Supply of telecommunication services to a local authority is a taxable service

[CA Bimal Jain]

The AAR, Telangana in the matter of IN RE: M/S. VODAFONE IDEA LIMITED - 2022 (8) TMI 146 - AUTHORITY FOR ADVANCE RULING, TELANGANA ruled that the supply of telecommunication services to a local authority is a taxable service under Section 9(1) of the Central Goods and Services Act, 2017 (“the CGST Act”) and is not exempted under Notification No. 12/2017- Central Tax (Rate) dated June 28, 2017 (“the Services Exemption Notification”). Held that, there is no direct relation between the services provided by the assessee and the functions discharged by the local authority under Article 243W read with Schedule 12 to the Constitution of India.

Facts:

M/s Vodafone Idea Limited (“the Applicant”) is engaged in providing telecommunication services and in the course of its business, it is also providing these services to the Greater Hyderabad Municipal Corporation (“GHMC”), a local authority, by way of data/voice telecommunication services under SAC 9984, to be used by employees for general office and administrative purposes.

The Applicant submitted that, the services provided qualify to be pure services rendered in relation to functions entrusted to a municipality under Article 243W of the Constitution of India under SI. No. 3 of the Services Exemption Notification, and hence, are exempt from tax.

Issue:

Whether the supply of 'telecommunication services' to the GHMC is a taxable service or is exempted vide SI. No. 3 of the Services Exemption Notification?

Held:

The AAR, Telangana in the matter of IN RE: M/S. VODAFONE IDEA LIMITED - 2022 (8) TMI 146 - AUTHORITY FOR ADVANCE RULING, TELANGANA held as under:

• Noted that, under Sr. No. 3 of the Services Exemption Notification, pure services provided ‘in relation to any function’ entrusted to a municipality under Article 243W of the Constitution of India is eligible for exemption.
• Relied upon the judgment of the Hon’ble Supreme Court in the case of HH. MAHARAJADHIRAJA MADHAV RAO JIWAJI RAOSCINDIA BAHADUR VERSUS UNION OF INDIA - 1970 (12) TMI 87 - SUPREME COURT, wherein it was stated that the expression “relating to” means to bring into relation or establish a relation. Further, there should be a direct and immediate link with a covenant and that there cannot be any independent existence outside such covenant.
• Held that, the Applicant is providing data and voice services to the GHMC and to the employees of the municipalities and there is no direct relation between the services provided by the Applicant and the functions discharged by the GHMC under Article 243W read with Schedule 12 to the Constitution of India. Therefore, these services do not qualify for exemption under the Services Exemption Notification. Hence, the supply of telecommunication services to local authority is a taxable service.

Relevant Provisions:

SI. No. 3 of the Services Exemption Notification:

“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 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”

Schedule 12 to the Constitution of India:

“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 upgradation.

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 pounds; 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.”

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