Reinstatement / Access charges paid to Municipal Authorities liable to GST: AAR

In re Reliance Infrastructure Limited (AAR Maharashtra)

Reliance Infrastructure Limited, the applicant, seeking an advance ruling in respect of the following :

1. Whether reinstatement charges paid to Municipal Authorities would be liable to GST?

2. Whether access charges paid to Municipal Authorities would be liable to GST?

Question

Whether reinstatement charges paid to Municipal Authorities would be liable to GST?

We deal with the question by looking at the arguments of the applicant. It has been contended that the service falls under entry 4 of Notification No. 12/2017 -Central / State Tax (Rate) dated 28.06.2017. We shall reproduce the said entry thus –

The entry covers services provided by a local authority. However, it has been specifically mentioned that the service has to be by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution. Article 243 W of the Constitution says‑

Article 243W in The Constitution Of India 1949

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 may be 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 may be 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 may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;

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

‘Roads’ is a matter listed in the Twelfth Schedule. So there is a function of a Municipality in relation to ‘Roads’. We have seen above that the Constitution defines “Municipality” as an institution of self-government. The function as entrusted by the Constitution in relation to ‘Roads’ is the construction of roads for the use by the general public. These are sovereign functions. The applicant is inter alm engaged in the business of generation, transmission and distribution of electricity. This calls for laying and maintenance of the power lines and other incidental work which requires the digging up of trenches. The Municipal Authorities grant the needful permissions. However, these permissions come with charges for restoring the street or pavement which has been dug up. Thus, the activity in the present case is the charges recovered by the Municipal Authorities to restore that portion of the street or pavement which has been dug up. It does not amount to construction of the entire road, as such. The copies of the application for undertaking excavation work reveal that the permission was sought and was granted for a trench of length/are of 10 mtrs. The function in relation to ‘Roads’ as entrusted by the Constitution does not entitle the Municipality, as the one performing the function, to receive any charges from anyone for doing the said work. It is by nature a sovereign function done for the community at large. These are governmental functions which are legislated to be performed by the Municipalities. Such functions are in the nature of performing works for The Public. In the present case, the business entities while performing their business activities request the Municipal Authorities to be allowed to dig up trenches for works such as laying or Repairing some cables or pipes. There are so many such entities such as the telephone, gas, etc. Each time each one of them digs up the road and there is restoration required to be done. This restoration work would not result in performing of the sovereign function. The sovereign function has already been performed by constructing the road or undertaking maintenance works of the roads. The restoration work can be equated neither to construction work nor to maintenance work as suo-niotu undertaken by the Municipal Authorities. The restoration charges are also not in the nature that the Municipal Authorities are performing any job of construction for the applicant. The street or pavement or road that is dug up is a general road. In view of all above, we are of the firm view that it should not be disputed that the recovering of charges for restoring the patches which have been dug up by business entities of the nature as the applicant cannot be equated to performing a sovereign function as envisaged under article 243 W of the Constitution.

Further, we find that there is specific entry in Notification No. 12/2017 -Central / State Tax (Rate) dated 28.06.2017 which reads as under –

In the above entry, it is very clear that if any services, including the three services excluded in clauses (a) to (c) of the above entry, are provided by the Government or focal authority to any business entity, they would not be eligible for any exemption under GST.

We find that the applicant has made a whole lot of arguments to hold that the recovering of charges for the restoration of the street or pavements amounts to a service activity in relation to a function entrusted to a municipality under article 243 W of the Constitution. However, we find that the arguments fail to make a point. As regards the case laws, we only observe that the facts and provisions aren’t in pari materia with those in the present case.

We find that there is no other entry in the Schedule contained in the Notification No. 12/2017 -Central / State Tax (Rate) for services exempted from GST which would cover the impugned transaction. Neither is a specific entry for the impugned transaction in the Notification No. 11/2017-Central/State Tax (Rate) for services taxable to GST at various rates. In view thereof, the residuary entry no.35 of the Notification No. 11/2017-Central/State Tax (Rate) covering service nowhere else classified” and attracting GST @IS% 19% each of CGST and MGST] would be applicable.

Question 2

Whether Acess charges paid to Municipal Authorities would be liable to GST?

The reinstatement charges apply towards restoration of excavation work on the roads carried out by the various business entities providing services such as gas, telephone, electricity, etc. The Guidelines for Trenching activity-2015 [No:AMC/ES/7725/11 Dated 18.12.2014 – policy guidelines for granting trench excavation permissions to underground service provider Utility agencies and Municipal agencies & the reinstatement of trenches] as provided by the applicant state that in addition to the regular RI charges, access charges for right of way will be recovered by MCGM from all utilities which lay underground services below MCGM roads. This statement helps to understand the position as respects MCGM [Municipal Corporation of Greater Mumbai]. That these charges would be exigible to GST is not doubtful even to the applicant and we agree with the same. However, the applicant has made a general query as regards access charges paid to Municipal Authorities. We have no further information than the receipt raised and the policy guidelines of MCGM. To determine whether it is a composite supply by Municipal Authorities, the available information is insufficient as the question posed is in respect of Municipal authorities in general and not any specific Municipal Authority with complete details and therefore is not answered.