CLASSIFICATION OF SERVICES TO JAIPUR SMART CITY LTD. AND GST APPLICABILITY UNDER NOTIFICATION NO. 11/2017 -CT (RATE)”-GST AAAR RAJASTHAN
RAJASTHAN APPELLATE AUTHORITY FOR ADVANCE RULING
GOODS AND SERVICES TAX
Before the Bench of:
l. Sh. Mahendra Ranga, Member (Central Tax)
2. Dr. Ravi Kumar Surpur, Member (State Tax)
Case Title :- M/S Lakhlan and Qureshi Construction
(GST AAAR RAJASTHAN)
Appeal No. RAJ/AAAR/APP/01/2022-23
Advance Ruling No. RAJ/AAR/202122/31 dated 15.12.2021
Date of Judgement/ Order:- 8th December 2023
BRIEF OF FACT
Para No. 3.1 The appellant are a partnership firm and a civil contractor engaged in construction of roads, buildings, civil structures or various other civil works as awarded from various Governmental and non-Governmental organizations.
Para No. 3.4.5. Recovery of such road cutting charges by the Appellant from M/S JSCL is liable to GST at the rate 18% (i.e., 9% CGST and 9% SGST). As per clause (c) of sub-section (2) of Section 15 of CGST Act, 2017, any incidental expenses charged by the supplier to the recipient shall be included in the value cf supply. Only exclusion to that is reimbursement of expenses done by the service provider in the capacity of pure agent. In the present case, the appellant does not satisfy the conditions for qualifying as a pure agent and therefore the recovery of road cutting charges from M/S JSCL shall be included in transaction value and liable to GST.
RULING
Para No. 9.6.3.5 In light of the above discussion, we are of the view that M/S Jaipur Smart City Limited is a limited company incorporated under the Companies Act. 2013 in which the Rajasthan State Government and the Jaipur Nagar Nigam (local Authority/ULB) are the promoters having 50:50 equity shareholding. note that Jaipur Nagar Nigam being a local authority is also an extension of the Government as it is a Municipal Corporation incorporated by Rajasthan State Government under “The Rajasthan Municipalities Act, 2009”. The officers of Jaipur Nagar Nigam also officiate as one of the Directors in M/S JSCL. This substantiates more than 90% control of the Government by way of participation; therefore, we hold that M/S JSCL are covered under Governmental Authority as defined in the explanation to clause (16) of Section 2 of the IGST Act, 2017.
Para No. 10.3 We note that as per the Letter of Acceptance dated 18.02.2021 issued by M/S JSCL to the appellant, the work to be undertaken by the appellant for M/S JSCL is ‘fire fighting system with pump house in ABD Area Jaipur’
Further, we have also perused the Bid Reference No. JSCL/Works/02/2020-21 for tender awarded to the appellant which encapsulates the Scope of Work of the contractor/appellant. As per the scope of work, the work undertaken/to be undertaken by the appellant also included
- All equipment and sensors supply, installation, testing and commission including 5 years O&M is in the scope of contractor.
- All the civil, mechanical/Electrical work required to complete the scope of contractor.
- To construct 200 KL underground water tank and pump room.
- Excavation work including 20 KM carriage distance is in contractor scope.
On examining the scope of work in the Bid, it is clear that the work undertaken by the appellant is in the nature of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works.
This shows that the work undertaken by the appellant falls under the ambit of services provided to a Governmental Authority by way of construction. erection, commissioning, installation, completion, fitting out, repair, maintenance. renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession.
Para No. 12.4 In the present case, we observe that services of granting permission/NOC for road cutting were provided by the Local Authority i.e. Jaipur Nagar Nigam (municipality) for a consideration the business entity i.e. M/S Lakhlan & Qureshi Construction Company (appellant) and not to M/S JSCL. Hence, the appellant being a recipient of the services are liable to pay GST for the charges paid to Jaipur Nagar Nigam under reverse charge mechanism. The activity of giving permission for road cutting is not mentioned in the list of works as provided under Article 243 W of the Constitution entrusted to a Municipality.
Thus, we hold that clause (b) of sub-section (2) of Section 7 of CGST Act, 2017 read with Notification No. 14/2017-Central Tax ( Rate) dated 28.06.2017 as amended by Notification No. 16/2018 – Central Tax (Rate) dated 26.07.2018 is not applicable in this case. Therefore, the appellant are liable to pay GST l a) 1 80 e 90 CGST + 9% SGST) as a recipient under RCM.
Para No. 13.4. I We note that the pure agent has been defined in Rule 33 of CGST Rules. 2017 which reads as:-
“Rule 33. Value of supply of services in case of pure agent. –
Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely. –
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient:
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
Explanation:- For the purposes of this rule, the expression “pure agent” means a person who-
(a) enters into a contractual agreement with the recipient of supply Lo act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both:
(b) neither intends to hold nor holds any title to the goods or services both so procured or supplied as pure agent of the recipient of supply;
(c) does not use tor his own interest such goods or services so procurecl; and
(d) receives only the actual amount incurred to procure such goods -or services in addition to the amount received for supply he provides cn his own account.”
ORDER
In light of the above discussion and findings, we hold that
(1) M/S Jaipur Smart City Limited are covered under Governmental Authority as defined in the explanation to clause (16) of Section 2 of the JGST Act, 2017.
(2) The supply related to ‘fire fighting system with pump house in ABD Area & Purohi!ji ka Katla including 5 years Operating & Maintenance installation provided by the appellant to M/S JSCL is considered as supply of services provided to the Governmental Authority and are covered under Item number (VI) in Column (3) of serial number 3 of Notification No. 11/2017 — Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017
(3) The said services are liable to attract GST (a 12% (i.e. 6% CGST & 6% SGST) during the contracted period only up to 31.12.2021 as after that in column no. (3 of Serial No. 3 ofNotification No. 11/2017 — Central Tax (Rate) dated 28.06201the words “a Governmental Authority or a Government Entity” have been omitted vide Notification No. 22/202] – Central Tax (Rate) dated 31.12.2021 w.e.f. 01.01.2022.
(4) In respect of amount paid as NOC for road cutting to Jaipur Nagar Nigam, Clause (b) of sub-section (2) of Section 7 of CGST Act, 2017 read with Notification No. 14/2017-Central Tax ( Rate) dated 28.06.2017 as amended by Notification No. 16/2018 – Central Tax (Rate) dated 26.07.2018 is not applicabe in this case. Therefore, the appellant are liable to pay GST @18% ( i.e. 9% CGST + 9% SGST) as a recipient under RCM.
(5) The appellant are liable to pay GST on recovery of road cutting charges frolT1 M/s JSCL (i.e. 9% CGST + 9% SGST)..
