE AUTHOURITY FOR ADVANCE RULING (AAAR)
The Appellant desired to know, whether the services received by it from a provider of service located in a non-taxable territory would attract the provision of sec 5(3) read along with notification No. 10/2017 IGST(Rate) dated 28.06.2017. In other words, whether Appellant is liable to pay tax under reverse charge mechanism on the transaction mentioned above.
5. STATEMENT OF FACTS
1. The Government of Madhya Pradesh (GOMP) is implementing the Madhya Pradesh Skills Development Project (MPSDP) with the support of Asian Development Bank (ADB). The loan agreement was signed between ADB and Government of India and the project agreement was signed between ADB and GOMP on 3rd October 2018; and the loan became effective on 29 November 2018. The executing agency for the project is the Department of Technical Education, Skill Development, and Employment (DTESD&E), GOMP; and the implementing agency is the Directorate of Skill Development (DOSD) (hereinafter referred to as The Appellant’), having their registered office at Directorate of Skill Development, Ahead Rampur Square, Narmada Road, Jabalpur, Madhya Pradesh, India – 482002.
2. The MPSDP project aims to equip the men and women of Madhya Pradesh with mid- to advanced-level skills to meet emerging demands in the priority manufacturing and services sectors, as well as for advanced agricultural skills. To this end, the project will help GOMP transform the State’s Technical Vocational Education and Training (TVET) system to build quality skilling opportunities. It will support the establishment of a new Global Skills Park (GSP) to impart advanced job-ready skills training of international standards. It will also modernize 10 ITIs across the state’s 10 divisions t y upgrading training facilities and skills programs to deliver quality, industry-relevant training.
3. The project aims to train nearly 100,000 youth from underprivileged and economically weaker sections of the society over a period of 5 years.
4. In 2015, the Honorable Prime Minister of India visited Singapore ITE and reiterated the need of similar world class institutions in India. In 2016, the Honorable Chief Minister of Madhya Pradesh visited ITE Singapore and agreed upon a Memorandum of Understanding to establish a world class training center in MP. An MoU was signed between DTESD and ITE Education Services (ITEES) subsequently. ITEES is the international unit of ITE.
5. Institute of Technical Education (ITE), Singapore was established in 1992 as a statutory board under the Ministry of Education; Government of Singapore after the parliament approved and enacted the ITE Acts. The ITE Education Services Pte. Ltd. (ITEES), a wholly owned subsidiary of ITE, Singapore was set up in January 2003 with the objective of sharing ITE’s expertise in Technical and Vocational Education & Training (TVET). ITEES having its registered office at ITE Headquarters, Blk A, A2-01, 2 Ang Mo Kio Drive, Singapore 567720.
6. Cabinet approval of GOMP was given vide order S No F-7/2018/42(2) Bhopal dated 28.07.2018 to engage ITEES as a single sourced consulting firm to support the implementation and operation of GSP. ADB vide its letter dated 16rh April 2018 supported the decision of single sourcing ITEES.
7. Contract between DoSD and ITEES was signed on 28.09.2018. The main scope of work is to advise and guide in the development of Global Skills Park (GSP), in campus design and infrastructure development, equipment design, laboratory and classroom design; curriculum adaptation, academic structuring, training of trainers; leadership development; and examination.
8. As per special conditions of the contract (SCC) 38.1 the total price of the contract is US$3,812,740 (inclusive of Consultant country taxes) i.e. Singapore taxes.
9. As per the loan and project agreement signed between ADB and GOI and GOMP respectively, there is a provision of direct payment in US Dollars from ADB to the consultant country. The facility is being used in the contract between DoSD and ITEES as per SCC 41.2
10. SCC 38.1 also states that incase a further tax liability arises in the client country i.e. India, the client is liable to pay those taxes over and above the contract amount. For example, any GST liability if arises, it has to be paid directly by DoSD to the concerned authorities without affecting the original contract amount committed to ITEES.
11. ITEES, Singapore shall raise invoices as per the applicable taxation laws of the Singapore against the services provided to the DoSD. Government of Madhya Pradesh in respect of the said services in Madhya Pradesh, India.
a. The consideration is to be paid in foreign currency (i.e. US Dollars) directly from Asian Development Bank, Manila, Philippines as per loan and project agreement with Government of India and Government of Madhya Pradesh, respectively.
b. The DoSD, Government of Madhya Pradesh is the recipient of services and ITEES, Singapore is the supplier of services.
c. The above services rendered by ITEES can be said to Import of services within the meaning of sec. 2(11) of IGST Act 2017.
12. Sec 5(3) of IGST Act, 2017 read along with Notification No. 10/2017 Integrated Tax (Rate) dated 28th June 2017 provide for the liability of tax to be paid on reverse charge mechanism in case of Import of service by any person located in the taxable territory. Once liability of reverse charge is imposed, all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
13. However, as per Entry no 10 of Notification No 9/2017 Integrated Tax (Rate) dated 28th June 2017, there has been an exemption on services received by the government from the provider of service located in a non-taxable territory. Extract from Notification No 9/2017 Integrated Tax (Rate) dated 28th June 2017
