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TMI Blog2021 (9) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is to be paid, then whether the applicant would be entitled for Input Tax Credit? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT: The submissions made by M/s. Nagpur Waste Water Management Private Limited, the applicant, are as under:- A. Statement of relevant facts having a bearing on the question(s) raised 2.1 M/s. Nagpur Waste Water Management Private Limited, the Applicant is registered under the Companies Act as well as the GST Act, 2017. 2.2 Nagpur Municipal Corporation (NMC) is constituted under the city of Nagpur Corporation Act, 1948. Therefore, NMC is "Local Authority". The NMC, under Article 243W of the Constitution of India, read with 12th Schedule to the Constitution, is required to provide the services of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has been further clarified in Clause 10.12 of the Agreement. If there is no sale of TTW no royalty is to be paid by the applicant to NMC. The sale consideration of Treated Effluent/ TTW is required to be deposited by the applicant in an ESCROW Account opened with designated bank (see Para 3.1.1 of Schedule 7). The ESCROW Bank is Trustee for NMC, the lenders representative and the concessionaire. All sale proceeds for sale of TTW is received by trustee bank in the ESCROW Account. Under the Agreement NMC is supplying only Sewage Water, the applicant is providing services of treating sewage water to NMC. The applicant is entitled for consideration in the form of CAPEX and OPEX and right to sale TTW. If there is no sale of TTW/ Effluent then NMC will pay "Net monthly operational support grant (NMOSG)" calculated as per Para 3 of the Schedule-6. However, if there is sale of treated water/effluent then the applicant will be paid "net payable monthly amount (NPMA)" only. NPMA will be calculated as per Para 4 of the Schedule-6 of Agreement which is equal to NMOSG less amount calculated as per Schedule 13 of the agreement based upon quantity of water sold. This amount to be deducted as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly if treated water is sold. No royalty is paid if treated water is discharged in rivers or not sold. 2.6 The applicant has supplied/sold "TTW" to Mahagenco and raised its first invoice for this supply bearing No. NW/MHGN/2021/001 dtd.01.12.2020. Therefore, with reference to this sale of TTW to Mahagenco, the applicant is required to pay royalty to NMC. The NMC is not issuing any bill/document for this royalty but is required to adjust the same from amount payable by NMC to applicant. In order to facilitate the deduction, the applicant, for the amount payable to NMC as per Schedule-13 has issued Credit Note No. NWW/NMC/CN/01 dtd.07.12.2020. Accordingly, in relation to supply of TTW by applicant to Mahagenco vide invoice No. NW/MHGN/2021/001 dtd.01.12.2020, the applicant has calculated an amount of Rs. 15,22, 57,210/- which is to be deducted by NMC as royalty from the consideration under the contract. 2.7 The applicant is advised that no GST is payable by the applicant on this amount deducted by NMC from consideration determined as CAPEX/OPEX either under forward charge basis on or under Reverse charge basis because of the following grounds. (i) The applicant is providing servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. 1/2017 C.T.(Rate) dtd. 28-06-2017 which relates to "Water" was subject to amendment vide Notifications No. 06/2018-C. T. (Rate), dt. 25-01-2018. Also new entry relating to water was inserted vide same Notification at Sr. No. 46B of Schedule II of the Notification. Effect of all above mentioned notification w.e.f. 25.01.2018 on the entry 24 of Notification No. 1/2017 Central Tax (Rate) is as under: Schedule Sr. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (%) Condition (1) (2) (3) (4) (5) (6) Schedule II-6% 46B 2201 Drinking water packed in 20 litres bottles 6 Nil Schedule III-9% 24 2201 Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured other than Drinking water packed in 20 litres bottles 9 Nil #combined rate (SGST& CGST)/ IGST is 12% and 18% respectively. 2. Notification No. 02/2017-Central Tax (Rate), dtd. 28-06-2017 was issued to notify the exemptions on supply of goods under CGST Act. Entry relating to water was notified at Serial No. 99 of the Notification. The same is reproduced below: - SL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be deducted by NMC for same duration to arrive at NPMA. Sale proceeds of TTW is required to be deposited in ESCROW account and from there NMC's share is directly appropriated as Royalty and applicant is getting rest of sales consideration. So long as the applicant is not supplying or selling TTW, the NMC will not get any amount as royalty. If such treated water is sold, then entire consideration of treated water is required to be deposited in ESCROW account. NMC after deducting amount as calculated as per Schedule-13 (termed as Royalty, will only pay net monthly operational support grant and balance sale consideration of Treated Water will be received by applicant. Therefore, it becomes clear that applicant is not paying any consideration to NMC but NMC is paying consideration for services provided by applicant. 5. The applicant believes that the NMC has basically given a right to process the natural sewage water. There is no doubt that the natural sewage water is covered by Notification No. 2/2017 C.T. (Rate) and therefore, supply of such water by NMC to applicant is exempt from tax. Further for procuring natural sewage water the applicant is not paying any consideration to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant is also tax free under Notification No. 12/2017 dtd.28.06.2017. No consideration is payable by the applicant to NMC for acquiring right to sale TTW. Under the contract primary arrangement is to provide service by the applicant to NMC and for that NMC will pay consideration to the applicant. However, if treated water is sold then the consideration payable by NMC will reduce. The amount though termed as royalty in fact is reduction in consideration payable by NMC to applicant as the applicant would be getting some revenue from sale of Treated Water. Thus, the arrangement between NMC and the applicant is of a revenue sharing model for sale of TTW/reduction in consideration. Therefore, the amount deducted by NMC through ESCROW arrangement is not a consideration/royalty but it is a revenue sharing arrangement/reduction in applicant's consideration for service to NMC. (B) For Question No-2. 8. In case the submission, in respect of Royalty, is not accepted and it is held that the applicant is required to pay the tax on a royalty paid by it to NMC, it is submitted that as per section 9(3) of CGST Act, the government may specify categories of supply of goods or services or both, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears and thereafter transfer the same to NMC, the applicant is paying applicable tax under GST laws. Under entire project output service i.e. setting up plant and transfer the same to NMC is taxable. Therefore, if the applicant is required to pay the tax on royalty paid under reverse charge then the applicant believes that it would also be entitled for input tax credit of that tax to be Set-off against the output tax liability of the applicant on consideration received from NMC on the CAPEX/OPEX basis. 03. CONTENTION - AS PER THE CONCERNED OFFICER: The submissions, as reproduced verbatim, could be seen thus- Submissions for question 1 are as under: 3.1 Nagpur Municipal Corporation (NMC), a local authority is required to provide the services of management of sewage system within the city of Nagpur & for this purpose decided to set up & operate the Sewage Treatment Plant (STP) located at Bhandewadi, Nagpur. NMC has appointed the applicant under PPP contract basis for treatment of Sewage Water. Accordingly, the contract of set up & operate the Sewage Treatment Plant (STP) was awarded to the applicant on 12.12.2014 located at Bhandewadi, Nagpur on Build, Operate & Transfer basis (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erritory or, local authority Any business entity located in the taxable territory It is clear from the above entry that tax shall be paid on reverse change basis by the applicant for getting service of right of sale of Tertiary Treated Water from local Authority i.e. NMC. Submissions for question 3 are as under:- 8. GST paid on goods or services under RCM is available as ITC subject to condition under section 16, 17 and 18 of GST Act. 04. HEARING 4.1 Preliminary hearing in the matter was held on 16.03.2021. Shri Ashok Chandak, CA, Shri Suresh Agrawal, Director, Shri Rajesh Kakani, Finance officer and Shri Mahesh Thakur, President appeared, and requested for admission of their application. Learned Jurisdictional Officers Shri Harish Chandra Shelke, AC (D-008), Nagpur division and Shri Bawane STO (VAT C-023) Nagpur division were also present. 4.2 The application was admitted and case was posted for final hearing on 20.04.2021 but was adjourned on applicant's request. Thereafter, online final hearing was held on 27.8.2021, in which Shri Ashok Chandak, learned CA, and other authorized representatives appeared, and made oral and written submissions. Jurisdictional Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of the CAPEX, the OPEX and the right to sell TTW ; if there is no sale of TTW, then NMC will pay "Net monthly operational support grant (NMOSG)" calculated as mentioned in the agreement ; however, if there is sale of treated water/effluent water then the applicant will be paid "net payable monthly amount (NPMA)" only which is equal to NMOSG less amount calculated as per the agreement, based upon the quantity of water sold. There is certain amount to be deducted as per Schedule-13 which is termed as royalty payable by the applicant to NMC as per Schedule 8 of the Agreement. Therefore, royalty payment is a reduction from total consideration receivable by the applicant. 5.5.1 We observe that, the applicant has essentially asked a question which is related to the liability of GST on royalty paid /payable by the applicant to NMC. This royalty is paid by the applicant for the right received by the applicant from the NMC to sell the treated water to Mahagenco. We observe that, the applicant is operating and maintaining the sewage water treatment plant for which it receives consideration from NMC. Further, consideration is also received from Mahagenco against supply of treated water (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned agreement itself uses and defines the word "ROYALTY" as reproduced under: "Royalty" shall mean the charges payable from time to time by the Concessionaire to the Concessioning Authority against the sale of the Treated Effluent /Tertiary Treated sewage water as set out in schedule-13 and as per the provisions of this agreement. On the perusal of the above schedule and other clauses discussed in present order, it is clear that the formula arrived upon by the concerned parties to the impugned agreement, in respect of payment of 'royalty' by the applicant is in respect of the right given to applicant, by NMC, to sell the treated water. 5.5.5 In the present transaction in hand, we observe that there is transfer of rights by NMC to sell the processed water. The supplier of services is NMC and the recipient of such service is the Applicant. It is further observed that against the transfer of such rights, NMC is getting consideration in the form of "royalty", from the applicant. The term Royalty is defined in the agreement itself and its quantum is also to be decided as mentioned in Schedule 13 as mentioned above. Thus we hold that the amounts to be paid to NMC by the applicant on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention submitted by the applicant that the impugned services are exempt under the aforementioned Entry No. 3. Hence, in our opinion, the consideration paid by the applicant to NMC against receipt of 'Royalty' service is not exempt from GST. 5.5.9 The applicant is supplying TTW to Mahagenco and receiving consideration against such supply. Such supply made by the applicant has been considered as taxable by this authority and accordingly order No. GST ARA 65/2020-21/2021-22/B-35 Mumbai dated 27/07/2021, has been passed on another application filed by the applicant, wherein it is held that the supply of 'Tertiary Treated water' to the Mahagenco is 'taxable supply' and it is liable to tax @18% (9% SGST & 9% CGST)/ IGST under Entry 24 of Schedule-III of Notification No. 1/2017 Central Tax (Rate) dtd.28.06.2017 as amended by Notification No. 06/2018 Central Tax (Rate) dtd.25.01.2018. 5.5.10 In the subject case, there is no doubt about the fact that consideration is being paid by the applicant to NMC for grant of license i.e. supply of right to sell treated water to other persons. This act of grant of license is not exempt under the GST Act. Therefore, in this matter, there is no m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear the doubt of taxpayer, Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 has been issued by the Government of India. As per this notification, it is found that Entry Serial No. 5 prescribed that "services supplied by the Central Government, State Government, Union Territory or local authority to a business entity" in that case, the liability to pay tax is on the recipient of such service on RCM basis. Hence, since NMC is a Local Authority, the liability to pay tax is cast on recipient of the supply i.e. the applicant. Hence, as per the aforesaid notification entry, applicant would be liable to pay GST on reverse charge basis under section 9(3) of CGST Act. 5.7.1 Vide Question no. 3, the applicant is asking, whether the applicant would be entitled for Input Tax Credit (ITC), if tax is to be paid under Reverse Charge Mechanism. 5.7.2. The provisions of ITC are covered under section 16 to 21 of CGST Act. Section 16 is related to eligibility and conditions for taking ITC. Section 17 is related to apportionment of credit and blocked credits. The relevant sections are reproduced here as under: Section 16(1) reads as below: "every registered person shall subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant satisfies the conditions depends on facts during the relevant period and the provisions applicable during that period, for which no details or facts are provided in the present matter. Hence, we hold that ITC would be available to the applicant subject to the conditions mentioned under the provisions of section 16 to 21 of CGST/MGST ACT, 2017. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows: ORDER (Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO:-GST-ARA-76/2020-21/2021-22/B-63 Mumbai, dt.24/09/2021. For reasons as discussed in the body of the order, the questions are answered thus - Question 1: - Whether the Royalty paid or payable by the applicant to Nagpur Municipal Corporation (NMC) for supplying "Tertiary Treated Water" to Mahagenco, by treating the Sewage Water supplied by NMC is liable to tax under the GST Law? Answer: - Answered in the affirmative. Question 2:- If yes, whether the tax is to be paid by NMC under forward charge or same is to be paid by the applicant under reverse charge? Answer: - The taxes are to be paid by the applicant und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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