Notification on TDS under GST provisions not applicable on exempt supplies–AAR. Applicant making exempt supply to Municipal Corporation was not covered
ABCAUS Case Law Citation:
ABCAUS 3006 (2019) (06) AAR
The Applicant was providing conservancy/solid waste management service to the Conservancy Department of the Municipal Corporation (MC) which was deducting TDS while paying consideration for the above supply in terms of Notification No. 50/2018 – Central Tax and the State Government Order (TDS Notifications).
The Applicant sought a ruling on whether the above supply is exempted in terms of Sl No. 3 or 34 of Notification No. 12/2017 – Central Tax (Rate) (corresponding State Notification), as amended from time to time (Exemption Notification), and if so, whether the notifications regarding TDS are applicable in his case.
The Authority for Advance Ruling (AAR) observed that in its Circular No. 51/25/2018-GST dated 31/07/2018 the Central Government clarified that the service tax exemption at serial No. 25(a) of Notification No.25/2012 dated 20/06/2012 (the ST Notification) has been substantially, although not in the same form, continued under GST vide Sl No. 3 and 3A of the Exemption Notification. Sl 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 Sl No. 3 or 3A of the Exemption Notification.
It was observed that the above Circular leaves no doubt that the phrase ‘in relation to any function’, as applied to Sl No. 3 or 34 above, makes no substantial difference between Sl No. 25(a) of the ST Notification and Sl No. 3 or 34 of the Exemption Notification. Under the previous service tax regime, the exemption was limited to certain functions specified in Sl 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 Sl No. 3 or 3A of the Exemption Notification, provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value.
The Applicant’s eligibility under Sl 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.
It was further noted that the recipient was a municipal corporation, which was a local authority as defined under section 2(69) of the GST Act. The Applicant’s service therefore, was exempt under Sl No. 3 of the Exemption Notification.
It was also noted that the TDS Notifications bring into force section 51 of the GST Act, specify the persons under section 51(1)(d) of the Act and have mandated and laid down the mechanism for deduction of TDS. These notifications, therefore, are applicable only if TDS is deductible on the Applicant’s supply under section 51 of the GST Act. Section 51(1) of the Act provides that the Government may mandate inter alia a local authority to deduct TDS while making payment to a supplier of taxable goods or services or both. As the Applicant is making an exempt supply to Municipal Corporation the provisions of section 51 and, for that matter, the TDS Notifications do not apply to his supply.
The AAT observed that the applicant’s supply to the Municipal Corporation, was exempt from the payment of GST under Sl No. 3 of Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017 and the corresponding State Notification as amended from time to time.
The AAR opined that as the Applicant was making an exempt supply, the provisions of section 51 and, for that matter, Notification No. 50/2018 – Central Tax dated 13/09/2018 and corresponding State Notification and State Government Order to the extent they mandate and deal with the mechanism of TDS, do not apply to his supply.
This Ruling is valid subject to the provisions under Section 103 until and unless declared void under Section 104(1) of the GST Act.
