AAAR, Rajasthan has pronounced judgment on 14.12.2021, in the case of Consulting Engineers Group Ltd. (2022) 37 J.K.Jain’s GST & VR 173, that;

‘Project Management Consultancy’ services provided to Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation (RUDSICO) under Rajasthan Secondary Towns Development Sector Project, where Invoice is raised by the Applicant to the Leading Member, who further raise invoice to RUDSICO of complete amount, can not be termed as “Pure Services” as referred in S.No.3 (Chapter 99) of Table per notfn No.12/2017-CT(R) dated 28.6.2017 and accordingly not eligible for exemption from CGST/SGST’.

1. Background. The applicant has contended that The “Project Management & Consultancy services” provided by the Applicant has no component of supply of goods and is eligible to be a Pure Service.

Considering the definitions of Governmental Authority and the facts of RUDSICO. RUDSICO qualifies to be a ‘Governmental Authority’, with more than 90 percent of State Govt. equity.

The services provided by the Applicant to RUDSICO is Project Management & Consultancy Services is in relation to Rajasthan Sector Towns Development Sector Project (RSTDSP) for rehabilitation and expansion of water supply network, rehabilitation and expansion of sewerage network, modernization and construction of new water supply and wastewater treatment plants which is listed in Twelfth Schedule to Article 243W of the Constitution.

Considering the abovementioned, the PMC services provided by the Applicant to RUDSICO is a “Pure Service” eligible for exemption under notfn No.12/2017-CT(R) dated 28.6.2017, irrespective of the way of raising Invoice as stated in the Joint Venture Agreement.

2. Findings by AAAR. Appellant observed that they are entitled to the notfn No.12/2017-CT(R). The relevant portion of the notfn No.12/2017-CT(R) dated 28.6.2017 is reproduced as under:

“In exercise of the powers conferred by S.11(1), CGST Act, 2017, the Central Govt. [.1.],  [.2.], hereby exempts the intra-State supply of services of description as specified in  column (3)  of the  Table  below from  so  much  of the central tax leviable thereon u/s 9(1), said Act,  as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless  specified  otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:–

S. No. Chapter Description of Services Rate
(1) (2) (3) (4)
3 Chapter

99

Pure   services (excluding   works contract service or other composite supplies  involving  supply  of any goods) provided   to   the   Central Govt.,  State  Govt. or Union territory or local authority or a Governmental authority by way of any activity   in   relation   to   any function  entrusted to  a  Panchayat under Art.243G of the Constitution  or in  relation  to  any function entrusted to a Municipality u/Art. 243W, Constitution. Nil

AAAR observed that the following three conditions are to be fulfilled to be eligible for taking the benefit of the exemption from GST under the above notfn:–

(i)   Pure services are to be provided.

(ii)  Such services provided should be 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; and

(iii) Service recipient should either be Central Govt. or State Govt.  or  Union  territory  or  Local  authority  or  Governmental authority.

AAAR observed that AAR Rajasthan  held (2021) 36 J.K. Jain’s GST & VR 352 that both the conditions (i) and (ii) as mentioned above are satisfied here, therefore, main dispute to be decided by this forum is whether recipient of the service viz., RUDSICO qualifies as “Governmental authority” or not. The definition of “Governmental Authority” as pert notfn No.12/2017-CT(R) dated 28.6.2017 is as under:–

Governmental Authority” means an authority or a board or any other body,–

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Govt., with 90 per cent or more participation by way of equity or control, to carry out any function entrusted to a Municipality under Article 243W of the Constitution or to a Panchayat under Article 243G of the Constitution.

3. Analysis by AAAR.─As submitted by the appellant, total authorized capital of RUDSICO is Rs.50 crores and the paid-up capital is Rs.48.67 crore. Appellant has further submitted the bifurcation of paid-up capital which is reproduced as under:–

S.

No.

Name  of Shareholder No. of Shares per Amt. per share Share capital in Rupee Percentage Holding
1. Govt. of Raj. through Governor of Raj. 40991693 10 409916930 99.99%
2. Rajasthan Housing  Board (RHB) 3916403 10 39164030
3. Jaipur Development Authority (JDA) 3760800 10 37608000
4. Others 1099 10 10990 0.01%
TOTAL 48669995 10 486699950

AAAR found that out of total paid up capital of Rs. 48.67 Crore, only Rs.40.99 Crore holding is with Govt. of Raj. through Governor, which is less than 90%. The appellant main contention is that the RHB and JDA are also Govt. entities as both have 90% holding of Rajasthan Govt. In this regard, our opinion is that to satisfy as Govt. authority more than 90% holding of equity should be with only “Govt.” not with any other entity established by the Govt.  As per S.2(53), CGST Act, 2017 “Govt.” means the Central Govt. In RGST Act, 2017 “Govt.” means the Govt. of Rajasthan. Further, as per S.3(23), General Clauses Act, 1897 the ‘Govt.’ includes both the Central Govt. and any State Govt.

RUDSICO is not a Governmental Authority AAAR Rajasthan

Further, as per S.3(8), General Clauses Act, 1897, the ‘Central Govt.’, in relation to anything done or to be done after the commencement of the Constitution, means the President.

As per Article 53 of the Constitution, the executive power of the Union shall  be  vested  in  the  President and  shall  be exercised  by him  either directly or indirectly through  officers subordinate to him  in accordance with the Constitution. Further, in terms of Article 77 of the Constitution, all executive actions of the Govt. of India shall be expressed to be taken in the name of the President. Therefore, the Central Govt. means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President. Similarly, as per S.3(60), General Clauses Act, 1897, the ‘State Govt.’, as respects anything done after the commencement of the Constitution, shall be in a State the Governor,  and  in  an  Union  Territory  the  Central  Govt.  As  per Article 154 of the Constitution, the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or indirectly  through  officers  subordinate  to  him  in  accordance  with  the Constitution. Further, as per Article 166 of the Constitution, all executive actions of the Govt. of State shall be expressed to be taken in the name of Governor. Therefore, State Govt. means the Governor or the officers subordinate to him who exercise the executive powers of the State vested in the Governor and in the name of the Governor.

4. Ruling. In view of above discussion, AAAR found that (holding of equity control of RUDSICO by JDA and RHB cannot be treated as   holding of equity control by Govt.) Accordingly, AAAR held that RUDSICO is not a Governmental Authority. Therefore, appellant is not eligible for exemption under notfn No.12/2017-CT(R) dated 28.6.2017.

Author Bio

Qualification: LL.B / Advocate
Company: self
Location: Jaipur, Rajasthan, India
Member Since: 08 Apr 2020 | Total Posts: 55
I am s/o J.K.Jain , Jaipur & is Writer & Analyst of Fortnightly magazine "J.K.Jain's GST & VR". Extended Consultation work of GST. Expert in Commentary of GST/VAT. My e-mail ID is opjain02@yahoo.co.in & Tel No. is 9414300730/9462749040. Analytical interpretation of GST Act/Rules a View Full Profile

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