2025 (7) TMI 1388 - AAR - GST

Exemption vide N/N 12/2017-Central Tax (Rate) dated 28.06.2017 as sub-contractor to WTL for providing pure labour service to NKDA - Charging of GST to client - local authority - recipient of service - composite supply or pure service - HELD THAT - As per the work orders placed on records the applicant will supply certain personnel like Clerical Assistant Data Entry Operator System Administrator Junior Engineer Surveyor Supervisor Field Supervisor Store Keeper etc. In every work order it is clearly mentioned that the personnel are to be sent to the location of the customer of WTL and the customer has been stated to be the Chief Executive Officer NKDA. There is no other supply of any kind especially works contract and composite supply involving supply of goods. So the supply as referred to in this application for advance ruling is a supply of pure service. Whether NKDA falls under the category of local authority as mentioned in entry number 3 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended? - HELD THAT - The NKDA has been constituted under The New Town Kolkata Development Authority Act 2007 (The West Bengal Act XXX of 2007) for rendering various civic services and amenities within New Town Kolkata and it has come into effect since November 2008. The New Town Kolkata Development Authority Act 2007 was passed by the West Bengal Legislature and the assent thereto was given by the President of India and it was published in the Kolkata Gazette Extraordinary of the 30th June 2008 vide Notification No. 1088-L dated 27th June 2008. This Act has come into effect retrospectively from 28th December 2006 and it extends to the whole New Town Kolkata area as described in Schedule-I appended to this Act. The area of entire township is comprised of 34 Mouzas (both part and full) falling in areas of Airport Police Station Rajarhat Police Station and Kolkata Leather Complex Police Station. The Development Authority has been vested with the various powers and functions under the said Act. Whether the services are provided to NKDA being the recipient of service? - HELD THAT - The documents placed on records indicate that the work order for supplying manpower services has been awarded to WTL by NKDA. The applicant in turn has received the order from WTL. The terms of payment as it appears from the work order issued by WTL is that the applicant will receive payment from WTL for supply of service and the payment will be on back to back basis i.e. payment will be made by WTL only on receipt of payment from the customer (here the Chief Executive Officer NKDA) of WTL - In the present case it is evident from the documents placed on records that the supply of service to be carried out by the applicant has consideration and the consideration in terms of money will be paid by WTL not by NKDA. Thus WTL here is the recipient of service supplied by the applicant as per the above definition. NKDA has no liability whatsoever to pay the consideration to the applicant. The basic facts and circumstances of that case and the present case are exactly the same. The only point of difference is that in the referred case WTL received order from Government of West Bengal as opposed to NKDA in the instant matter. The WBAAR ruled that the second condition i.e. the applicant provides services to the Central Government or State Government or Union Territory or local authority does not get satisfied in the instant case . We are also of the considered view that the second element of the relevant entry no. 3 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended is not fulfilled in the present case. It is clear from the text of Entry No. 3 of Notification No. 12 (Central Tax) Rate Dated 28.06.2017 as amended that all the elements of the Description of services column are to be fulfilled simultaneously to avail NIL rate for the supply of service mentioned therein. Since the second element has not been fulfilled as discussed there is no necessity to discuss the issue whether the service under the present application is 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. The applicant is not eligible to avail the exemption vide N/N.12/2017-Central Tax (Rate) dated 28.06.2017 as sub-contractor to WTL for providing pure labour service to NKDA - applicant should charge GST to it s client Webel Technology Limited in their invoice.

Summary

ISSUES:

Whether a sub-contractor providing pure labour service to a local authority through a main contractor is eligible to avail exemption under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.Whether the sub-contractor should charge GST to its immediate client in the invoice for such services.

RULINGS / HOLDINGS:

On eligibility for exemption: The applicant is not eligible to avail the exemption under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as a sub-contractor providing pure labour service to the local authority through the main contractor.On charging GST: The applicant should charge GST to its client (the main contractor) in the invoice for the supply of pure labour services.

RATIONALE:

The legal framework is based on Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended), specifically Entry No. 3, which exempts "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."The three cumulative conditions for exemption under Entry No. 3 are: (1) supply of pure service, (2) recipient must be Central/State Government or local authority, and (3) service must relate to functions entrusted under Articles 243G/243W of the Constitution.The local authority status of the recipient (Newtown Kolkata Development Authority) was affirmed based on statutory enactment, functions performed, and prior rulings confirming it as a local authority under Section 2(69) of the GST Act.However, the critical element of the recipient under the GST Act's definition was examined: the "recipient" is the person liable to pay consideration. Since the applicant receives payment from the main contractor and not from the local authority, the main contractor is the recipient for GST purposes.Precedents from other Advance Rulings clarified that the exemption under Entry No. 3 requires the service to be supplied directly to the Government or local authority, which is not satisfied when supplied through a subcontractor to a contractor.Comparative analysis with Entry No. 10 of the Notification, which is project-centric and exempts services regardless of recipient, was distinguished from Entry No. 3, which is recipient-centric.Prior Advance Ruling and Appellate Authority rulings involving similar facts confirmed that the second condition of Entry No. 3 is not fulfilled when the immediate recipient is not the local authority but an intermediary contractor.Therefore, the exemption does not apply, and GST must be charged by the sub-contractor to the main contractor.