The recipient is engaged in the development of irrigation and waterways, which includes activities in relation to the function listed under SI No. 5 of the Eleventh Schedule. Resuscitation of a river means reviving the water flow. It is, therefore, relatable to the function listed under SI No. 5 of the Eleventh Schedule, especially when undertaken by a department of the State Government, which is primarily entrusted to execute such functions. The Applicant’s service to the recipient, therefore, is exempt under SI No. 3A of the Exemption Notification.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, WEST BENGAL
1. Admissibility of the Application
1.1 The Irrigation and Waterways Directorate, Govt of West Bengal (hereinafter the recipient) has awarded the Applicant a contract for the resuscitation by re-excavation of river Palaspai from Banskhal to Mahisghata, along with raising and strengthening of embankment on both sides of the river in Block Daspur — 1 & 2 and P.S Daspur in Paschim Medinipur. The Applicant seeks a ruling on whether exemption under SI No. 3 or 3A of Notification No 9/2017 — Integrated Tax (Rate) dated 28/06/2017 (hereinafter the Exemption Notification), as amended from time to time, applies to the above supply.
1.2 The question is admissible under section 97(2)(b) of CGST Act 2017/WBGST Act, 2017 (hereinafter collectively called GST Act 2017) read with clause (xviii) of section 20 of IGST Act, 2017. The concerned officer from the Revenue has not objected to the admission of the application and informs that the question raised by the Applicant is not pending or decided in any forum.
1.3 The application is, therefore, admitted.
2. Submissions of the Applicant
2.1 SI No. 3 of the Exemption Notification exempts from payment of GST any “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 Governmental authority or a Government Entity 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. SI No. 3A of the Exemption Notification extends it to a “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.
2.2 The Applicant submits that the recipient is the State Government. He submits a price schedule that describes the work and its value. He argues that the work involves pumping out the water, earthwork in excavation and re-excavation of the drainage channels, services related to the disposal of the excavated material, compacting earthwork in the embankment and is pure service or a composite supply where the supply of goods is negligible. He claims that the work is an activity in relation to a function entrusted to a panchayat under Article 243G. In his support, the Applicant submits a copy of a communication from the recipient, certifying that no GST is deducted while paying the Applicant, as the recipient believes that the Exemption Notification applies to the Applicant’s supply.
3. Submission of the concerned officer from the Revenue
3.1 The concerned officer from the Revenue submits that the Exemption Notification applies to ‘pure service’ only. Description of the work as per the Price Schedule includes a reference to the supply of materials. The Exemption Notification is, therefore, not applicable to the Applicant’s supply.
4. Observations and findings of the Bench
4.1 In its Circular No. 51/25/2018-GST dated 31/07/2018 the Central Government clarifies that the service tax exemption at serial No. 25(a) of Notification No. 25/2012 dated 20/06/2012 (hereinafter the ST Notification) has been substantially, although not in the same form, continued under GST vide SI No. 3 and 3A of the Exemption Notification. SI No. 25(a) of the ST notification under the service tax exempts “services provided to the Government, a local authority or a governmental authority by way of water supply, public health, sanitation, conservancy, solid waste management or slum improvement and up-gradation.” The Circular further explains in relation to the specific issue of ambulance service to the Government by a private service provider (PSP) that such service is a function of ‘public health’ entrusted to Municipalities under Art 243W of the Constitution, and, therefore, eligible for exemption under SI No. 3 or 3A of the Exemption Notification.
4.2 The above Circular leaves no doubt that the phrase ‘in relation to any function’, as applied to SI No. 3 or 3A above, makes no substantial difference between SI No. 25(a) of the ST Notification and SI No. 3 or 3A of the Exemption Notification. Under the previous service tax regime, the exemption was limited to certain functions specified in SI No. 25(a) of the ST Notification, whereas, under the GST the ambit has been broadened to include any such functions that are performed by a panchayat or a municipality under specific provisions of the Constitution. These functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST under SI No. 3 or 3A of the Exemption Notification, provided it is a pure service or a composite supply where supply of goods does not constitute more than 25% of the value.
4.3 The Applicant’s eligibility under SI No. 3 or 3A of the Exemption Notification should, therefore, be examined from three aspects: (1) whether the supply being made is pure service or a composite supply, where supply of goods does not exceed more than 25% of the value of the supply, (2) whether the recipient is government, local authority, governmental authority or a government entity, and (3) whether the supply is being made in relation to any function entrusted to a panchayat or a municipality under the Constitution, as clarified in the above paragraphs.
4.4 The recipient is the State Government. The contract is meant for resuscitation of Palaspai River. It involves pumping out the water from the clogged channels, excavation of the drainage channels, lifting and deposit of the excavated materials to specified locations, and compacting earthwork for strengthening the embankment. Cost of supplying materials is included in the compacting cost. The supply of goods, however, does not constitute any significant portion in terms of value. As such, compacting, in the course of which goods are to be supplied, constitutes only 2% of the value of the contract. It is, therefore, a composite supply primarily of various services, principal supply being the service of resuscitation of the river, where the supply of goods constitutes well below the threshold mentioned in SI No. 3A of the Exemption Notification.
4.5 Before deciding the applicability of SI No. 3 or 3A of the Exemption Notification, the functions of a panchayat under the Constitution needs to be discussed. Article 243G of the Constitution discusses the powers, authority and responsibilities of Panchayats, stating that “Subject to the provisions of this Constitution the Legislature of a State may, by law, endow the Panchayats with such powers and authority and may be necessary to enable them to function as institutions of self-government subject to such conditions as may be specified therein, with respect to…….the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule”, which contains the following twenty-nine functional items:
|1||Agriculture including agricultural expansion|
|2||Land improvement, implementation of land reforms, land consolidation and soil conservation|
|3||Animal Husbandry, Dairying and poultry|
|5||Minor irrigation, water management and watershed development|
|6||Social forestry and farm forestry|
|7||Small scale industries in which food processing industry is involved|
|8||Minor forest produce|
|9||Safe water for drinking|
|10||Khadi, village and cottage industries|
|12||Fuel and fodder|
|13||Rural electrification, including distribution of electricity|
|14||Road, culverts, bridges, ferries, waterways and other means of communication|
|15||Education including primary and secondary schools|
|16||Non-conventional sources of energy|
|17||Technical training and vocational education|
|18||Adult and non-formal education|
|19||Public distribution system|
|20||Maintenance of community assets|
|21||The welfare of the weaker sections of the in particular of the scheduled caste and scheduled tribes|
|22||Social welfare, including the welfare of the handicapped and mentally retarded|
|24||Women and child development|
|25||Markets and Fairs|
|26||Health and sanitation including hospitals, primary health centres and dispensaries|
|29||Poverty Alleviation Programmes|
4.6 The recipient is engaged in the development of irrigation and waterways, which includes activities in relation to the function listed under SI No. 5 of the Eleventh Schedule. Resuscitation of a river means reviving the water flow. It is, therefore, relatable to the function listed under SI No. 5 of the Eleventh Schedule, especially when undertaken by a department of the State Government, which is primarily entrusted to execute such functions.
4.7 The Applicant’s service to the recipient, therefore, is exempt under SI No. 3A of the Exemption Notification.
Based on the above discussion, we rule as under,
The Applicant’s supply to the Irrigation and Waterways Directorate, Govt of West Bengal, as mentioned in para 1.1, is exempt from the payment of GST under SI No. 3A of Notification No 9/2017 — Integrated Tax (Rate) dated 28/06/2017, as amended from time to time.