Annual operation & maintenance of compactor and hook loader for lifting & removal of garbage is a composite supply of goods & services

In re Banchu Das (GST AAR West Bengal)

Annual operation and maintenance of compactor and hook loader for lifting and removal of garbage is a composite supply of goods and services

The AAR, West Bengal in the matter of Banchu Das [Advance Ruling No. WBAAR 23 of 2022 dated October 21, 2022] has ruled that, the supply of services to the Government or Government authority for annual operation and maintenance of capacity portable compactor and hook loader cannot be regarded as pure services and it is a composite supply of goods and services as it involves supply of goods like spare parts. Further, such composite supply is eligible for exemption from the payment of GST vide Sl. No. 3A of the Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017 (“the Services Exemption Notification”), if the value of goods involved in such composite supply does not exceed 25% of the value of supply.

Facts:

Banchu Das (“the Applicant”) is engaged in providing conservancy/solid waste management services to the Conservancy Department of the Howrah Municipal Corporation (“HMC”).

The Applicant submitted that the services provided by them is a “Pure service” which is covered under Sl. No. 3 of the Services Exemption Notification, which exempts the pure services provided to the Government or a Government Authority by way of an 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.

Issue:

Whether conservancy/solid waste management services provided by the Applicant is exempt from the levy of GST?

Held:

The AAR, West Bengal in the matter of Advance Ruling No. WBAAR 23 of 2022 held as under:

• Noted that, the work order issued by the Conservancy Department of HMC describes the nature of the work for annual operation and maintenance of capacity portable compactor and hook loader and the Applicant has issued invoices describing particulars as ‘annual operation and maintenance of Compactor Machine for lifting and removal of garbage’.
• Observed that, the term ‘pure services’ has not been defined under the Central Goods and Services Tax Act, 2017 (“the CGST Act”). However, from the bare reading of Sl. No. 3 of the Services Exemption Notification, it denotes supply of services which does not involve any supply of goods can be regarded as pure services.
• Further observed that, the annual maintenance of compactor and hook loader involves supply of goods like spare parts. Thus, it can be concluded that the services provided by the Applicant cannot be held as ‘pure services’.
• Analysed SI. No. 3A of the Services Exemption Notification, and noted that, the supply for annual operation and maintenance of compactor and hook loader provided by the Applicant is a composite supply of goods and services and such supply can qualify for exemption, only when the value of goods involved in such composite supply does not exceed 25% of the value of supply and the same is provided to the Government or Government Authority 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.
• Opined that, the functions entrusted to a municipality as listed in the 12^th Schedule of the Constitution of India include the functions like sanitation conservancy and solid waste management.
• Held that, the Applicant’s supply to the HMC for operation and maintenance of capacity portable compactor and hook loader is eligible for exemption from payment of tax under Sl. No. 3A of the Services Exemption Notification, if the value of goods involved in such composite supply does not exceed 25% of the value of supply.

Relevant Provisions:

Sl. No. 3A of the Services Exemption Notification:

12th Schedule of the Constitution of India:

1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

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

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and up gradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

18. Regulation of slaughter houses and tanneries.”

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, WEST BENGAL

1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression ^„GST Act‟ would mean the CGST Act and the WBGST Act both.

1.2 The applicant is stated to be engaged in providing conservancy/solid waste management services to the Conservancy Department of the Howrah Municipal Corporation (HMC, for short) under the trade name of PEAU TRANSPORT.

1.3 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:

• Whether conservancy/solid waste management services provided by us is exempt from GST?

1.4 The aforesaid question on which the advance ruling is sought for is found to be covered under clause (e) of sub-section (2) of section 97 of the GST Act.

1.5 The applicant states that the question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act.

1.6 The officer concerned from the revenue has raised no objection to the admission of the application.

1.7 The application is, therefore, admitted.

2. Submission of the Applicant

2.1 The applicant submits that the services provided by them is a “Pure service” which is covered under serial number 3 of the Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017 (corresponding West Bengal State Notification No. 1136 – FT dated 28/06/2017), as amended, which exempts “pure service” ( excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union Territory or Local Authority or a Government Authority or a Governmental Entity by way of an 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.

3. Submission of the Revenue

3.1 The concerned officer from the Revenue has not expressed any view on the issue raised by the applicant.

4. Observations & Findings of the Authority

4.1 We have gone through the records of the issue as well as submissions made by the authorised representative of the applicant during the course of personal hearing.

4.2 In the instant case, the work order issued by the Conservancy Department of Howrah Municipal Corporation describes the nature of the work for annual operation and maintenance of capacity portable compactor and hook loader. Further, from the copies of invoices as furnished by the authorized representative in course of personal hearing, it is noticed that the applicant has issued invoices describing particulars as ^„annual operation and maintenance of Compactor Machine for lifting and removal of garbage‟.

4.3 The applicant has contended that the supply shall be covered under serial number 3 of the Exemption Notification which describes following services:

Pure Services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union Territory or local authority 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

4.4 The term ^„pure services‟ has not been defined under the Act. However, a bare reading of the description of services as specified in serial number 3 of the Exemption Notification denotes supply of services which does not involve any supply of goods can be regarded as pure services. In the case in our hand, the work order has been issued for operation and maintenance of compactor and hook loader. According to us, annual maintenance of compactor and hook loader involves supply of goods like spare parts. We are, therefore, unable to hold the instant supply to be pure services.

4.5 However, we find that serial number 3A of the said Notification exempts following services:

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 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.

4.6 We are therefore of the opinion that the instant supply for annual operation and maintenance of compactor and hook loader is a composite supply of goods and services and such supply can qualify for exemption vide serial 3A of the Exemption Notification only when the value of goods involved in such composite supply does not exceed 25% of the value of supply and the same is provided to the Central Government, State Government or Union territory or local authority 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.

4.7 Now we are going to ascertain whether the services provided by the applicant are in relation to any functions entrusted to a municipality under article 243W of the Constitution of India.

The functions entrusted to a municipality under article 243W of the Constitution along with twelfth schedule are reproduced herein under:

• 243W. Powers, authority and responsibilities of Municipalities, etc.-Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow
• (a) the Municipalities with such powers and authority as maybe necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as maybe specified therein, with respect to

(i) the preparation of plans for economic development and social justice;

(ii) the performance of functions and the implementation of schemes as maybe entrusted to them including those in relation to the matters listed in the Twelfth Schedule;

(b) the Committees with such powers and authority as maybe necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.

• Twelfth Schedule [Article 243W of the Constitution (Seventy-Fourth Amendment) Act, 1992]:

1. Urban planning including town planning.

2. Planning of land-use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

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

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and upgradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.

15. Cattie pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

18. Regulation of slaughter houses and tanneries.

4.8 It transpires from above that the functions entrusted to a municipality as listed in the Twelfth Schedule include the functions like sanitation conservancy and solid waste management. We are therefore of the view that the applicant’s services to HMC may be exempted under serial number 3A of the Exemption Notification if the value of goods involved in such composite supply does not exceed 25% of the value of supply.

In view of the above discussions, we rule as under:

RULING

The applicant‟s supply to the Howrah Municipal Corporation for operation and maintenance of capacity portable compactor and hook loader is eligible for exemption from payment of tax vide serial number 3A of the Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017 (corresponding West Bengal State Notification No. 1136 – FT dated 28/06/2017), as amended from time to time, if the value of goods involved in such composite supply does not exceed 25% of the value of supply.

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