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Municipal Corporation Pratapgarh, In Re
Structured Summary of the Advance Ruling — Municipal Corporation Pratapgarh
Factual and Procedural Background
The applicant is the Municipal Corporation Pratapgarh (Nagar Parishad office, Near Bus Stand, District-Pratapgarh, Rajasthan), a registered person under GST (GSTIN 08AAALM1891K1DY). The applicant sought an advance ruling under Section 97(2) of the CGST Act, asserting that the question falls within clauses (a), (e) and (g) of Section 97(2): classification of goods and/or services; determination of liability to pay tax; and whether particular acts amount to supply.
The applicant stated that it receives various services from contractors for cleaning roads, gardens, toilets and waste collection, frequently under arrangements described as "rate basis," and sought clarity on whether such services (noted as functions under Article 243W of the Constitution) are taxable or exempt. The authority admitted the application for an advance ruling because the applicant was a registered person and the issue was neither pending in other proceedings nor already decided by any authority.
A personal hearing was granted on 01.03.2019, at which authorised representatives of the applicant reiterated the application. The jurisdictional officer (Assistant Commissioner, CGST Division-G) submitted comments by letter dated 22.02.2019 stating that pure services provided to a government or local authority by way of activities entrusted to a Municipality under Article 243W are chargeable at Nil rate under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Legal Issues Presented
- Whether the classification of the services/goods received by the applicant falls within the scope of GST exemptions or nil-rating under the notifications referenced (i.e., classification of goods and/or services).
- Determination of the liability to pay tax on the services/goods received by the applicant (whether the services are taxable or exempt/nil-rated).
- Whether particular activities performed for the applicant by contractors amount to or result in a supply of goods or services within the meaning of GST law.
- Whether services received by the applicant on a "rate basis" in relation to Article 243W functions are taxable or exempt (explicit applicant query).
- Whether the applicant, as a local authority, is required to operate Tax Deduction at Source (TDS) under Section 51 of the CGST/SGST Act in respect of payments to suppliers, depending on whether the activities are taxable.
Arguments of the Parties
Applicant's Submissions
- The Municipal Corporation Pratapgarh is a local authority constituted under Article 243W of the Constitution.
- It receives various contractor services for civic functions (cleaning roads, gardens, toilets, waste collection) often on a "rate basis."
- The applicant is uncertain and seeks clarification whether such services received on a rate basis — which relate to Article 243W functions — are taxable or exempt under GST law.
- The applicant is registered under CGST and SGST and sought an advance ruling; its authorised representatives attended the personal hearing and reiterated the application submissions.
Comments of the Jurisdictional Officer
- The jurisdictional officer asserted that pure services provided to Central/State/Union territory/local authority or governmental authority by way of activities entrusted to a Municipality under Article 243W are chargeable at Nil rate of GST as per Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The authority's analysis proceeded in discrete steps based on the facts and notifications cited in the application and comments:
- Characterisation of the applicant: The Municipal Corporation is a local authority under Article 243W and provides civic services directly or by engaging contractors for activities such as cleaning roads, gardens, toilets and waste collection.
- Nature of supplies: The authority observed that services received by the applicant are sometimes "pure services" but often composite supplies involving both services and goods (e.g., construction of toilets involves both manpower services and goods such as bricks and pipes).
- Mapping to Twelfth Schedule activities: The authority examined Article 243W / the Twelfth Schedule and identified entries (for example: roads and bridges; provision of urban amenities; public health and sanitation; promotion of cultural, educational and aesthetic aspects; public amenities including public conveniences) that encompass the applicant's activities, thereby confirming these activities fall within functions entrusted to a Municipality.
- Application of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:
- Serial No. 3 of the Notification grants Nil rate for "pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to ... local authority ... by way of any activity in relation to any function entrusted to a Municipality under Article 243W."
- Serial No. 3A provides Nil rate for composite supplies of goods and services where the value of goods does not exceed 25% of the total value of the composite supply, provided the supply is to a government/local authority in relation to Article 243W functions.
- Threshold and factual difficulty: The authority concluded that where supplies are composite, the exemption depends on whether the value of goods exceeds 25% of the composite supply. It found it difficult to determine the quantum/value of goods from the applicant's submissions because the proportion of goods to services depends on the specifics of each contract/activity and may change during the term of an agreement.
- TDS (Section 51) analysis: The authority examined Section 51 of the CGST/SGST Act (TDS provision) and the subsequent notification appointing the date of its applicability for specified entities. It determined that the applicant, as a local authority, falls within the class of persons who may be mandated to deduct TDS under Section 51, but this obligation arises only if the activities/payments are taxable (i.e., not Nil rated/exempt).
- Conclusion of application of law to facts: Combining the above, the authority reasoned:
- If the services are pure services covered by the Notification entry (i.e., pure services in relation to Article 243W functions), they are Nil rated and therefore no GST/TDS applies.
- If supplies are composite and the value of goods is not more than 25% of the composite supply, they are Nil rated and no GST/TDS applies.
- If supplies are composite and the value of goods exceeds 25%, GST will apply (the ruling refers to applicable rates depending on whether the activity falls under a specified notification entry — identifying 12% (6% CGST + 6% SGST) in certain circumstances or 18% (9%+9%) otherwise), and in such a case TDS provisions will also be applicable because the activity is taxable.
Holding and Implications
Core Ruling: The advance ruling declares the tax treatment and TDS consequences for the applicant's receipts from contractors, as follows:
- Pure services received by the Municipal Corporation in relation to functions entrusted under Article 243W attract Nil rate of GST; consequently, provisions of GST TDS are not applicable.
- Composite supplies of goods and services where the value of goods is not more than 25% of the total value of the composite supply (and the supply is to a local authority in relation to Article 243W functions) attract Nil rate of GST; consequently, provisions of GST TDS are not applicable.
- Composite supplies where the value of goods exceeds 25% of the total value of the composite supply will attract GST: the ruling notes GST at 12% (SGST 6% + CGST 6%) if the activity falls under the purview of the relevant notification entry referenced by the authority, otherwise GST at 18% (SGST 9% + CGST 9%) will apply. In such taxable cases, provisions of GST TDS under Section 51 will be applicable to the applicant.
Implications for the parties:
- The direct legal effect is that the Municipal Corporation must assess, on a contract-by-contract basis, the composition of supplies (pure service vs composite and the percentage share of goods) to determine GST liability and whether it is required to deduct TDS.
- If supplies are nil-rated under the relevant notification entries (pure services or composite with goods ≤ 25%), the Corporation is not required to operate GST TDS for those supplies.
- If supplies are taxable (composite supplies with goods > 25% or otherwise falling outside the nil entries), the Corporation must apply the stated GST rates and comply with TDS obligations under Section 51.
- The opinion does not announce any broader legal precedent beyond the application of existing notifications and statutory provisions to the facts of this applicant; it resolves the taxability and TDS consequences for the applicant's described activities only.
This summary is derived exclusively from the text of the provided advance ruling and does not introduce information beyond that opinion.
1. The issue raised by Municipal Corporation Pratapgarh, situated at Nagar Parishad office, Near Bus Stand, District-Pratapgarh, Rajasthan 312605, (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2)(a), (e) and (g), given as under:
a. classification of goods and/or services or both;
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 or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
2. Further, the applicant being a registered person (GSTIN is 08AAALM1891K1DY, as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.
1. SUBMISSION AND INTERPRETATION OF THE APPLICANT:
a. The applicant is Municipal Corporation of Pratapgarh district i.e. constituted as a local authority as mentioned in article 243W of Constitution of India.
b. The applicant is receiving various services from various contractors for cleaning of road, garden, toilets and waste collection. As most of the services received are under article 243W of Constitution of India but these services are on rate basis. The applicant is not able to clarify whether the above mentioned services received on rate basis mentioned in article 243W are taxable or exempted.
c. The applicant is registered under the provisions of the Central Goods and Services Tax Act, 2017 read with the provisions of the Rajasthan State Goods and Services Tax Act, 2017 in Division-G of CGST Udaipur Commissionerate.
2. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT
3. PERSONAL HEARING
In the matter personal hearing was granted to the applicant on 01.03.2019 at Room no. 2.29 NCRB, Statue Circle, Jaipur. Shri Pradeep Patidar and Shri Mukesh Mohil (Authorised Representative) of applicant appeared for PH. during the PH, he reiterated the submissions already made in the application. He further requested that the case may be decided at the earliest.
4. COMMENTS OF THE JURISDICTIONAL OFFICER
The jurisdiction officer (Assistant Commissioner, CGST Division-G, Plot Number 168-172, Sector-4, Gandhinagar, District-Chittorgarh 312001) has submitted his comments vide letter dated 22.02.2019 which can be summarized as, the supply of pure services to Central Government, State Government or Union territory or local authority or a Governmental Authority by 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 are chargeable to Nil rate of GST as mentioned in Notification No. 12/2017-Central Tax(Rate) dated 28.06.2017.
5. FINDINGS, ANALYSIS & CONCLUSION:
a. We observe that, the applicant is a local authority constituted under the provisions of Article 243W of Constitution of India. It provides various civic services directly or indirectly to citizens residing in Pratapgarh viz. cleaning of roads, gardens, toilets and waste collection etc. It at times also hires various contractors and receives the services from contractors on rate basis.
b. The services received by the applicant are not only pure services but also involves supply of goods viz. construction of toilets involves supply of manpower services along with goods like bricks, pipes etc.
c. The activities entrusted to the Municipality under Article 243W of the Constitution of India and listed under Twelfth Schedule are enumerated as under;
[Article 243-W]
1. Urban planning including town planning.
2. Regulation of land use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial purposes.
6. Public health, sanitation conservancy and solid waste management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
10. Slum improvement and up gradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.
15. Cattle ponds; prevention of cruelty to animals.
16. Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus-stops and public conveniences.
18. Regulation of slaughter houses and tanneries.
On perusal of said Schedule it is evident that services received by the applicant viz. cleaning of road, garden, toilets and waste collection are mentioned under point number 4, 10, 12, 13 and 17. Thus, it is easily ascertained that the applicant being a local Authority is providing services to citizens.
d. The serial no. 3 of Notification No. 12/2017 Central tax(Rate) dated 28.06.2017 emphasize on pure services received by the local authority which is reproduced as under:
Sl. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition 3 Chapter 99 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 or a Governmental authority 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. Nil Nil
e. Now, under Notification No 12/2017-CT (Rate) dated 28.06.2017, under entry number 3A an exemption from GST has been provided for composite supplies which is reproduced as under:—
Sl. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Conditi on 3A Chapter 99 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 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 243 G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. Nil Nil
Thus according to said entry in the notification, in case of composite supply of goods or services if the value of supply of goods does not exceeds 25% of the total value of supply and service if provided to State Government or a local authority and the supply is by way of an activity in relation to functions entrusted to Municipality under Article 243W of the Constitution then no GST is applicable.
f. The services received by the applicant from various contractors is a supply of both i.e. supply of goods and services and therefore may not exempted under serial no. 3 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 if supply of goods crosses threshold limit of 25%.
g. It is quite difficult to ascertain the quantum of supply of goods and its value through the submissions made by the applicant as quantum of supply of goods or services in a supply depends on a particular activity to activity. Further, if in duration of agreement/contract the applicant crosses 25% value of goods benchmarks then the nature of taxation may shift from Nil.
h. Section 51 of CGST/RGST Act, 2017 has made provision in relation to Tax Deduction at Source(TDS) which is as below:—
51. (1) Notwithstanding anything to the contrary contained in this Act, the Government may mandate,—
a) a department or establishment of the Central Government or State Government; or
b) local authority; or
c) Governmental agencies; or
d) such persons or category of persons as may be notifiea by the Government on the recommendations of the Council (hereafter in this section referred to as “the deductor”), to deduct tax at the rate of one per cent. from the payment made or credited to the supplier (hereafter in this section referred to as “the deductee”) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees:
Provided that no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.
Explanation.—For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice.
Further, the Central Government by way of Notification No. 50/2018 (Central Tax) dated 13.09.2018 appointed the 1 day of October, 2018, as the date on which the provisions of section 51 of the said Act shall come into force with respect to persons specified under clauses (a), (b) and (c) of sub-section (1) of section 51 of the said Act and the persons specified below under clause (d) of sub-section (1) of section 51 of the said Act, namely:—
(a) 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 Government, with fifty-one per cent, or more participation by way of equity or control, to carry out any function;
(b) Society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);
(c) public sector undertakings.
On examination of submissions of the applicant, it is found that the applicant is a local authority, thus falls under of Section 51 of the CGST/RGST Act, 2017 and is thus eligible to become a TDS deductor, provided that, the activities undertaken by the applicant are taxable and not exempted by way of any Notification.
i. It is therefore, for the activities undertaken by the applicant in which if there is only ‘pure services’ then it will attracts nil rate of tax. In other activities where there is composite supply and supply of goods is less than 25% out of total supply then also it attracts nil rate of duty. As for these activities, there is Nil rate of GST so provisions of TDS will also not be applicable on the applicant.
If the activity undertaken by the applicant where there is Works Contract of Composite Supply composite supply of goods and services and quantum of supply of goods is more than 25% then rate of GST will be applicable as mentioned in respective Notification. As the activities attracts GST and are not Nil rated therefore, provisions of TDS will be applicable.
6. In view of the foregoing, we rule as follows:—
RULING
3. Applicant being a local authority is engaged in receipt of various kinds of services provided by different contractors on which applicability of GST and GST TDS will be:—
a. Pure Services will attract Nil rate of duty and provisions of GST TDS will not be applicable.
b. In Composite supply of goods and services where supply of goods is not more than 25% of the total value of supply, will attract Nil rate of duty and provisions of GST TDS will not be applicable.
c. In Composite supply of goods and services where supply of goods is more than 25% of the total value of supply, will attracts GST @ 12% (SGST 6% +CGST6%) if the activity fall under purview of Serial No. 3 of Notification 11/2017 (CT-rate) dated 28.06.2017 as amended from time to time and if not, then GST @ 18% (SGST 9% +CGST 9%) will be applicable. Provisions of GST TDS will apply as the activity in this case is taxable.
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