2018 (5) TMI 647 - AAR - GST

Levy of GST - reinstatement charges paid to Municipal Authorities - carry out the excavation of roads for laying repair and maintenance of electric supply lines. - activity related to sovereign function or not - It has been contended that the service falls under entry 4 of Notification No. 12/2017 -Central/State Tax (Rate) dated 28.06.2017 - Whether reinstatement charges paid to Municipal Authorities would be liable to GST? - Held that - There is specific entry in N/N. 12/2017-Central/State Tax (Rate) dated 28.06.2017 - from Chapter 99 it is very clear that if any services including the three services excluded in clauses (a) to (c) of the above entry are provided by the Government or local authority to any business entity they would not be eligible for any exemption under GST - the applicant has made a whole lot of arguments to hold that the recovering of charges for the restoration of the street or pavements amounts to a service activity in relation to a function entrusted to a municipality under article 243 W of the Constitution. However we find that the arguments fail to make a point. There is no other entry in the Schedule contained in the N/N. 12/2017-Central/State Tax (Rate) for services exempted from GST which would cover the impugned transaction. Neither is a specific entry for the impugned transaction in the N/N. 11/2017-CentraI/State Tax (Rate) for services taxable to GST at various rates. In view thereof the residuary entry no.35 of the N/N. 11/2017-Central/State Tax (Rate) covering services nowhere else classified and attracting GST @18% 9% each of CGST and MGST would be applicable. Levy of GST - whether access charges paid to Municipal Authorities would be liable to GST? - Held that - The reinstatement charges apply towards restoration of excavation work on the roads carried out by the various business entities providing services such as gas telephone electricity etc. The Guidelines for Trenching activity-2015 No AMC/ES/7725/11 Dated 18.12.2014 - policy guidelines for granting trench excavation permissions to underground service provider Utility agencies and Municipal agencies the reinstatement of trenches as provided by the applicant state that in addition to the regular RI charges access charges for right of way will be recovered by MCGM from all utilities which lay underground services below MCGM roads - This statement helps to understand the position as respects MCGM Municipal Corporation of Greater Mumbai . That these charges would be exigible to GST is not doubtful even to the applicant and we agree with the same. To determine whether it is a composite supply by Municipal Authorities the available information is insufficient as the question posed is in respect of Municipal authorities in general and not any specific Municipal Authority with complete details and therefore is not answered. Both the questions are answered in affirmative.

Summary

Issues Involved:
1. Whether reinstatement charges paid to Municipal Authorities would be liable to GSTRs.
2. Whether access charges paid to Municipal Authorities would be liable to GSTRs.

Issue-wise Analysis:

Issue 1: Liability of GST on Reinstatement Charges
The applicant, engaged in electricity distribution, sought clarity on whether reinstatement charges paid to Municipal Authorities for road restoration post-excavation are liable to GST. The applicant argued that such charges fall under Entry 4 of Notification No. 12/2017 - Central Tax (Rate), which exempts services provided by local authorities related to functions entrusted under Article 243W of the Constitution. The applicant contended that road restoration is a function under the Twelfth Schedule of Article 243W, and thus, should be exempt from GST.

The Authority analyzed the argument, noting that the function of road construction is indeed a sovereign function of the Municipality. However, the restoration charges paid by business entities for specific trench work do not equate to the sovereign function of road construction or maintenance for public use. Instead, these are specific services provided to business entities for their operational needs. The Authority concluded that such services do not fall under the exempt category as per Entry 4 of Notification No. 12/2017. Additionally, the Authority referred to Entry 5(d) of Notification No. 12/2017, which explicitly states that services provided to business entities by local authorities are not exempt from GST. Therefore, reinstatement charges paid to Municipal Authorities are liable to GST under the residuary entry 35 of Notification No. 11/2017-Central/State Tax (Rate), attracting GST at 18%.

Issue 2: Liability of GST on Access Charges
The applicant also sought clarity on whether access charges for right of way paid to Municipal Authorities are liable to GST. The applicant argued that access charges, paid in conjunction with reinstatement charges, should be considered a composite supply where the principal supply (road restoration) is exempt, thereby exempting the access charges as well.

The Authority examined the nature of access charges, which are fees paid for the right to lay underground services beneath municipal roads. The Authority agreed that such charges are indeed subject to GST. However, the applicant's query was broad, referring to various Municipal Authorities without specific details. The Authority noted that without detailed information on specific Municipal Authorities and their policies, it is challenging to determine if the access charges constitute a composite supply with reinstatement charges. Consequently, the Authority did not conclusively address the composite supply argument due to insufficient information but affirmed that access charges paid to Municipal Authorities are liable to GST.

Conclusion:
Both reinstatement charges and access charges paid to Municipal Authorities are liable to GST. The reinstatement charges do not qualify for exemption under Entry 4 of Notification No. 12/2017 as they are specific services provided to business entities, not sovereign functions. Similarly, access charges are subject to GST, and the composite supply argument could not be conclusively addressed due to lack of specific details.