GST payable on web based spot billing & collection of payment services for water supply

in re  BCITS Pvt Ltd (GST AAR Haryana)

BCITS Pvt Ltd (GST AAR Haryana) provides taxable services, including water billing software and database maintenance, to Municipal Corporation Gurugram.

It is observed that in the present matter the water distribution system is under the control of Municipal Corporation, Gurugram. The function of water supply to the public at large has been entrusted to MCG by the Government of Haryana. In the notification no. 12/2017 CT (Rate) dated 28.06.2017 nil rate of tax is applicable on pure services provided to the Local Authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution of India. The functions are listed in the 12th Schedule of the Constitution (Under Article 243 W). In the present matter, MCG has further sought services related to activities of design and development electronic billing and distribution of the bills and collection system for water supply and sewerage bills from the applicant. These services includes spot billing i.e. taking reading, generation and delivery of the bills to the end consumers and AMC of the software to the applicant i.e. M/s BCITS Pvt. Ltd. The manpower is also provided by the applicant for the said activity.

The nature of services rendered by the applicant is like a software tool operated by its staff. The said services include creation and maintenance of data base of the consumers and the web based spot billing and collection of payments on behalf of Municipal Corporation. These services cannot be termed as pure services as defined under the provisions of the GST Act, 2017. So, these are not covered in the clause 5 of 12th Schedule i.e. water supply for domestic, industrial and commercial purposes. This function of water supply has been entrusted to a Municipality under Article 243W of the Constitution of India and these services provided by the applicant to the MCG are not in relation to the water distribution system per se.

Water supply system necessarily requires procurement, transmission and supply of water to the consumers and meter installation but these functions are being done by the MCG. Whereas the applicant has provided the software services along with manpower to the MCG for the support of water distribution services. It enhances the effectiveness of the services provided by the MCG to the consumers (public at large).

The main function of water distribution services is of MCG and the same can be considered as pure services. But the services received by MCG from the applicant are not in the nature of Pure Services and not the support services as these are support services and not in relation to any function which is entrusted to the MCG. The goods (tangible and Intangible) and services provided by the applicant cannot be regarded as an integral part of the water distribution system itself. These are add on activities. The definition of the Scope of Supply and Business under the CGST Act, 2017 is quite extensive. The taxability of any supply of goods and services is covered under these definitions. There should be an express/explicit provision for the availment of any exemption under the CGST Act, 2017. Exemptions are not optional and the conditions/constrained prescribed under the provisions must be fulfilled. And in the present case, it is clearly observe that the said services provided by the applicant to the MCG are not part and parcel of the water supply system.

So, it is concluded from the above discussion and legal provisions that the services provided by the applicant to MC, Gurugram is a taxable supply.

1. Engagement of system integrator for implementation water revenue management system, creation and maintenance of database, spot billing/meter reading and bill distribution (MRBD) services for water supply & sewerage connections under the jurisdiction of Municipal Corporation, Gurugram is covered under which SAC of the GST Act, 2017?

SAC Code 998633

2. Determination of the liability to pay tax on the above services means the rate of output tax liability on above mentioned services?

18%

3. Is this service exempt under clause 3 of notification 12/2017 dated 28.06.2017?

No.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, HARYANA

APPLICANT’S ELIGIBILITY FOR SEEKING AN ADVANCE RULING

To file an application before the Authority of Advance Ruling, the applicant must satisfy the conditions prescribed under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act, 2017) and Haryana Goods and Services Tax Act, 2017 (hereinafter referred to as HGST Act, 2017). Since the provisions of both the Acts are parimateria, any reference to provisions of CGST Act, 2017 in this order should be construed as a reference to corresponding provisions of the IGST Act, 2017/HGST Act, 2017 as well.

Sections 97(2) of the CGST Act, 2017 prescribes that Advance Ruling may be sought inter alia on the question of (b) Applicability of a notification issue under the provisions of this Act. (e) Determination of the liability to pay tax on any goods or services or both, (g) Whether any particular thing done by the applicant with respect to any goods and/or services or both amounts to or results in a supply of goods and/or services or both, within the meaning of that term.

Proviso with reference to the Section 98(2) of CGST Act, 2017 states that where the questions raised in the application is already pending or decided in any proceedings in the case of the applicant under any provision of this Act, the application may be rejected by the Advance Ruling Authority after providing an opportunity of being heard to the applicant. And in this case, the applicant has undertaken in form ARA-01 that the issue is neither pending nor decided in any proceedings under any of the provisions of the Act. Besides the applicable fees in the case has also been deposited. So, he is eligible to seek an Advance Ruling under the above provisions and the case is being heard on merits.

Statement of facts as per ARA-01

The applicant is a registered taxpayer under CGST Act, 2017 with GSTIN no. 06AACCB4891M1ZB. They are providing maintenance of Data base, spot billing, meter reading and bill distribution services to the Municipal Corporation, Gurugram for water supply and sewarge connections. A person is deputed area wise and provide an android device like mobile phone and printer. He visits every house in that area and generates the water bill by taking the reading in water meter and will hands over the bill to the consumer. The company provides software to install in the mobile phone to enable the consumers to generate the bills. The scope of work includes all the services of Water Revenue Management System. The details is briefed as following:-

• Creation and Maintenance of Database.
• Generate data for Spot billing of Water Supply & Sewerage Connections.
• Bills generated through Spot Billing.
• Web based Software provided for spot billing & collection of payments through various mechanisms such as cash collection counters, E-Payment, RTGS, NEFT, etc.

The applicant has received a Work Order from Municipal Corporation Gurgaon (Haryana) for “engagement of system integrator for implementation water revenue management system, creation and maintenance of database, spot billing/meter reading and bill distribution (MRBD) services for water supply & sewerage connections under the jurisdiction of municipal corporation Gurugram. We are providing maintenance of database, spot billing, meter reading & bill distribution service for water supply & sewerage connections to Municipal Corporation of Gurgaon.

Additional detailed note submitted by the applicant on the matter (dated 30.09.2022):-

The Software offers a complete solution .for water consumer billing and revenue management needs. It takes care of every detail, provides a quality solution in the water Distribution Department. The entire system is WEB and APP based. An online Spot Water Billing Process System has been developed with a view to generate consumer’s bills and to maintain centralized database of billing related data of consumers so that various types of MIS and consolidated / detailed reports can be generated at a glance on anytime and anywhere basis. Recently, the system had used to generate around 2.1 Lacs bills in Office of Municipal Corporation of Gurugram (Haryana).

The main modules of the system are:-

1. Bill generation module

2. Comprehensive MIS

3. Consumer Pay Bill

4. New Connection Management system

5. Apply Online Name Change of consumer system

6. Information’s of Software

7. Billing

8. Metering

9. Collection and Reconciliation

10. Consumer Information system

11. Disconnection and Reconnecting Management

12. Mobile Device management system

13. Mobile App (Spot Billing), Consumer Mobile App

Bill generation module is the core module of the system to read the data from master file and all relevant transaction data of a particular consumer. It calculates process and generate bill of each consumer as per the defined rules. Bill can also be generated in a batch mode for sub division and cycle wise.

Comprehensive MIS

Various types of MIS reports can be generated to cater the need of top level officers of accounts department of MCG. The list of some of the important MIS reports is as follows:-

1. Revenue assessment and realization during the year for water and Sewerage charges, fixed charge, meter reading, interest on outstanding dues, rebate charges, dues, other charges, outstanding of last month and total outstanding.

2. Revenue collection details category wise having total Consumers, total Billed Consumers, water Sales in units of previous and current year.

3. Outstanding revenue details reports for circles, divisions, sub division office, category wise and slab wise can also be generated. System generated detailed reports includes: Outstanding List/Collection Report/Meter Testing Report/Cash Report/Ledger Extract Details Report/New connection Report/Financial Year wise Report/Reading Report/Defaulter Notice

The applicant’s interpretation of the provisions with reference to the Activity done by him:-

Our service is a pure service and covered in serial no. 3 of the notification no. 12/2017 CT (Rate) dated 28.06.2017 and is covered under clause (5) of the Municipal functions as enumerated in the Twelfth Schedule of the Article 243 W of the Constitution of India. The aforesaid clause reads as “5. Water supply for domestic, industrial and commercial purposes.”

Municipal Corporation of Gurgaon is a local authority and is entrusted with Municipal functions under article 243W of the Constitution.

In Our opinion, this Service is covered under notification no. 12/2017 CT (Rate) dated 28.06.2017 under Sr.No.3 because of Carrying out any activity in relation to any function ordinarily entrusted to a Municipality in relation to Water supply for domestic, industrial and, commercial purposes, Public health, sanitation conservancy, Solid Waste Management. In service tax regime we were doing same types of works contract and in that regime our activity was treated as Nil Tax rated activity i.e. exemption was provided under the service tax regime. Appellate Authority CGST-APPE-II-Bengaluru (Karnataka) has considered the TRM service as component of water supply service as per the service tax exemption notification no. 25/2012-ST, dated 20.06.2012.

Queries on which Advance Ruling has been sought:-

1. Engagement of system integrator for implementation water revenue management system, creation and maintenance of database, spot billing/meter reading and bill distribution (MRBD) services for water supply & sewerage connections under the jurisdiction of Municipal Corporation, Gurugram is covered under which SAC of the GST Act, 2017?

2. Determination of the liability to pay tax on the above services means the rate of output tax liability on above mentioned services?

3. Is this service exempt under clause 3 of notification 12/2017 dated 28.06.2017?

Personal Hearing:-

Sh. Satnayaran (Senior Manager) of the firm and POA holder presented the case in person before the authority. He explained the nature of services in detail. Further the authority has sought a detail write up on the issue at hand i.e. scope of work and he has also sent a video clip regarding the execution of the water billing system by his employees to the consumers. Whereas the Jurisdictional officer has submitted her comments in writing and stated that the said services may be considered as pure services.

DISCUSSION AND FINDING:

The case is being perused in detail by the authority. It is observed that in the present matter the water distribution system is under the control of Municipal Corporation, Gurugram. The function of water supply to the public at large has been entrusted to MCG by the Government of Haryana. In the notification no. 12/2017 CT (Rate) dated 28.06.2017 nil rate of tax is applicable on pure services provided to the Local Authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution of India. The functions are listed in the 12th Schedule of the Constitution (Under Article 243 W). In the present matter, MCG has further sought services related to activities of design and development electronic billing and distribution of the bills and collection system for water supply and sewerage bills from the applicant. These services includes spot billing i.e. taking reading, generation and delivery of the bills to the end consumers and AMC of the software to the applicant i.e. M/s BCITS Pvt. Ltd. The manpower is also provided by the applicant for the said activity. The detail of each aspects of the issue at hand has been examined by the authority.

The relevant provisions under the CGST Act, 2017 are as under:-

Section 2(17) ”business” includes,-

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

[(h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and]

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;

2(31) “consideration” in relation to the supply of goods or services or both includes,-

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Section 2(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

Section 2(105) “supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;

Section-7 Scope of supply.- (1) For the purposes of this Act, the expression “supply” includes,-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; [and]

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

(2) Notwithstanding anything contained in sub-section (1),-

(a) Activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

In common parlance, a water distribution system is a part of water supply network with components that carry potable water from a centralized treatment plant or tubewells to the consumers. It also includes the water supply for commercial, industrial and fire fighting requirements.

Further, the Government has notified the list of services or activities which are exempted under the GST Act 2017. Relevant entry no. 3 of Pure Services in the exemption notification dated 12/2017-CT(R) which got amended on 18.11.2021 w.e.f. 01.01.2022 is as: 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 243 G of the Constitution or in relation to any function entrusted to a Municipality under Article 243 W of the Constitution.

From this, it can be construed that for any supply to be covered under the Pure Services if there is no supply of goods and the recipient should be Central government/State government/Union territory/ Local Authority and services should be 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 243 W of the Constitution.

From the above mentioned legal provisions and factual aspects of the case, it can be said that whatever services (as per article 243 W of the constitution) the Municipal Corporation, Gurugram renders to the Public at large is exempted but all the services which are received/availed by the MCG is not covered under the exemption notification no. 12/2017 CT (Rate) dated 28.06.2017.

The nature of services rendered by the applicant is like a software tool operated by its staff. The said services include creation and maintenance of data base of the consumers and the web based spot billing and collection of payments on behalf of Municipal Corporation. These services cannot be termed as pure services as defined under the provisions of the GST Act, 2017. So, these are not covered in the clause 5 of 12th Schedule i.e. water supply for domestic, industrial and commercial purposes. This function of water supply has been entrusted to a Municipality under Article 243W of the Constitution of India and these services provided by the applicant to the MCG are not in relation to the water distribution system per se.

Water supply system necessarily requires procurement, transmission and supply of water to the consumers and meter installation but these functions are being done by the MCG. Whereas the applicant has provided the software services along with manpower to the MCG for the support of water distribution services. It enhances the effectiveness of the services provided by the MCG to the consumers (public at large).

The main function of water distribution services is of MCG and the same can be considered as pure services. But the services received by MCG from the applicant are not in the nature of Pure Services and not the support services as these are support services and not in relation to any function which is entrusted to the MCG. The goods (tangible and Intangible) and services provided by the applicant cannot be regarded as an integral part of the water distribution system itself. These are add on activities. The definition of the Scope of Supply and Business under the CGST Act, 2017 is quite extensive. The taxability of any supply of goods and services is covered under these definitions. There should be an express/explicit provision for the availment of any exemption under the CGST Act, 2017. Exemptions are not optional and the conditions/constrained prescribed under the provisions must be fulfilled. And in the present case, it is clearly observe that the said services provided by the applicant to the MCG are not part and parcel of the water supply system.

So, it is concluded from the above discussion and legal provisions that the services provided by the applicant to MC, Gurugram is a taxable supply.

7. Ruling: –

Note: An Appeal against this advance ruling order lies before the Haryana Appellate Authority for Advance Ruling for Goods and Service Tax Haryana Vanijya Bhawan, Plot No. 1-3, Sector 5, Panchkula-134 151 (Haryana), within 30 days from the date of service of this order.