RECENT ADVANCE RULINGS IN GST (PART-5)

[Dr. Sanjiv Agarwal]

Advance rulings are important in any tax law as it provides a forum for clarification and possible interpretation of statutory provisions. Moreover, it conveys the legislative intention from the revenue’s view point. Provisions of advance ruling are contained in section 95 to 106 of CGST Act, 2017 and State / UT GST enactment. Rules 103 to 107 of also provide for forms, manner, certification etc.

The Authority for Advance Rulings (AAR) have been set up in all the states and we have now over 100 advance rulings on different issues already pronounced by various State Authorities. The appellate mechanism for filing appeals against AAR rulings is also in place and we have about ten such appellate orders already pronounced. One major issue presently being faced is about multiple authorities (equal to number of States), each pronouncing a ruling of its own even if the matter is covered by some other State AAR’s rulings. There would be situations where we may have different rulings on same question(s). GST Council ought to decide on having a Centralized Authority as was there in erstwhile tax regime.

The summary of few more recent advance rulings pronounced by State Advance Ruling Authorities are discussed hereunder but these needs to be read in the background of the question involved:

Advance Ruling on composite works contracts

The assessee was engaged by the railways for maintenance work of railway tracks. Both material and labour was provided by it for maintenance of railway tracks. The assessee submitted that 5% GST would be applicable for construction services in case composite supply of works contract, involving predominantly earth work services provided to the Central Government. It filed an application before advance ruling authority on the classification and rate of tax on such supplies.                             

The Authority for Advance Ruling ruled that such supply of works contract involved only a minor fraction of earth work and therefore, such composite supply of works contract service for maintaining railway tracks would be taxable at the rate of 18% GST. Further, such service could be classifiable under Heading No. 995429 under GST. [In Re Sreepati Ranjan Gope & Sons (2018) 5 TMI 370 (AAR-West Bengal); ]

Advance Ruling on liquidated damages

In the instant case, based on agreement entered into by applicant, Maharashtra State Power Generation Company Ltd. with BHEL for purpose of erection, testing and commissioning of main plant package, there were no such clauses in agreement as would tantamount to reducing contract price or contract value of supplies of goods or services or both as made by Contractor on account of delay in delivery of manufactured goods. In fact, levy of liquidated damages had been specifically identified as an independent levy. The contract price variation clause in impugned agreement did not provide for variation on account of liquidated damages. The empowerment to levy liquidated damages is for reason that there has been delay and same would be tolerated, but for a price or damages. Thus, in terms of the aforesaid agreement, it has been ruled that GST would be applicable on liquidated damages. In order to see whether GST is applicable on liquidated damages in case of operation and maintenance activities and construction of new power plants or renovation of old plants or applicable in both cases, it has been observed that facts of each agreement and attending circumstances need to be seen. [In Re: Maharashtra State Power Generation Company Ltd. 2018 (5) TMI 1332 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA ].

Advance Ruling on goods transport agency services

The Applicant was a supplier of materials and allied services for erection of towers, testing and commissioning of transmission lines and setting up sub-stations, collectively called the Tower Package. Advance Ruling was sought on applicability of GST on freight bills.

Applicant argued that it is not a goods transport agency (GTA) for applicability of Notification No. 9/2017 – IT (Rate) dated 28/06/2017, which, granted exemption on transportation services provided by an entity other than GTA. As applicant is not a GTA, supply of transportation services is exempt from GST vide the exemption notification.

It has been ruled that the applicant supplies works contract service, of which freight and transportation is merely a component of overall services and not a separate and independent activity and GST is to be paid @ 18% on the entire value of the composite supply, including supply of materials, freight and transportation, erection, commissioning etc.

It was also held that reference to a notification under the IGST Act should be contract specific, where an inter-state supply is taking place. In this application general nature of a supply is being dealt with rather than the place of any particular supply. Moreover, West Bengal Authority for Advance Ruling has no mandate to deal with questions involving inter-state supply. [In Re: EMC Ltd. (2018) 5 TMI 964 (AAR-West Bengal)].

Advance Ruling on exemption to services in relation to housekeeping, cleaning, sanitation, waste management, locomotives cleaning and washing

Applicant had been awarded a contract by Northern Railway for providing services in relation to housekeeping, cleaning, sanitation, waste management, locomotives cleaning and washing. The Railways refused to pay GST to applicant on the plea that there is an exemption under S.No. 3 of Notification No. 09/2017-Integrated Tax (Rate) dated 28-6-2017. Applicant sought Advance Ruling on whether cleaning services provided to Northern Railways was exempt under S.No. 3 of Notification No. 09/2017-Integrated Tax (Rate) dated 28-6-2017 or not. It was noticed that as per this notification, services are exempt from GST only if services offered are pure services without any supply of material and are in relation to any function entrusted to the Municipality as per Article 243W of the Constitution of India. However, sanitation of railway station and/or cleaning, train cleaning and railway premises cleaning are not entrusted to Municipality and thus, does not fall under purview of such exemption notification. Thus, services in question are not exempt from GST. [In Re: VPSSR Facilities (2018) 5 TMI 904 (AAR - New Delhi); ].

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