M/S. HEAVY VEHICLES FACTORY

Classification of goods – Tank and all Tank parts supplied by applicant – whether classified under the HSN code “87100000-Tank and other armoured fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles”? – Whether parts manufactured specifically by applicant for TANK shall be considered under 87100000? – Whether parts and accessories supplied by their vendor specifically manufactured for Tank Parts and the same is not supplied to any other company will come under the HSN 87100000? – HELD THAT:- Tank is classified under CTH 8710 0000 while parts which satisfies the essential conditions i.e., they must be identifiable as being suitable for use solely or principally with Tanks and must not be excluded by the provisions of the Notes to Section XVII and must not be more specifically included in elsewhere in the Nomenclature are only to be classified as ‘Parts’ under CTH 8710 0000.

Whether tank parts shall be considered under 87100000 or not? – HELD THAT:- Retainer Steel, Valve Assembly, Casing Assembly, Hydraulic items(all types), Mandrel assembly, Nozzle Assembly, Plate assembly, Panel assembly, Support Assembly and Sleeve Assembly are classifiable as parts under CTH 8710 0000 – Dowel Pin, Gasket Assembly, Stiffner, Clip Assembly, Connector Assembly, Needle Bearing and Planet Pinion are not classifiable under CTH 8710 000.

If the vendor is supplying parts under an HSN code other than 87100000, is it necessary that it has to be supplied under the same HSN code on what the vendor is charging? – HELD THAT:- Classification is independent of the buyer or seller and depends only on the goods.

No.- TN/15/AAR/2020

Dated.- April 20, 2020

Citations:

  1. Commissioner of Central Excise Versus M/s BHEL – 2018 (2) TMI 1112 – Supreme Court
  2. INTEL DESIGN SYSTEMS (INDIA) P. LTD. Versus COMMISSIONER OF CUSTOMS & CENTRAL EXCISE – 2008 (2) TMI 5 – Supreme Court
  1. MANASA GANGOTRI KATA, I.R.S., AND THIRU KURINJI SELVAAN V.S., M.SC., (AGRI.), M.B.A., MEMBER

Note : Any Appeal against the Advance Ruling order shall be filed before the Tamilnadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.

At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.

M/s. Heavy Vehicles Factory, HVF Estate, Avadi, Tiruvallur District-600054 (hereinafter called as HVF or Applicant) is a Central Government Department coming under the Ordinance Factory Board, Ministry of Defense, and Government of India and are engaged in the manufacturing Tank and Tank Parts. They are registered under GST vide Registration No. 33AAAJH0260P1ZA. The applicant has sought Advance Ruling on the following:

  1. Whether Tank and all Tank parts supplied by the applicant is considered under HSN code “87100000-Tank and other armoured fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles”?
  2. Whether parts manufactured specifically by applicant for TANK shall be considered under 87100000?
  3. Whether parts and accessories supplied by their vendor specifically manufactured for tank parts and the same is not supplied to any other company will come under the HSN 87100000?
  4. Whether tank parts of the following shall be considered under 87100000 or not:-

O Ring; U Drill; Accumulator Assembly; Adaptor Assembly; Angle piece; Armature Assembly; Armour Steel Plate; Assembly Fixture; Assembly Bracket; Axial Bearing; Axle; Ball Bearing; Band Assembly; Base Assembly; Battery; Bearing Bush; Bellows; Bevel Gear; Booster Assembly; Boss Assembly; Bracket Assembly; Bush, bushing; Casing Assembly; Clamp Assembly; Clip Assembly; Collar Assembly; Connector Assembly; Cover Plate; Diode; Dowel Pin; Electrical Wire used in Tank; End Mill; Fanuc Fuse; Fixture for Assembly; Flange; Gasket Assembly; Gasket Rubber; All type of Gauge; Gear Box; Gusset Plate; Hinge Assembly; Hose Assembly; All type of Hydraulic items used in tank; Insert carbide; Jig Drill; Knob Assembly; Latch Assembly; Leather washer; Lock Assembly; Mandrel Assembly; Milling Fixture; Needle Bearing; Nozzle Assembly; Oil Seal; Panel Assembly; Pipe Assembly; Planet Pinion; Plate Assembly; Plug Gauge; Retainer Steel; Rib Assembly; Shaft Assembly; Shim; Sleeve Assembly; Spacer; Spindle Steel; All types of spring; Stiffener; Stop Steel; Stopper Steel; Strap Assembly; Strip Assembly; Sub-Assemblies; Support Assembly; Thyristor; Torsion Bar; Tube Assembly; Turret; Twist Drill; Valve Assembly; Washer( Rubber made or Steel made); Wedge; Worm Wheel, Worm Gear, Worm Shaft; Yoke Assembly.

  1. If the vendor is supplying parts under an HSN code other than 87100000, is it necessary that it has to be supplied under the same HSN code on what the vendor is charging?

The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of ₹ 5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.

  1. The Applicant has stated that their main activity is manufacturing Tank and Tank Parts. Tank is completely assembled in HVF, whereas some parts of Tank are manufactured separately in HVF and some parts of Tank are procured from outside vendors on the specification given by HVF.

2.1 The applicant is of the view that the HSN code for Tank is under the tariff item “87100000- Tank and other armoured fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles” under “Section XVII-Vehicles, Aircraft Vessels and associated transport equipments” and liable to tax @ 12% GST as per GST tariff for Goods with the HSN code. The description of goods in the HSN code 87100000 includes parts of such vehicles as well. At the same time, in the explanatory notes to section XVII in point no.2, it is given that, the expression “Parts” and “Parts and accessories” do not apply to the certain articles, whether or not they are identifiable as for the goods for this section. In view of the above, they are doubtful of whether which parts will be coming under HSN 87100000 and which parts will not be coming under this code. Hence, the applicant has sought Advance Ruling to clarify which parts will be covered under HSN code 87100000. They have also emphasized that the parts and accessories manufactured by them or supplied by outside vendor, all are specifically designed and is not used in any other product.

  1. The applicant was heard on 07.08.2018. Shri. H.S.Manoharan, Cost Accountant and Shri. Muthusamy Murugesan, Junior Works Manager of the applicant Company appeared for the hearing. They stated that the parts listed in their application are manufactured by their vendors and these specifically went for Tank T-90, T-72. However, some of the parts may be falling under the exemption to Chapter Note 87100000. They undertook to submit a write-up and technical literature, drawings of each part along with a copy of recent Supreme Court judgment within 2 weeks.

3.1 The applicant vide their letter Lr.No. HVF/ MC/ 040 / GST/ Advance Ruling/2018-19 dated 15.09.2018 furnished photographs of the following spare parts:

Accumulator Assembly; Angle Piece; U Drill; assembly Bracket; Axial Bearing; Bond Assembly; Bearing Bush; Bellows; Casing Assembly; Clamp Assembly; Clip assembly; collar Assembly; Fanuc Fuse; Flange; Diode; Endmill; Fixture for Assembly; Hinge Assembly; Hose Assembly; Latch Assembly; Mandrel Assembly; Nozzle Assembly; Milling Fixture; Thyristor; Yoke Assembly; Wedge; Tube Assembly; Armature Assembly; Armour Plates; Fixture for Assembly; Boss Assembly; Connector Assembly; Gasket Assembly; Bracket Assembly; Boss Assembly; Rib Assembly; Shaft Assembly; Sleeve Assembly

The applicant however did not furnish any write-up and technical literature or the decision of the Hon’ble Supreme Court mentioned by them.

  1. The applicant was extended another hearing and heard on 25.02.2019. S/Shri. H.S.Manoharan, Auditor and A.Kannan, Junior Works Manager of the Applicant Company appeared for the hearing. The representatives stated that some parts of tanks are classifiable under Chapter $37 only and some of these parts are of general use. They furnished the decision of Hon’ble Supreme Court in thecaseof Commissioner of Central Excise vs. BHEL = 2018 (2) TMI 1112 – SUPREME COURT. They have relied on the decision of Hon’ble Supreme Court in the case of Commissioner of Central Excise Vs. BHEL [12018) 90 taxmann.com 297 (SC)] = 2018 (2) TMI 1112 – SUPREME COURT wherein the Apex Court has held that

“7…………..we are of the view that the Primary Authority as well as the First Appellate Authority was perfectly justified in coming to the conclusion that the components of the boilers cleared as parts but essential to put into operation the boilers, would be classifiable under sub-heading 8402.10 and not as claimed by Revenue under sub-heading 8402.90……….”

The above decision is on the question ‘whether the essential components/parts of a boiler cleared by the assessee would attract duty under sub-heading ‘8402.10-All goods other than parts’ or ‘8402.90-Parts’. The Primary Authority and the First Appellate authority relying on the expert opinion of the Technical Adviser (Boilers), Ministry of Commerce and Industry dated 12.09.2003 and HSN note Part V under Section XVI concluded that such components which are essential to classify the boiler as a machine, even if transported as components, must be understood to have been transported as a complete machine, therefore levy of duty should be under sub-heading 8402.10 and not sub-heading 8402.90. They stated that they will submit technical specifications and Purchase Order and purpose of each part in 2 weeks time. The State Authority appeared and submitted that parts of general use cannot be classified under Chapter 87. Classification will depend on each part which requires knowledge of their technical nature.

4.1 HVF vide Letter No.: HVF/MC/Adv.Ruling/2018-19 dated 26.03.2019, furnished the details regarding the Nomenclature, Technical Specifications, Drawings, Material, Usage on Final Product (Armoured Vehicle) in a Tabular form. They further stated that the hard/ softcopies of technical drawings could not be shared as HVF is Defense Establishment manufacturing Armoured Vehicles for Indian Army which is coming under Official Secrets Act 1923 and that their representatives will bring the hard copies of drawings, during the hearing for clarifying the technical details.

  1. The applicant was heard on 9.4.2019. S/Shri. H.S.Manoharan, Auditor and A.Kannan, Junior Works Manager of the Applicant Company appeared for the hearing. They stated that some of the items are being consumed but other are actually being supplied to their buyers as Spares and Parts. For those items which are being sold as such, they stated that they will give detailed description, usage, purpose in the tank, photograph, material it is made of and supply invoices for parts within 1 week after which another hearing will be held.
  2. The Applicant did not furnish the documents/ details as undertook by them during the hearing held on 9.4.2019. However, in the interest of natural justice, a final opportunity was extended to HVF to appear with the required details on 21.05.2019. S/Shri. H.S.Manoharan, Auditor and A.Kannan, Junior Works Manager of the Applicant Company appeared for the hearing. They submitted details of 17 products that they either manufacture or trade, being spare parts for use in tank model T-90 & T-72. Some parts called as special tools & accessories are part of maintenance Kit of Tank. The others are spares for replacement of parts in Tank. All are supplied to the Central Army Depot. They stated that all these parts should be classified at HSN 8710 at 12% as parts of tank. The State Jurisdictional Officer submitted in writing that they are parts of general use. The applicant submitted that in the original application classification of 84 parts were sought. However, of these only 17 items are being supplied by them and the rest are items which they receive/procure from vendors. Hence, they stated that classification is sought only for the 17 parts as detailed below:

Casing Assembly; Clip Assembly; Connector Assembly; Dowel Pin; Gasket Assembly; Hydraulic items(All Types); Mandrel Assembly; Needle Bearing; Nozzle Assembly; Panel Assembly; Planet Pinion; Plate Assembly; Retainer Steel; Sleeve Assembly; Stiffner; Support Assembly; Valve Assembly,

6.1 The applicant also submitted the detailed Description of the item, usage, purpose in the functioning of the Tank, photograph, Material involved. They further stated that out of the said 17 items, 5 items namely, Dowel Pin; Gasket Assembly; Retainer Steel; Stiffner and Valve Assembly are purchased from outside HVF and sold as such as spares and they have produced the purchase invoice for these items.

  1. The comments of the State Jurisdiction Officer on the ARA application is given below:

(i) Section XVII in Point No.2, has excluded many articles as “Parts” and “Parts and accessories”. The classification sought for the articles submitted by the applicant under the Question No.4 given in Para 1 supra are found to be parts of general use, joints etc, which are specifically excluded under section XVII in point No.2 under HSN Code 87100000.

(ii) Also, all such articles whether manufactured by the applicant by himself or purchased from vendors shall be covered under exclusion list under Section XVII in point No.2 of HSN code 87100000.

  1. The various submissions made by the applicant were examined. We find that the Advance Ruling sought is to determine
  2. Whether Tank and all Tank parts supplied by applicant is considered under the HSN code “87100000-Tank and other armoured fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles”?
  3. Whether parts manufactured specifically by applicant for TANK shall be considered under 87100000?
  4. Whether parts and accessories supplied by their vendor specifically manufactured for Tank Parts and the same is not supplied to any other company will come under the HSN 87100000?
  5. Whether tank parts of the following shall be considered under 87100000 or not:-

O Ring; U Drill; Accumulator Assembly; Adaptor Assembly; Angle piece; Armature Assembly; Armour Steel Plate; Assembly Fixture; Assembly Bracket; Axial Bearing; Axle; Ball Bearing; Band Assembly; Base Assembly; Battery; Bearing Bush; Bellows; Bevel Gear; Booster Assembly; Boss Assembly; Bracket Assembly; Bush, bushing; Casing Assembly; Clamp Assembly; Clip Assembly; Collar Assembly; Connector Assembly; Cover Plate; Diode; Dowel Pin; Electrical Wire used in Tank; End Mill; Fanuc Fuse; Fixture for Assembly; Flange; Gasket Assembly; Gasket Rubber; All type of Gauge; Gear Box; Gusset Plate; Hinge Assembly; Hose Assembly; All type of Hydraulic items used in tank; Insert carbide; Jig Drill; Knob Assembly; Latch Assembly; Leather washer; Lock Assembly; Mandrel Assembly; Milling Fixture; Needle Bearing; Nozzle Assembly; Oil Seal; Panel Assembly; Pipe Assembly; Planet Pinion; Plate Assembly; Plug Gauge; Retainer Steel; Rib Assembly; Shaft Assembly; Shim; Sleeve Assembly; Spacer; Spindle Steel; All types of spring; Stiffener; Stop Steel; Stopper Steel; Strap Assembly; Strip Assembly; Sub-Assemblies; Support Assembly; Thyristor; Torsion Bar; Tube Assembly; Turret; Twist Drill; Valve Assembly; Washer( Rubber made or Steel made) ; Wedge; Worm Wheel, Worm Gear, Worm Shaft; Yoke Assembly.

  1. If the vendor is supplying parts under an HSN code other than 87100000, is it necessary that it has to be supplied under the same HSN code on what the vendor is charging?

We take up the questions seriatim. The first three questions seek classification of the Tank and all Tank Parts, whether manufactured specifically by them or supplied by their vendor specifically manufactured for Tank Parts. HVF has stated that their main activity is manufacturing Tank and Tank Parts and according to them Tank and all parts is considered under the HSN code “87100000-Tank and other armoured fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles”. HVF has stated that the ‘Parts of Tanks’ are classifiable under 87 Chapter only, more specifically under CTH ‘8710 0000- Tank and other armoured fighting vehicles, motorized, whether or not fitted with weapons and parts of such vehicles”.

  1. In terms of explanation (iii) and (iv) to Notification No. 1/2017 – Central Tax (Rate) dt. 28-06-2017, tariff heading, sub-heading, heading and chapter shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 and the rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall be applied for the interpretation and classification of goods.

9.1 Chapter Heading 8710 of Customs Tariff states

8710 00 00 TANKS AND OTHER ARMOURED FIGHTING VEHICLES, MOTORISED, WHETHER OR NOT FITTED WITH WEAPONS, AND PARTS OF SUCH VEHICLES kg. Free

Chapter 87 is under Section XVII.

Section Note 2 to Section XVII

states:

  1. The expressions “parts” and “parts and accessories” do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:

(a) joints, washers or the like of any material (classified according to their constituent material or in heading 8484) or other articles of vulcanised rubber other than hard rubber (heading 4016):

(b) parts of general use, as defined in Note 2 to Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39);

(c) articles of Chapter 82 (tools):

(d) articles of heading 8306:

(e) machines and apparatus of headings 8401 to 8479, or parts thereof, other than the radiators for the articles of this Section, articles of heading 8481 or 8482 or, provided they constitute integral parts of engines and motors. articles of heading 8483;

(f) electrical machinery or equipment (Chapter 85):

(g) articles of Chapter 90:

(h) articles of Chapter 91:

(y) arms (Chapter 93):

(k) lamps or lighting fittings of heading 9405; or

(l) brushes of a kind used as parts of vehicles (heading 9603).

Section Note 3 to Section XVII states:

  1. References in Chapters 86 to 88 to “parts” or “accessories” do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part of accessory.

Explanatory Notes of Harmonised Commodity Description and coding System is a guide to clarify the classification issues. Explanatory Notes to Section XVII on the Tarts and Accessories’ as per HSN is given below:

(III) PARTS AND ACCESSORIES

It should be noted that Chapter 89 makes no provision for parts (other than hulls) or accessories of ships, boats or floating structures. Such parts and accessories, even if identifiable as being for ships. etc., are therefore classified in other Chapters in their respective headings. The other Chapters of this Section each provide for the classification of parts and accessories of the vehicles, aircraft or equipment concerned.

It should, however, be noted that these headings apply only to those parts or accessories which comply with all three of the following conditions :

(a) They must not be excluded by the terms of Note 2 to this Section (see paragraph (A) below). and

(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88 (see paragraph (B) below) and

(c) They must not be more specifically included elsewhere in the Nomenclature (see paragraph (C) below).

(A) Parts and accessories excluded by Note 2 to Section XVII.

This Note excludes the following pans and accessories, whether or not they are identifiable as for the articles of this Section :

(1) Joints, gaskets, washers and the like, of any material (classified according to their constituent material or in heading 84.84) and other articles of vulcanised rubber other than hard rubber (e.g., mudguard-flaps and pedal covers) (heading 40.16).

(2) Parts of general use as defined in Note 2 to Section XV, for example. cable and chain (whether or not cur to length or equipped with end fitting, other than brake cable, accelerator cables and similar cables suitable or use in vehicles of Chapter 87), nails, bolts. nuts, washers, cotters and cotter-pins, springs (including leaf springs tor vehicles) (such goods of base metals fall in Chapters 73 to 76 and 78 to 81, and similar goods of plastics fall in Chapter 39), and locks, fittings or mountings for vehicle coachwork (e.g., made up ornamental beading strips, hinges, dour handles, grip bars foot rests, window opening mechanisms.), number plates, nationality plates, etc (such goods of base metals fall in Chapter 83, and similar goods of plastics tall in Chapter 39).

(3) Spanners, wrenches and other tools of Chapter R2

(4) Bells (e.g., for cycles) and other articles of heading 83.06

(5) Machines and mechanical appliances, and parts thereof, of headings 84.91 to 84.79, for example :

(a) Boilers and boiler equipment (heading 84.02 or 84.04)

(b) Producer as generators (e.g. for cars) (heading 84.05)

(c) Steam turbines of heading 84.06.

(d) Engines of all kinds including engines fitted with gear boxes and parts thereof, falling in headings 84.07 to 84.12.

(e) Pumps, compressors and fans (heading 84.13 or 84.14)

(f) Air-conditioning machines (heading 84.15).

(g) Mechanical appliances for projecting, dispersing or spraying liquids or powders, fire extinguishers (heading 84.24).

(h) Lifting, handling, loading or unloading machinery (e.g., hoists, jacks, derricks), moving, grading, levelling, scraping, excavating, tamping, compacting, extracting or boring machinery, for earth, minerals or ores (heading 84.25, 84.26, 84.28, 8430 or 84.31)

(i) Agricultural machinery- of heading 8432 or 84.33 (e.g., threshing, seed distributing, mowing, etc., attachments) constructed for mounting on vehicles.

(k) Machinery of a kind described in heading 84.74

(I) Windscreen wiping mechanisms of heading 84.79.

6) Certain other goods of Chapter 84, e.g. :

(a) Taps, cocks, valves and similar appliances (e.g., radiator drainage taps, inner-tube valves) (heading 84.81).

(b) Ball Or roller hearings (heading 84.82).

(c) internal parts of engines or motors (crank shafts, cam shafts. flywheels, etc.) falling in heading 84.83

7) Electrical machinery or equipment of Chapter 85, for example :

(a) Electric motors, generators, transformers, etc., of heading 85.01 or 85.04,

(b) Electro-magnets. electro-magnetic clutches, brakes, etc., of heading 85.05.

(c) Electric accumulators (heading 85.07).

(d) Electrical ignition or starting equipment of a kind used for spark-ignition or compression-Ignition internal combustion engines (sparking plugs, starter motors, etc.) (heading 85.11).

(e) Electrical lighting, signaling, windscreen wiping, defrosting, demisting, equipment for cycles or motor vehicles (heading 85.12) electrical signalling apparatus for other vehicles (e.g. trains) or for aircraft or ships (heading 85.31), electrical defrosters or demisters for such other vehicles, aircraft or ships (heading 85.43).

(f) Electric heating units for motor or railway vehicles, aircraft., etc, (heading 85.16).

(g) Microphones, loudspeakers and audio-frequency electric amplifiers (heading 85.18).

(h) Ratio transmitters and receivers (heading 85.25 or 85.27),

(ij) Electrical capacitors (heading 85.32).

(k) Pantographs and other current collectors for electric traction vehicles, and fuses, switches and other electrical apparatus of heading 8535 or 85.36.

(l) Electric filament lamps and electric discharge lamps, including sealed beam lamp units, of heading 85.39.

(m) Other electrical fittings, such as insulated electric wire and cable (including wiring sets) and electrical articles of graphite or other carbon, whether or not fitted with terminals, insulators, insulating fittings (headings 85.44 to 85.48).

(8) Instruments and apparatus of Chapter 90, including those used on certain vehicles, such as :

(a) Photographic or cinematographic cameras (heading 90.06 or 90.07).

(b) Navigational instruments and appliances (heading 90.14).

(c) Instruments and appliances used to medical, surgical, dental or veterinary sciences (heading 90.18).

(d) Apparatus based on the use of X-rays and other apparatus of heading 90.22.

(e) Manometers (heading 90.26)

(f) Revolution counters, taximeters, speed indicators and tachometers and other instruments and apparatus of heading 90.29.

(g) Measuring or checking instruments, appliances and machines of heading 90.31

(9) Clocks (e.g., instrument panel clocks) (Chapter 91).

(10) Arms (Chapter 93).

(11) Lamps and lighting fittings (e.g. headlamps for aircraft or trains) of heading 94.05

(12) Brushes (e.g.. for road sweeper lorries) (heading 96.03).

(B) Criterion of sole or principal use.

(1) Parts and Accessories classifiable both in Section XVII and in another Section.

Under Section Note 3, parts and accessories which are not suitable for use solely, or principally with the articles of Chapters 86 to 88 are excluded from those Chapters.

The effect of Note 3 is therefore that when a part or accessory can fall in one or more other Sections as well as in Section XVII, its final classification is determined by its principal use. Thus the steering gear, braking systems, road wheels, mudguards, etc., used on many of the mobile machines falling in Chapter 84, are virtually identical with those used on the lorries of Chapter 87, and since their principal use is with lorries. such parts and accessories are classified in this Section.

(2) Parts and accessories classifiable in two or more headings of the Section.

Certain parts and accessories are suitable for use on more than one type of vehicle (motor cars, aircraft, motorcycles, etc.); examples of such goods include brakes, steering systems, wheels, axles, etc. Such parts and accessories are to be classified in the heading relating to the parts and accessories of the vehicles with which they are principally used.

(C) Parts and accessories covered more specifically elsewhere in the Nomenclature.

Pat is and accessories, even if Identifiable as far the articles of this Section, are excluded if they are covered more specifically by another heading elsewhere in the Nomenclature. e.g. :

(1) Profile shapes of vulcanised rubber other than hard rubber, whether or not cut to length (heading 40.08).

(2) Transmission belts of vulcanised rubber (heading 40.10).

(3) Rubber tyres, interchangeable tyre treads, tyre flaps and inner tubes (headings 40.11 to 40.13).

(4) Tool bags of leather or of composition leather, of vulcanised fibre, etc. (heading 42.02).

(5) Bicycle or balloon nets (heading 56.08).

(6) Towing ropes (heading 56.09).

(7) Textile cat pets (Chapter 57)

(8) Unframed safety glass consisting of toughened or laminated glass, whether or not shaped (heading 70.07)

(9) Rear-view minors (heading 70.09 or Chapter 90 – see the corresponding Explanatory Notes).

(10) Unframed glass for vehicle headlamps (heading 70.14) and, to general the goods of Chapter 70.

(11) Flexible shafts for speed indicators, revolution counters. etc. (heeding 84.83).

(12) Vehicle seats of heading 94.01

Parts of general use as defined in Note 2 to Section XV states:

2.- Throughout the Nomenclature, the expression “parts of general use” means :

(a) Articles of heading 73.07, 73.12, 73.15, 73.17 or 73.18 and similar articles of other base metals;

(b) Springs and leaves for springs, of base metal, other than clock or watch springs (heading 91.14); and

(c) Articles of headings 83.01, 83.02, 83.08, 83.10 and frames and mirrors, of base metal, of heading 83.06.

The Explanatory Notes to CTH 8710 reads as follows:

87.10 – Tanks and other armoured fighting vehicles, motorised, whether or not fitted with weapons, and parts of such vehicles.

This heading covers tanks and other armoured fighting “Vehicles, motorised, whether or not fitted with weapons, and” parts of such vehicles

Tanks are armoured fighting vehicles mounted on tracks, and armed with various weapons (guns, machine-guns, flame-throwers, etc.) usually housed in a traversing turret. They are sometimes fitted with a special gyroscopic stabilisation gear to keep the sights on the target. irrespective of the movement of the vehicle. They may also be equipped with anti-mining devices, such as a “flail” (a rotating drum which is carried on arms in front of the tank and to which are attached chains with ball ends) or a number of heavy milers attached to the front of the tanks.

…………………………………………………….

PARTS

The heading also covers parts of the above-mentioned vehicles provided the parts fulfil both the following conditions :

(i) They must be identifiable as being suitable for use solely or principally with such vehicles: and

(ii) They must not be excluded by the provisions of the Notes to Section XVII (see the corresponding General Explanatory Note).

Parts of this heading include

(1) Bodies of armoured vehicles and parts thereof (turrets, armoured doors and bonnets. etc )

(2) Tracks, specially constructed for use with tanks.

(3) Special road-wheels for armoured cars.

(4) Propulsion wheels for tank tracks.

(5) Armour plates, worked to such an extent that they are identifiable as parts of the vehicles of this heading.

(6) Clutch cables, brake cables, accelerator cables and similar cables, consisting of a flexible outer casing and a moveable inner cable, They are presented cut to length and equipped with end fittings.

The Applicant has stated that their main activity is manufacturing Tank and Tank Parts. Tank is completely assembled in HVF, whereas some parts of Tank are manufactured separately in HVF and some parts of Tank are procured from outside vendors on the specification given by HVF. Tanks’ supplied by the applicant are classifiable under CTH 87100000 as seen from the above.

10.1 On a joint reading of the above provisions, it is clear that chapter 8710 0000 covers Tank and its Parts’, provided the Parts satisfy the following conditions, namely:

  1. They must not be excluded by the provisions of the Note 2 to Section XVII
  2. They must be identifiable as being suitable for use solely as principally with such vehicles; and
  3. They must not be more specifically included in elsewhere in the Nomenclature

Therefore only those parts which satisfies the above conditions are to be classified under CTH 8710 0000 and those which do not satify both the stipulated conditions as above, are to be covered in the respective CTH.

This view finds support from the decision of Hon’ble Supreme Court in the case of Intel Design Systems (India) Pvt. Ltd. Vs. Commissioner of Customs & C.Ex [2008 (223) E.L.T. 135 (S.C.)] = 2008 (2) TMI 5 – SUPREME COURT, wherein the Apex Court has dealt with ‘Parts supplied for Tanks’. The relevant paras are given as under:

“4. As per Rule 1 on Interpretive Rules, classification of excisable goods is to be determined according to the terms of the Heading and in terms of Section/ Chapter notes. Note 2(1) to Section XVII (which governs Chapter 87) excludes the goods viz. electrical machinery and equipment (Chapter 85). The goods in question i.e. contractors, switches, control box etc. are the goods used for switching, protecting electrical circuits or for making connections to or in electric circuit. These parts/ components are specifically covered under CSH 8536.90. The GBEC Circular relied upon by the assessee is not relevant.

  1. As per the Explanatory Notes to HSN the parts falling under Chapter Heading 8710 would be covered under the said chapter, provided they fulfill both the conditions i.e. they must be identifiable as being suitable for use solely or principally for such vehicles and that they must not be excluded by the provisions of Notes to Section XVII. The identifiable parts under the said heading bodies of armoured vehicles and parts thereof cover special road wheels for armoured cars, propulsion wheels for tanks, tracts etc. As per this requirement, the goods should not only be identifiable to be armoured vehicles, but it should so not have been excluded by Notes to Section XVII. The Chapter note 2(f) excludes electrical machinery and equipment falling under Chapter 85. Explanatory Notes to HSN relating to the parts and accessories excluded by Note 2 specify items with reference to specific Chapter Heading as per (7) (a), (k) which excludes photographs and other current collectors for electric traction vehicles, fuses, switches and other electric apparatus of Heading No. 85.35 or 85.36. The items, therefore, manufactured by the appellants are identifiable or are in the nature of goods falling under Chapter Heading 85.36. Since these fall under the category of excluded goods under Chapter Notes, even though they are used specifically solely or principally with the armoured vehicles of Chapter Heading 8710, they are classifiable under Chapter Heading 8536.90 only as held by the adjudicating authority”.

HVF has initially requested to clarify whether the 84 parts as listed in their query No.4 at Para 8 above shall be considered under 8710 0000 or not. Subsequently, during the hearing held on 21.05.2019, they stated that out of these, only 17 items are being supplied by them and the rest are items which they receive/procure from vendors and hence they stated that clarification is now sought for these 17 parts only. These parts are:

Casing Assembly; Clip Assembly; Connector Assembly; Dowel Pin; Gasket Assembly; Hydraulic items(All Types); Mandrel Assembly; Needle Bearing; Nozzle Assembly; Panel Assembly; Planet Pinion; Plate Assembly; Retainer Steel; Sleeve Assembly; Stiffner; Support Assembly; Valve Assembly.

10.2 HVF has stated that out of the above, Dowel Pin, Gasket Assembly, Retainer Steel, Stiffner and Valve Assembly are purchased and sold as such as spares. The applicant has furnished the invoice of the supplier and their Tax invoice towards supply of these items. On perusal of the purchase Invoices, it is seen that the seller has classified the goods and the HSN is given in the Invoice raised on the Applicant. The applicant supplies the goods as such as spares to Central Vehicle Depot, Ministry of Defence. As seen under Para 9 above, to be considered as Parts of Tank’ under CTH 8710 0000, the items are to be identified as being suitable for use solely as principally with the Tank and should not be excluded under Section Note 2 and should not be more specifically covered elsewhere in the Nomenclature. Applying the above to each part, the clarification as to whether the said items are to be considered as tank parts under CTH 8710 0000 are discussed as under:

  1. Dowel Pin:The applicant has stated that the component is in Hull electrical system on mounting of starter generator. It is accurate machined steel pin. It acts as locating and guiding pin. Dowel pins are classifiable in general under Chapter heading 7318. As per Section Note 2 to Section XVII on the Tarts and Accessories’, parts of general use as defined in Note 2 to Section XV includes articles of Chapter 7318 which are excluded from being classified as parts under CTH 87100000. Therefore,“Dowel Pin” are not classifiable under CTH 87100000.
  2. Gasket Assembly:The applicant has stated that the component is used in Hull Assembly. It is made up of heat resistant proof fiber material have covered with sheeting screen, i.e. cloth wire net with square mesh. It is used in between engine and firing compartment. Para (A)(1) ofExplanatory Notes to Note 2 of Section XVII on the ‘Parts and Accessories’ specifies that gaskets of any material (classified according to their constituent materials or under 8484) are excluded froth classification as parts or accessories, whether or not they are identifiable as articles for Section XVII. Therefore, “Gasket Assembly” is not classifiable under CTH 87100000 as parts.
  3. Retainer Steel:The applicant has stated that this component is precision machined. It is made of alloy steel and is used in Hull vision device cleaning system with function as holding/positioning purpose. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  4. Stiffner: The applicant has stated that it is a steel strip used in various mountings. It is used as a stiffner in mounting of ERA bracket (Explosive reactive armour) skirts in CIA T72 turrets. Steel strips are more specifically covered in Chapter 72 of the Nomenclature. Hence,“Stiffner” is not classifiable under CTH 87100000 as parts.
  5. Valve Assembly: The applicant has stated that it is made up of 1 valve assembly, 8s 5 components in spring, steel body, packing, union. This is used as controlling device in hydro pneumatic (AIR) system of Tank. It is used in air supply system of tank. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.

10.3. With respect to other items, the applicant has furnished detailed description of the item, usage, Purpose in the functioning of the Tank and materials involved. As seen under Para 9 above, to be considered as ‘Parts of Tank’ under CTH 8710 0000, the items are to be identified as being suitable for use solely as principally with the Tank and should not be excluded under Section Note 2 and should not be more specifically covered elsewhere in the Nomenclature. Applying the above to each part, the clarification as to whether the said items are to be considered as tank parts under CTH 8710 0000 are discussed as under:

  1. Casing Assembly:The applicant has stated that it is the assembly of six items, four items are made up of Fabric and two made of Rubber. It acts as a protective casing for conveyor guard under belts for fastening the gasmask. This item is individually assembled in final tank assembly. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  2. Clip Assembly:The applicant has stated that this item is used on cooling system of tank. It is used for tightening the hoses with pipes. It is made up of steel made Band, Bolt, washer and clamp and is stated as direct material used in Tank. Pipe clips/clamps or fittings are classifiable in general under Chapter heading 7307. As per Section Note 2 to Section XVII on the Parts and Accessories’, parts of general use as defined in Note 2 to Section XV includes articles of Chapter 7307, which are excluded from being classified as parts under CTH 87100000. Therefore,“Clip Assembly” are not classifiable under CTH 87100000.
  3. Connector Assembly:The assembly is used on Hull electrical system. It is made-up of five components, copper connectors and rivet, cloth and tape. It is used as connector in mounting of storage batteries equipments. This item is stated as a direct material used in the Tank. Connector assembly is essentially a conductor along with insulating material which is classifiable under 8544. Para (A)(7)(m) ofExplanatory Notes to Note 2 of Section XVII on the ‘Parts and Accessories’ excludes ‘Other electrical fittings, such as insulated electric wire and cable (including wiring sets) and ………..(Headings 85.44 to 85.48) from being classified as parts of articles of this Section XVII. Therefore, “Connector Assembly” is not classifiable under CTH 87100000 as parts.
  4. Hydraulic items (All types):It is the assembly used as Hydraulic Shock absorber in tank. It is made up of five major Assemblies 86 19 components of different types. It is used in tank running gear assembly along with torsion bar, support roller etc. This item is stated as a direct material used in the Tank. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  5. Mandrel Assembly:It is used as special tools & Accessories in maintenance kit of tank. It is made of steel pipe and steel pin. It acts as holder for shell after firing. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanksand as such is classifiable under CTH 87100000.
  6. Needle bearing:It is made up of steel alloy and it is the machined component acting as bearing bushing. It is used in 4th planetary gear Oset of Side gear box. Needle Bearing merits classification under CTH 8482, Needle bearings are in general classifiable under chapter 8482. Para (A) (6) (b) ofExplanatory Notes to Note 2 of Section XVII on the ‘Parts and Accessories’ excludes ‘Ball or roller bearings’ of chapter 8482 from being classified as parts of articles of this Section XVII. Therefore, “Needle bearing” is not classifiable under CTH 87100000 as parts.
  7. Nozzle Assembly:It is used in hydro pneumatic cleaning of turret. It is made of pipe, nozzle, washer & strap by soldering method. It is used to generate high speed jet of water & cleaning. This item is stated as a direct material used in the Tank. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  8. Panel Assembly:This is the driver instrument panel made up of 20 assemblies and 98 components. This panel indicates various control parameters like speed, power, temperature, oil & water level etc. It is made up of instruments, connections, cables, knobs, handles &switches. Finally fitted in Tank Hull electrical. This is stated as a direct item used in tanks. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  9. Planet Pinion:It is the precision machined components made of alloy steel. It is used in higher assembly 4th planetary gear of side gear box. This is stated as a direct item used in Tanks. Planet Pinion are in general classifiable under chapter 8483 as parts of gears. Para (A)(6)(c) ofExplanatory Notes to Note 2 of Section XVII on the ‘Parts and Accessories’ excludes ‘Internal parts of engines or motors(crank shafts, cam shafts, flywheels etc.) of chapter 8483 from being classified as parts of articles of this Section XVII. Therefore, “Planet Pinion” excluded from classification under CTH 87100000 as parts.
  10. Plate Assembly:It is also made up of special Alloy steel plates by welding and used in Holding/ Supplying the external fuel barrels in tank. It is fitted in Hull outer body. It is stated as a direct material used in Tank with specific drawings available. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  11. Support Assembly:It is made up of four components by welding. It involves steel pipes and flanges. It is used control linkages of Tank System. It is stated as a direct material used in Tank with specific drawings available. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  12. Sleeve Assembly:It is made up of two assembly & two Components (Slipcover & sleeve). It is mainly made up of steel sleeve, fabric cotton cover. It is used in arrangement of SPTA in Turret and is used in Conveyor Deck in front of Gunner’s seat. It is stated as a direct material used in Tank with specific drawings available. This item is not excluded by the provisions of Note 2 to Section XVII nor is it more specifically included in elsewhere in the Nomenclature. It is identifiable as being suitable for use solely as principally with Tanks andas such is classifiable under CTH 87100000.
  13. The last question raised in the application is ‘If their vendor is supplying parts under an HSN code other than 8710 0000, is it necessary that it has to be supplied under the same HSN code on what the vendor is charging?’. Classification is uniform irrespective of the supplier or recipient as it depends on the goods. The applicant is required to correctly classify the goods while supplying the goods or while receiving the same.
  14. In view of the above, we rule as under:

RULING

  1. In respect of Questions 1, 2 and 3, Tank is classified under CTH 8710 0000 while parts which satisfies the essential conditions i.e., they must be identifiable as being suitable for use solely or principally with Tanks and must not be excluded by the provisions of the Notes to Section XVII and must not be more specifically included in elsewhere in the Nomenclature are only to be classified as ‘Parts’ under CTH 8710 0000
  2. In respect of Question No. 4, Retainer Steel, Valve Assembly, Casing Assembly, Hydraulic items(all types), Mandrel assembly, Nozzle Assembly, Plate assembly, Panel assembly, Support Assembly and Sleeve Assembly are classifiable as parts under CTH 8710 0000 for the reasons stated at Para 10.2 &10.3 above. Dowel Pin, Gasket Assembly, Stiffner, Clip Assembly, Connector Assembly, Needle Bearing and Planet Pinion are not classifiable under CTH 8710 000 for the reasons stated at Para 10.2 &10.3 above.
  3. In respect of Q.No. 5, Classification is independent of the buyer or seller and depends only on the goods.

M/S. TAMIL NADU GENERATION AND DISTRIBUTION CORPORATION LIMITED

Applicability of GST – transactions between TANGEDCO Ltd. & TANTRANSCO Ltd, engaged in the generation and distribution of electricity – Deposit Contribution Works – TANGEDCO, Government Entity or not – Transmission Charges for Natural Gas.

GST applicability on the transactions between TANGEDCO Ltd. & TANTRANSCO Ltd – HELD THAT:- Activity of payment of expenses incurred by TANTRANSCO relating to vehicle hire charges, maintenance of sub-stations, salary payments, etc and paid by TANGEDCO & accounted as receivable in the books of the applicant. The said activity is not one involving services of distribution of electricity and therefore the exemption under Sl. No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 is not available for the stated transactions – Activity at Sl.No. 5 of Para 5.2 relates to receipt of Services from TANTRANSCO for which the payment is to be made by the applicant. Since the applicant is not the person supplying, this part do not fall within the purview of the Advance Ruling as per Section 95(a) of the CGST Act 2017 and hence not answered.

Applicability of GST on Deposit Contribution Works – HELD THAT:- DCW involve shifting service/line, Structure and equipment as per the request of the consumer, the charges for which are billed separately from the consumer. The works undertaken are Installation of transformers/lines and other accessories and are in the nature of installation of the structure and equipments classifiable under SAC 99873.

Whether TANGEDCO ltd can be considered a “Government Entity” – HELD THAT:- TANGEDCO Ltd is established by Government of Tamil Nadu vide G.O. Ms. No. 94 Energy (B2) Department dated 16.11.2009 with the primary object to function as generation and distribution utility in terms of the provisions of Electricity Act 2003. It is a public company wherein 99 percent shares are held by TNEB, the Holding Company, which is established by Government of Tamil Nadu with more than 90 percent equity shares and control. The appointments of the directors to TANGEDCO are by the Government. Thus TANGEDCO is a Public Limited Company established by Government of Tamil Nadu with more than 90 percent control for the purposes of generation and distribution of electricity. Hence, TANGEDCO Ltd is a government Entity for the purposes of Notification No.11/2017 Central Tax (Rate) dated 28.06.2017 and 12/2017-C.T.(Rate) as amended vide Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017 and Notification No. 32/2017-C.T.(Rate) dated 13.10.2017 effective from 13.10.2017.

Applicability of GST on Transmission Charges for Natural Gas – HELD THAT:- An applicant can seek an Advance Ruling in relation to supply of goods or services or both undertaken or proposed to be undertaken by the applicant. Further, as per Section 103 (1) of the CGST Act, the ruling is binding only the applicant and the concerned officer or the jurisdictional officer of the applicant. In the case at hand, the applicant is the recipient of the services and not supplier of such service. Accordingly, this question is not liable for admission and therefore rejected.

No.- TN/14/AAR/2020

Dated.- April 20, 2020

Citations:

  1. Commissioner of Customs (Import) , Mumbai Versus M/s. Dilip Kumar And Company & Ors. – 2018 (7) TMI 1826 – Supreme Court
  2. TORRENT POWER LTD. Versus UNION OF INDIA – 2019 (1) TMI 1092 – GUJARAT HIGH COURT
  1. MANASA GANGOTRI KATA, IRS ADDITIONAL COMMISSIONER, THIRU KURINJISELVAAN V.S., M.SC., (AGRI.), M.B.A., MEMBER,

Note : Any appeal against the advance ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.

At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.

M/s. Tamil Nadu Generation and Distribution Corporation Limited, Administrative office at 144, Anna Salai, NPKRR Maaligai, Chennai-600002 (hereinafter called the Applicant or TANGEDCO) is engaged in the generation and distribution of electricity. They are registered under GST vide GSTIN 33AADCT4784E1ZC. They have preferred an application seeking Advance Ruling on the following:

  1. GST applicability on the transactions between TANGEDCO Ltd. & TANTRANSCO Ltd
  2. Applicability of GST on Deposit Contribution Works
  3. Whether TANGEDCO ltd can be considered a “Government Entity”
  4. Applicability of GST on Transmission Charges for Natural Gas.

The Applicant submitted copy of Challan evidencing payment of application fees of ₹ 5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.

2.1 The Applicant is a subsidiary of Tamil Nadu Electricity Board Limited (TNEB Ltd), which is 100% owned by Government of Tamil Nadu. TNEB Ltd is an investment Company only, no other business transactions are being carried out. TANGEDCO is an Electricity Distribution utility under Electricity Act, 2003. As per the provisions under the Section 131 of the Electricity Act, 2003, TNEB was restructured on 1.11.2010 into TNEB Limited; Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO); and Tamil Nadu Transmission Corporation Limited (TANTRANSCO). TANGEDCO is in the service of Generating and Distributing (sale of) Electricity in the state of Tamil Nadu & TANTRANSCO Ltd. is in the business of Transmission of Electricity. TANGEDCO has its own stations for the purpose of generating electricity like Thermal Stations Ennore (ETPS), Mettur I (MTPS-I), Mettur II (MTPS-II), North Chennai I (NCTPS-I), North Chennai II (NCTPS-II), Tuticorin (TIPS)), Hydro Stations (Kundah, Kadamparai, Erode and Tirunelveli), Non-Conventional Energy sources (Wind Energy, Solar Energy etc.) and Gas Turbine Stations (Basin Bridge (BBGTPS), Thirumakottai (Kovilkalappal) Power Station (TKGTPS), Kuttalam Power Stations (KGTPS), Valuthur Power Station (VGTPS)) and has been distributing the generated electricity to various consumers throughout the State of Tamil Nadu, since the time it has been established.

2.2 TANGEDCO LTD. & TANTRANSCO LTD. are two subsidiary companies of TNEB Ltd. (Holding company), and both are registered utilities for distribution and Transmission of Electricity respectively under the Electricity Act, 2003. TANGEDCO and TANTRANSCO enter into transactions between them in the course of generation, transmission, and distribution of electricity in Tamil Nadu. The following are the Inter Company Transactions between TANGEDCO and TANTRANSCO:

2.2.1 Receipt of TANTRANSCO’s income in TANGEDCO Bank A/c:

Certain income such as transmission charges, Scheduling and System Operating Charges, Reactive Energy Charges etc. from open access consumers are received by TANGEDCO directly in its bank account and later on adjusted through payable to TANTRANSCO with a Journal Voucher.

2.2.2 Transfer of Capital Assets by TANTRANSCO to TANGEDCO:

The cost of completed capital assets of 33 KV and below by TANTRANSCO are transferred to Distribution Circles of TANGEDCO and booked as receivable from TANGEDCO in TANTRANSCO books and payable in TANGEDCO books.

2.2.3 Allotment of Funds:

Separate funds are allotted by TANTRANSCO to nodal circles ie. General Construction Circles(GCC) and SE/operation circles of TANTRANSCO from TANTRANSCO Bank A/c. The excess over requirement of funds is transferred from TANGEDCO Bank A/c and booked as receivable from TANTRANSCO in TANGEDCO’S Books, The funds requirement of TANTRANSCO in respect of circles other than nodal circles is being met out by TANGEDCO’s funds and booked as receivable from TANTRANSCO.

2.2.4 Movement of Materials:

Similarly any material drawn from TANGEDCO stores by TANTRANSCO and from GCC stores by TANGEDCO is treated as payable and receivable in respective company books.

2.2.5 Movement of employees:

For the employees transferred from TANGEDCO to TANTRANSCO and vice versa, their outstanding liabilities are treated as payable and receivable in respective company accounts.

The applicant has stated that the transactions are in the course of generation, transmission and distribution of electricity. This activity of transmission, or distribution of electricity by an electricity transmission or distribution utility is exempt under SI.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 with corresponding exemption for SGST. The applicant has sought Advance ruling to confirm that the above said activity is exempt under Sl.No.25 of Notification No.12/ 2017-Central Tax (Rate)

2.3 The applicant has stated that Under the Electricity Act, 2003 (Central Act 36 of 2003) the State Electricity Regulatory Commission shall specify an Electricity Supply Code to provide for recovery of electricity charges, intervals for billing of electricity charges, disconnection of supply of electricity for non-payment thereof, restoration of supply, tampering, distress or damage to electrical plant, electric lines or meter, entry of distribution Licensee or any person acting on his behalf for disconnecting supply and removing the meter, entry for replacing, altering or maintaining electric lines or electrical plant or meter. Under section 50 of the said Electricity Act, 2003, read with section 181 thereof and all other powers enabling in that behalf, the Tamil Nadu Electricity Regulatory Commission has specified and published, the Tamil Nadu Electricity Supply Code (the Code, for short). The code is available at (https://www.tangedco.gov.in/linkpdf/Consolidated%20Regulations.pdf). Among other things, the charges, recoverable by the Licensee from the consumers are prescribed in the said code. Under clause S in the Code (page 10 in the above web-link), dealing with Miscellaneous charges – under sub-clause 6 dealing with Service / line, structure and equipments shifting charge (please see page 18 in the Code) -it is prescribed that “The cost of shifting service / line, Structure and equipments shall be borne by the consumer. The consumer shall pay the estimated cost of shifting in advance in full. The copy of the estimate shall be given to the consumer. The shifting work will be taken up only after the payment is made. The Code further prescribes that “After completion of the work a revised estimate shall he prepared with a copy to the consumer based on the actual cost of materials, loading, unloading, and transport and erection charges. If the original estimate cost is more than the revised estimate, the balance shall be refunded to the applicant/consumer within 3 months. If the original estimate cost is less than the revised estimate, the difference shall be collected from the applicant/ consumer”.

2.3.1 The Applicant has submitted that no GST is attracted on the above charge for the reasons below:

  1. i) Charges are part of the valuation for exempted supply
  2. a) GST u/s 9(1) is on the value determined under section 15. GST on “Transmission or distribution of electricity by an electricity transmission or distribution utility” is exempt under SI. No. of notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. Supply of electrical energy is exempt under Sl. No. 104 in Notification No. 2/2017- Central Tax (Rate) dated 28.06.2017. U/s 15, value of supply shall include charges levied under any law for the time being in force, as also incidental expenses and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goads or supply of services.
  3. b) Charges in question are prescribed under law in force.
  4. ii) The charges are part and parcel of electricity supply under the Electricity Act 2003
  5. a) Under the Code, the charges are actual cost of materials, loading, unloading, and transport and erection charges. Therefore, these are not any service independent of the supply of electrical energy or transmission and distribution of electricity.
  6. b) These charges are statutorily included in the value of supply as stated in (1) above.
  7. c) Supply of electricity, unlike other goods / services, presupposes erection and creation transmission and distribution equipment and cables. What is “transport” for physical goods, is “transmission and distribution” for electricity or electrical energy.
  8. d) Under definition 2(hh) in the Code as also u/s 2(17) of the Electricity Act, 2003 “distribution licensee” means a licensee authorized to operate and maintain a distribution system for supplying electricity to the consumers in his area of supply. Under 2 (s) “Supply “in relation to electricity, means the sale of electricity to a license or consumer. U/s 2 (15) of the Electricity Act, 2013 “ Consumer” means any person who is supplied with electricity for his own use by a license or the Government or by any other person engaged in the business of supplying electricity to the public under the ACT or any other law for the time being in force and includes any person whose premises are for the time being connected for the purpose of receiving electricity with the works of a license, the Government or such other person as thecasemay be:” U/s 2(19) “distribution system” means the system wires and associated facilities between the delivery points on the transmission lines or the generating station connection and the point of connection to the installation of consumers;” Therefore, the applicant has stated that the connection with electrical works, operation and maintenance of distribution are part of the supply of electricity.

In light of the above, the applicant has requested to confirm the legal position that the charges in question are ones levied under the law in force as part and parcel of the exempted supply of electrical energy by transmission and distribution under the Electricity Act and the Tamil Nadu Electricity Supply Code notified under the said Act.

2.4 The Third question raised by TANGEDCO is Whether TANGEDCO can be considered a “Government Entity”. The statement of relevant facts submitted by the applicant for the question raised above is as follows:

  1. They are a subsidiary of “TNEB Ltd”, which is 100% owned by Government of Tamil Nadu. TNEB Ltd is an investment Company only, no other business transactions are being carried out. TANGEDCO is an Electricity Distribution utility under Electricity Act, 2003.
  2. As per the provisions under the section 131 of the Electricity Act, 2003, TNEB was restructured on 1.11.2010 into TNEB limited; Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO); and Tamil Nadu Transmission Corporation Limited (TANTRANSCO). TANGEDCO is in the service of Generating and Distributing (sale of) Electricity in the state of Tamil Nadu & TANTRANSCO Ltd is in the business of Transmission of Electricity.

iii. TANGEDCO Ltd. is a body with 100 per cent participation by way of equity or control, to carry out a function entrusted by the State Government of Tamil Nadu and hence it needs to be recognized as “Government entity” for the purposes of GST provisions, (Acts, Rules and notifications issued there under).

As per Notification 11’/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017, their establishment is to be treated as Government Entity. In the light of the facts, status and functions of TANGEDCO, the applicant has requested to confirm if they would be regarded as “Govt. Entity” more specifically for the purposes of Notification No. 11/2017 CTR, Notification No.12/2017 and Notification No.13/2017 as amended by Notifications cited in terms of clause (b) of Sec.97 (2) the CGST Act, 2017.

2.4 Finally, the applicant has requested to clarify the applicability of GST on transmission Charges on Natural Gas. The statement of relevant facts submitted by the applicant is as follows:

TANGEDCO has Gas Turbine Stations (GTS) at Kuttalam, Ramnad and Kovilkalapal. In Kuttalam, Ramnad and Kovilkalapal zones, GAIL receives gas from ONGC at the respective CTPs of ONGC and injects into GAIL’s pipeline and transports the gas to the Delivery Point (door step) of TANGEDCO GTS which is within TANGEDCO’s premises. The risk and title of the gas from GAIL shall be passed on to TANGEDCO at the delivery point of TANGEDCO. i.e. GAIL first transports gas from ONGC CTP to TANGEDCO’s Delivery Point and then sells gas to TANGEDCO. Thus GAIL provides Transmission (Service- charges Transmission Charges) and Gas (Goods – charges Gas Price and Marketing Margin) to TANGEDCO. GAIL’s bill includes (a) Gas Price (declared by MoP&NG which is payable to ONGC), (b) Transmission Charges and (c) applicable GST on Transmission Charges (18%), (d) Marketing Margin (as applicable for APM/Non APM) and TN VAT. (5%) on (a+b+c+d). VAT is applicable as Natural Gas is out of GST and Transmission by Pipe service is taxable to GST. Title passes only at TANGEDCO’s premises. The transmission up to that point was no supply of service to TANGEDCO. GAIL is transmitting gas to the sale point for the purpose of selling to TANGEDCO. In the context of these facts, the transmission costs, it is felt, that may form part of the price of the gas being sold to TANGEDCO, since Transmission is not a standalone activity, but is with reference to the supply of goods (gas supply) and hence it is a composite “supply of gas and its transmission.

In this context, TANGEDCO has requested to clarify whether supply of natural gas is a taxable supply or not. The applicant has also submitted that Section 2 (108) of the CGST Act defines that “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act”. Section 9(2) states that levy of central tax on supply of natural gas, among other goods, shall be levied from such date as may be notified. Therefore, until such date, supply of natural gas is not leviable to Central Tax, and its supply is not taxable supply. Further Section 2(30) defines “Composite Supply” as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both” and the applicant is of the view that supply of natural gas and supply of a service of its transmission do not amount to “composite Supply” as per the definition. The applicant has also stated that after the 101st amendment to the constitution, production and manufacture of natural gas attracts Central Excise Duty and its sale attracts VAT. The applicant also submits that that term “turnover” defined as per Section 2(41) of Tamil Nadu VAT ACT as the aggregate amount for which goods are brought or sold or delivered or supplied or otherwise disposed of in any of the ways referred to in Clause(33) by a dealer either directly or through another…” Explanation II to this sub-section provides that “Subject to such conditions and restrictions, if any, as may be prescribed in this behalf-(i) the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before the delivery thereof”. Thus, the applicant has submitted that in terms of the above provisions, the transmission of gas by GAIL is part of the amount for which goods are sold.

3.1 The authorized representative of the applicant was heard in the matter on 21.06.2018. They stated that there are various activities between TANGEDCO and TANTRANSCO. The detailed write-up of each of them along with the financial transactions for all substantiated by invoices, all MOUs, any tripartite agreements, IT returns, Balance Sheets, Statement of accounts of both TANGEDCO and TANTRANSCO, Invoice & contract for DCW with reference to the code given, Memorandum, Article of Association to justify government entity, Contract, invoice with GAIL were undertaken to be submitted. They also stated that their activities were exempted in the Service Tax regime and will submit case laws under Service Tax regime. As these activities were required for transmission and distribution of electricity which is exempt, their activities are also exempt under GST.

3.2 They furnished a written synopsis and a List of Case laws relied upon by them. In the synopsis, the applicant, inter-alia, stated as follows:

  1. GST applicability on the transactions between TANGEDCO TANTRANSCO

The transaction between TANGEDCO and TANTRANSCO are in the course of generation, transmission and distribution of electricity. This activity of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt under Sl.No.25 of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 with corresponding exemption for SGST. ARA is requested to answer the above question, in terms of Sec.97

(2) (b) of the CGST Act, 2017, in favour of the applicant by confirming that the transactions between the two electricity transmission and distribution utility would be exempted from GST as per the notifications cited.

  1. Non-Applicability of GST on Deposit Contribution Works (DCW)

It is submitted that the Central Board of Excise & Customs, vide its Circular No. 131/13/2010 ST dated 07.12.2010, had clarified that activity having direct and close nexus with transmission and distribution of electricity is covered by exemptions and the same is followed by the Commissioner (Appeals), Coimbatore in Order in-Appeal No. 064/2018 dated 19.03.2018 and has requested ARA to answer the above question, in terms of Sec.97(2)(b) of the CGST Act, 2017, in favour of the applicant by confirming that no GST would be payable on Deposit Contribution Works (DCW).

III. Whether TANGEDCO can be considered a “Government Entity”

Section 2(88) of the CGST Act, 2017, defines the term “person” in such a way that it includes also the Central Government, State Government and a Local authority within its ambit. Further, as per Section 2(17) of said act, the term “business” includes any activity or transaction undertaken by the Central Government, State Government and a Local authority. Thus, intention of law is very clear unless otherwise exempted, the Government entities will be treated at par with private parties as far the GST compliances are concerned. Many of the services to or by the Government entities have been exempted. For example, the following Notifications refer:-

  • Notification No. 11/2017-C.T. (Rate) dt.28.6.2017 (as amended)
  • Notification No. 12/2017-C.T. (Rate) dt.28.6.2017 (as amended)

Since the exemptions are to be strictly construed, ARA is requested to confirm if TANGEDCO would be regarded as “Govt. Entity” for the purposes of exemptions under the two notifications cited.

  1. Applicability of GST on Transmission Charges for Natural Gas

As far as the above question is concerned, since the natural gas is outside the purview of GST and only Central Excise duty/ VAT are applicable for its manufacture/Sale, the question as to whether (i) that transmission charges, merely because it is claimed separately by GAIL, would not be chargeable to GST as supply of service, and (ii) would the transmission charges be outside the purview of GST as part of value of natural gas sold at TANGEDCO’s premises. ARA is requested to answer the above question in terms of clause (b) of Sec.97 (2) the CGST Act, 2017.

Extracts of provisions of the Electricity Act submitted to highlight that ‘Transmission and Distribution of Electricity’ exempted from GST is to be understood as comprehensive set of activities to achieve the objective of transmission and distribution of electricity and should not be vivisected and taxed to defeat the exemption. Electrical energy is exempted from GST as “Supply of goods” as well. Therefore, any GST levy by vivisection of the comprehensive set of activities contributing to the achievement of ‘transmission and distribution of electricity’ in terms of the provisions of the Electricity Act 2003 would defeat the exemption.

4.1 The applicant was heard again on 24/09/2018. The Applicant stated that they will submit a reference write-up of the relevant documents already submitted, end to end document for supply of Capital Goods to TRANSCO, fund request letter from TRANSCO, TNEB MOA, definition of transmission charges. They stated that all transaction (both goods & services) between TANGEDCO TANTRANSCO are for the purpose of transmission and distribution of electricity. They are not a Supply as per Act and it is not taxable. The Deposit Contribution Works (DCW) is like a works contract for erection of transmission & Distribution equipment in respect of customer. They are majorly owned by TNEB which is 100% owned by Tamil Nadu Government as per electricity Act. The applicant furnished additional written submission vide their letter dated 01.11.2018. In the said submission, they have furnished the Functions of TANGEDCO and TANTRANSCO, elaborated on the Restructuring of TNEB, Shareholding Pattern of TANGEDCO, Specimen documentation for transfer of Material by TANGEDCO and assets transferred by TANTRANSCO, Fund transfer of TANTRANSCO operations by TANGEDCO’s EDCs;, Specimen copies of the DCW works.

5.1 The applicant was offered an opportunity to be heard again on 25.02.2019 due to change in the SGST Member of the Authority and was heard. The applicant submitted a written submission and stated that in several case laws submitted, the transmission and distribution of electricity is exempt under GST and Circular 34/2018 was stuck down in recent High Court order. They submitted balance sheet and financial statements where they indicate the transfer of assets, materials purchased under ‘receivables’ and ‘payables’ and they informed that when any amounts are received the same is offset in receivables. The applicant undertook to submit the detailed breakup in 1 week. In respect of DCW, they undertook to submit a complete transaction, works contract and invoice raised on the customer in 1 week.

5.2 The Applicant filed Additional written submission with the details as undertook by them during the personal hearing held on 25.02.2019. The applicant furnished documents for DCW from the initiation of DCW till its completion by TANGEDCO on behalf of the consumers. The Applicant had elaborated the transactions between TANGEDCO and TANTRANSCO synopsis of the same is as follows:

TRANSACTIONS BETWEEN TANGEDCO AND TANTRANSCO

TANGEDCO and TANTRANSCO are two subsidiary companies of the Holding Company, TNEB Limited. In view of the query on the applicability of GST on the various transactions between the TANGEDCO and TANTRANSCO, as requested in the hearing dt.25.02.2019, the nature of transactions, quantum of value such transactions for, the Financial Year 2015-16 as per the audited accounts of TANGEDCO and TANTRANSCO are submitted below.

Sl. No. Description of transaction Transferred from TANGEDCO to TANTRANSCO Account head 28.861 Transferred from TANTRANSCO to TAN GEDCO Account head 46.690
1. Operation and maintenance materials used in the regular functions of the power utility such as power transformers, conductors, insulators, meter, underground cables. 24.07 70.46
2. Construction of sub-station, Buildings, erection of transformers is being carried out by construction circles of either of the company on behalf of other company. Since TANTRANSCO has the general construction circles throughout Tamil Nadu certain specific capital expenditure i.e., Example-Construction of 33 KV Transformers is being done by TANTRANCO. Very few assets transfers happen from TANGEDCO to TANTRANSCO. For Example 110 KV lines cables and networks 66 KV and above substations and its ancillaries. At the time of segregation of circles, the assets relating to TANTRANSCO may be identified and transferred to the related companies i.e., TANTRANSCO and vice versa. 115.11 76.50
3. Since both the subsidiary companies are operating with huge cashloss, there are transactions of physical fund flow between the companies by the way of repayment of existing loan, availment of fresh loans and utilized by either of the company, settlement of suppliers bills of one company by another company, making of salary payments related to one company made by another company etc. Only to manage the financial difficulty, the above natures of fund flow transaction are being carried out on actual basis without any interest component on such fund flow between TANGEDCO and TANTRANSCO. 9522.30 3867.93
4. Since the Final Transfer Scheme for employees have not yet been notified by the Government of TN. All the employees are under the role of TANGEDCO but utilization is depending upon the requirement of TANGEDCO and TANTRANSCO. The pay packages of the respective employees are similar and transactions between these companies are also common. Based on utilization of manpower in the respective company, the actual expenses on salary and its related allowance are also booked. While transfer of employees from one company to another company the advances to staff i.e., House Building Advance, Computer Advance, Vehicle Advance, Festival Advance, Education Advance which are all pending to be recovered in subsequent salary, such advances would be transferred to the respective companies, where the employees will join on transfer / promotion. Similarly, the General Provident Fund and Contributory Pension Scheme Fund balances of those transferred employees would also be transferred to the respective company books of accounts. All such transfers are accounted based on only actual values. 38.88 11.17
5. Even though TANGEDCO and TANTRANSCO are subsidiary companies, the long term open access transmission charges has to be paid to TANTRANSCO by TANGEDCO every month. This transmission charges is fixed by Hon’ble TNERC based on the Electricity Act Regulations. As there is financial difficulty in TANGEDCO the prescribed claim of Transmission charges are not actually remitted by TANGEDCO to TANTRANSCO and booked as payable in books of accounts. In the regular fund flow management both the companies are swapping their available funds on day to day basis. 1621.15
6. Similarly, TANGEDCO collects Scheduling and system operating charges, LTOA Transmission charges by CPP, LTOA transmission available by wind generation, Normal scheduling and system operating charges payable by OA, Normal scheduling and system operating charges payable by wind, STOA intra state Trans, Wheeling charges loss compensation, short term open access agreement charges, Annual 0 & M charges, parallel operation charges by including these charges in the HT bills raised by TANGEDCO. TANTRANSCO allots fund to 9 nodal circles of TANTRANSCO. Apart from the nodal circles TANTRANSCO’s expenses like vehicle hire charges, maintenance of sub stations, salary payments are made by TANGEDCO, etc are accounted as receivable in the books of TANGEDCO. 844.77 707.67

The applicant has stated that since the breakup of transactions related to FY 2015-16 was readily available, the same is submitted for elaborating the nature & volume of each type of transactions between TANGEDCO and TANTRANSCO and that similar nature of transactions are being carried out even during FY 2017-18 & FY 2018-19, post implementation of GST, in the normal course of business between Government owned subsidiary companies.

6.1 The various submissions including the case laws on the applicability of service tax on the various activities/ services of the applicant were examined. We find that the Advance Ruling sought is to determine

  1. GST Applicability on the transactions between TANGEDCO LTD. & TANTRANSCO LTD. Whether transactions between TANGEDCO Ltd. & TANTRANSCO Ltd is exempted under Sl.No. 25 of Notification 12/2017- CT(R)
  2. Applicability of GST on Deposit Contribution Works
  3. Whether TANGEDCO ltd can be considered a “Government Entity”
  4. Applicability of GST on Transmission Charges for Natural Gas.

6.2 Prima facie, it is seen that the applicant by furnishing the Extracts of provisions of the Electricity Act has submitted that ‘Transmission and Distribution of Electricity’ exempted from GST is to be understood as comprehensive set of activities to achieve the objective of transmission and distribution of electricity and should not be vivisected and taxed to defeat the exemption.; Electrical energy is exempted from GST as “Supply of goods” as well.; Therefore, any GST levy by vivisection of the comprehensive set of activities contributing to the achievement of ‘transmission and distribution of electricity’ in terms of the provisions of the Electricity Act 2003 would defeat the exemption. We do not find merit in this argument. ‘Transmission and Distribution’ are by themselves two different activities and the utilities are registered independently. The reading of the exemption notification also is very clear and is applicable only to the ‘Distribution of electricity’. The Constitution bench of Honble Supreme Court in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company (2018 (361) E.L.T. 577 (S.C.)] = 2018 (7) TMI 1826 – SUPREME COURT, while answering the question, ‘what is the interpretative rule to be applied while interpreting a tax exemption provision/notification when there is an ambiguity as to its applicability with reference to the entitlement of the assesse or the rate of tax to be applied?’ Has held that

  1. To sum up, we answer the reference holding as under –

(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.

(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assesse and it must be interpreted in favour of the revenue.

In the case at hand, the exemption is meant only for ‘Distribution of electricity Services by a Distribution utility’. If the intention is to exempt all the activities undertaken by a distribution utility, then the exemption would have been worded so. Therefore this plea of the applicant is rejected.

7.1 From the various submissions of the applicant, it is evident that TANGEDCO Ltd & TANTRANSCO Ltd are two subsidiary companies of TNEB Limited and are registered utilities for Distribution and Transmission of Electricity under the Electricity Act 2003. The ruling is sought in respect of the following transactions between them:

  • Operation and maintenance materials used in the regular day to day functioning
  • Construction of sub-station Buildings, erection of transformers and transfer of ‘Capital Assets’
  • Transactions of physical fund flow
  • Movement of employees
  • Receipt of TANTRANSCO’s income in TANGEDCO Bank A/c

From the details provided, it is seen that the applicant supplies goods/ services and also receives goods/ services to/from TANTRANSCO, a registered electricity Transmission utility. Section 95(a) of the Act, defines ‘Advance Ruling’ as follows:

(a) “advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant (emphasis supplied).

The above provision specifies that ruling can be sought on the questions specified in Section 97 (2) in relation to the supply being undertaken by the applicant. Applying the same, the supply of goods/ services made by the Applicant to TANTRANSCO is alone taken for consideration. We make it clear that the supplies made by TANTRANSCO to TANGEDCO and shown as receivables from TANTRANSCO are not in the purview of this authority and are not taken up for consideration.

7.2 To answer the question raised, first, the type of supply and whether the supply is a taxable supply under GST is examined and then the applicability of the exemption entry is taken up for decision. Supply is defined under Section 7 of the COST Act 2017 and the same is reproduced below for reference:

  1. (1) for the purposes of this Act, the expression ‘supply” includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration;

(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II;

Section 2(17) of the Act defines ‘Business’ as under (relevant portion extracted):

(17) ‘business” includes-

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

Section 2(31) of the Act defines Consideration as

(31) “consideration” in relation to the supply of goods or services or both includes-

(a) any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Thus for an activity to be a supply of either goods or services, the supply is to be for a consideration to a person in the course of furtherance of business. i.e., there should be a supply of goods or service, recipient, provider, consideration, in the course or for furtherance of business.

7.3 In the light of the above definitions, the activities of transaction between TANGEDCO and TANTRANSCO under consideration before us are examined as to whether they are ‘Supply’ on which GST is applicable:

7.3.1 Operation and maintenance materials used in the regular day to day functioning

It is stated that materials used in the regular functions of the power utility such as Conductors, insulators, meter, underground cables are supplied to TANTRANSCO. The quantum of value of such goods transferred to TANTRANSCO is accounted under the Account head 28.861. These are supply of goods by the applicant to TANTRANSCO for the maintenance used on the regular functions i.e., in the course of business and for a consideration. Thus such an activity is supply of Goods and GST is applicable on each of the said goods as per the classification and rate determined in Notification No. 01/2017-C.T. (Rate) dated 28.06.2017.

7.3.2 Construction of sub-station Buildings, erection of transformers and transfer of ‘Capital Assets’

It is stated that at the time of segregation of circles assets relating to TANTRANSCO will be transferred to TANTRANSCO. It is seen that Schedule II to the Act, specifies the activities which are to be treated as supply of goods or services and SI.No. 4 of the schedule deals with the ‘Transfer of Business Assets’, the related entry is as follows:

  1. Transfer of business assets

(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;

In the case at hand, the assets transferred by the applicant to TANTRANSCO are business assets as no longer to form a part of their assets. Therefore, the said Transfer of assets’ is a ‘Supply of Goods’ and GST is applicable on the said supply

7.3.3 Transactions of physical fund flow:

It is stated that since both the subsidiary companies are operating with huge cash loss, there are transactions of physical fund flow between the companies by the way of repayment of existing loan, availment of fresh loans, etc… to manage the financial difficulty, on actual basis without any interest component on such fund flow. From the descriptions, it is seen that the same is transaction in money without any consideration. Section 2(52) and 2(102) of the Act defines ‘Goods’ and ‘Services’ as under:

(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

‘Money’ is neither ‘Goods’ nor ‘services’ as per the above definitions of goods and services. In the case at hand, it is stated that the transaction is without any consideration and is mere transaction in ‘Money’ and therefore the same are not in the purview of GST.

7.3.4 Movement of Employees:

It is stated that the services of employees in the Roll of the applicant, when utilized by TANTRANSCO, the salary, related allowance and other advances payable to such staff are accounted in the books of the applicant on actual values. The applicant and TANTRANSCO are two different persons. When the applicant extends the services of their employees to TANTRANSCO, and collect the considerations payable to such employees from TANTRANSCO, the said activity is a ‘Supply of Service’ and GST is applicable to this supply of service.

7.3.5 Receipt of TANTRANSCO’s income in TANGEDCO Bank A/c:

It is stated that certain income such as transmission charges, Scheduling and Systems Operating charges, Reactive Energy Charges, etc from open access consumers are received by the applicant and adjusted through payable to TANTRANSCO (pertaining to SLno 6 in Para 5.5 supra). This is a transaction in Money and as already discussed in para 7.3.3 ‘Money’ is neither ‘goods’ nor ‘services’. Therefore GST is not applicable.

7.3.6 Activity at Sl.No. 5 of Para 5.2 relates to receipt of Services from TANTRANSCO for which the payment is to be made by the applicant. Since the applicant is not the person supplying, this part do not fall within the purview of the Advance Ruling as per Section 95(a) of the COST Act 2017 and hence not answered.

7.4 To summarize the above,

  • The supply of materials for day to day operations is ‘supply of Goods’ and GST is applicable on such supply at such rates applicable to such goods.
  • Transfer of Assets is Supply of Goods and GST is applicable on such supply at the applicable rates
  • Transaction of Physical fund and receipt of TANTRANSCO’s income in the applicant’s bank A/c, being mere transaction in ‘Money’, GST is not applicable to such activities
  • Movement of Employees of the applicant to TANTRANSCO being supply of manpower is a supply of service and GST is applicable on this activity.

8.1 The applicant has sought to clarify whether the above transactions being in the course of generation, transmission and distribution of electricity by an electricity transmission or distribution utility is exempt under Sl.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017. The relevant statutory provisions are extracted as follows:

Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition
25 Heading 9969 Transmission or distribution of electricity by an electricity transmission or distribution utility. NIL NIL

‘Electricity transmission or distribution utility is defined in Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 as under:

  1. z) “electricity transmission or distribution utility” means the Central Electricity Authority; a State Electricity Board: the Central Transmission Utility or a State Transmission Utility notified under the Electricity Act, 2003 (36 of 2003): or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government or. as thecasemay be. the State Government;

And ‘State Transmission Utility’ are defined as under:

(zzj) “State Transmission Utility” shall have the same meaning as assigned to it in clause (67) of section 2 of the Electricity Act, 2003 (36 of 2003);

Further, the Explanation of the Classification of Services under Heading 9969 relating to transmission or distribution of electricity is as under:

99691 Electricity and as distribution services

996911 Electricity transmission services

This service code includes services involving transmission of electricity

996912 Electricity Distribution services

This service code includes services involving distribution of electricity; maintenance of electric meters

8.2 On a joint reading of the above provisions it is evident that the exemption is only applicable to services involving distribution of electricity, maintenance of electric meters by a distribution utility. The applicability of the exemption to the stated activities are examined as under:

8.2.1 As brought out in para 7.3.1 supra, ‘supply of Operation and Maintenance materials’ used in the regular functions of power utility such as power transformers, Conductors, insulators, meter, underground cables are supply of Goods. Notification No. 12/2017-C.T.(Rate) dated 28.06.2017 provides for exemption of services only and therefore the supply of materials are not covered under the exemption stipulated at Sl.No. 25 of Notification No. 12/2017-C.T (Rate) dated 28.06.2017 as amended and are hence taxable.

8.2.2 As brought out in para 7.3.2 supra, the ‘Transfer of business Asset’ is a ‘Supply of Goods’ and as the entry at Sl.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017, exempts only the services involving distribution of electricity, this supply of goods are not covered under the exemption stipulated at Sl.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 as amended and are hence taxable.

8.2.3 It is held that GST is not applicable on the ‘Physical fund flow’ as discussed in Para 7.3.3 supra which is a transaction in ‘money’ as it is neither ‘Goods’ nor ‘services’ and therefore the applicability of exemption Notification do not arise to Physical fund flow and receipt of TANTRANSCO’s income in the applicant’s bank A/c

8.2.4 Movement of employees as discussed in Para 7.3.4 supra, is a supply of ‘Manpower Service’ and not a service involving mere distribution of electricity. The exemption at Sl.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017, exempts only the services involving distribution of electricity and therefore the consideration received relating to deployment of services of employees to TRANTRANSCO are not exempted under Sl.No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 and are hence taxable.

8.2.5 Activity of payment of expenses incurred by TANTRANSCO relating to vehicle hire charges, maintenance of sub-stations, salary payments, etc and paid by TANGEDCO & accounted as receivable in the books of the applicant as discussed in Para 7.3.5 supra. The said activity is not one involving services of distribution of electricity and therefore the exemption under Sl. No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 is not available for the stated transactions.

8.2.6 Activity at Sl.No. 5 of Para 5.2 relates to receipt of Services from TANTRANSCO for which the payment is to be made by the applicant. Since the applicant is not the person supplying, this part do not fall within the purview of the Advance Ruling as per Section 95(a) of the CGST Act 2017 and hence not answered.

Therefore, we conclude that the exemption under Sl. No. 25 of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 is not available for the stated transactions.

9.1 In respect of applicability of GST on Depository Contribution works(DCW), it is stated by the applicant that the connection with electrical works, operation and maintenance of distribution are part of the supply of electricity which is exempted; the value of supply as per Section 15 of the GST Act shall include incidental expenses and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of or before delivery of goods or supply of services; that the charges are part and parcel of electricity supply under the Electricity Act 2003 and therefore claims as exempted. From the write-up furnished, under DCW, the consumer makes a request to TANGEDCO for shifting of a services, line, Structure and equipment, the cost of which is to be borne by the consumer as per clause 5 of TNERC code.

9.2 From the submissions, it is seen that DCW involve shifting service/line, Structure and equipment as per the request of the consumer, the charges for which are billed separately from the consumer. The works undertaken are Installation of transformers/lines and other accessories and are in the nature of installation of the structure and equipments classifiable under SAC 99873. For ease of reference, the said heading is given as under:

9987 Maintenance, repair and installation (except construction) services

……………………………………………………………………………………………….

99873 Installation services (other than construction)

This group includes physical placement, configuration, set-up, calibration and testing of proper operation of various types of machinery and equipment

And the applicable rate of tax is as specified under Sl.No. 25 of Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 and SI.No. 25 of Notification No. II (2)/CTR/ 532 (d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended, which is extracted below:

Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition
25 Heading 9987 Maintenance, repair and installation (except construction) services. 9

9.3 Further, we find that CBIC Vide Circular No. 34/8/2018-GST dated 01/03/2018 issued in file F. No 354/ 17/2018-TRU, has issued clarifications as approved by the Fitment Committee to the GST council in its meeting held on 9th, 10th and 13th January 2018, wherein under Sl.No.4 the issue at hand stands clarified as under:

SI.No. Issue Clarification
4 1) Whether the activities carried by DISCOMS against – recovery of charges from consumers under State Electricity Act are exempt from GST? (1) Service by way of transmission or distribution of electricity by an electricity transmission or distribution utility is exempt from GST under notification No. 12/2017- CT (R), Sl. No. 25.

The other services such as, –

i. Application fee for releasing connection of electricity;

ii. Rental Charges against metering equipment;

iii. Testing fee for meters/ transformers, capacitors etc.;

iv. Labour charges from customers for shifting of meters or shifting of service lines;

v. charges for duplicate bill;

provided by DISCOMS to consumer are taxable

From the above, it is clear that the charges collected from customers for shifting of service lines are taxable under GST. Hence, there is GST applicability for the charges involved for shifting of service line/ structures and equipments. The applicant however, has relied on the decision of Gujarat High Court in the case of Torrent Power Ltd. Vs UOI reported in 2019 (1) TMI 1092, wherein the Gujarat High Court has struck down the above circular as ultra vires. It is pertinent to note that SLP has been filed against this High Court judgment and the same in still pending.

  1. The next Question sought is Whether TANGEDCO Ltd would be regarded as ‘Government Entity’ more specifically for the purposes of Notification 11/2017 Central Tax (Rate) dated 28.06.2017, 12/2017-C.T. (Rate) and Notification No. 13/2017- C.T. (Rate). ‘Government Entity is defined vide Notification No. 31/2017-Central Tax (Rate) dated 13.10. 2017 (which amends Notification No. 11/2017 ibid) and vide Notification No. 32/2017- C.T. (Rate) dated 13.10.2017 (which amends Notification No. 12/2017 ibid) as under:

“Government Entity” means an authority or a board or any other body including a society, trust, corporation,

  1. i) set up by an Act of Parliament or State Legislature; or
  2. ii) established by any Government,

With 90 percent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.

From the submissions, it is seen that TANGEDCO Ltd is established by Government of Tamil Nadu vide G.O. Ms. No. 94 Energy (B2) Department dated 16.11.2009 with the primary object to function as generation and distribution utility in terms of the provisions of Electricity Act 2003. It is a public company wherein 99 percent shares are held by TNEB, the Holding Company, which is established by Government of Tamil Nadu with more than 90 percent equity shares and control. The appointments of the directors to TANGEDCO are by the Government. Thus TANGEDCO is a Public Limited Company established by Government of Tamil Nadu with more than 90 percent control for the purposes of generation and distribution of electricity. Hence, TANGEDCO Ltd is a government Entity for the purposes of Notification No.11/2017 Central Tax (Rate) dated 28.06.2017 and 12/2017-C.T.(Rate) as amended vide Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017 and Notification No. 32/2017-C.T.(Rate) dated 13.10.2017 effective from 13.10.2017.

  1. Finally, the applicant has sought ruling regarding applicability of GST on transmission charges for Natural Gas supplied by GAIL. From the submissions, it is seen that the applicant receives Natural gas from GAIL, who charges GST on the transmission Charges apart from VAT on sale of ‘Natural Gas’. It is clear that the applicant do not make any of the supplies in question, but are in fact the recipient of the supplies as stated in their application. Thus, the question is on the liability to pay tax on the services supplied to them and not on the supply made by them. Section 95 (a) of CGST and TNGST Act defines ‘advance ruling’ as

(a) “advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant;;

From the above, it is evident that an applicant can seek an Advance Ruling in relation to supply of goods or services or both undertaken or proposed to be undertaken by the applicant. Further, as per Section 103 (1) of the CGST Act, the ruling is binding only the applicant and the concerned officer or the jurisdictional officer of the applicant. In the case at hand, the applicant is the recipient of the services and not supplier of such service. Accordingly, this question is not liable for admission and therefore rejected without going into the merits of the case.

  1. In view of the above, we rule as under

RULING

  1. GST is applicable on the following as the same are ‘supply of goods’ to TANTRANSCO:
  2. Supply of Operation and maintenance materials used in the regular day to day functioning; and
  3. Transfer of capital Assets
  4. GST is applicable on the deployment of employees to TANTRANSCO as the same is supply of Service
  5. GST is not applicable on the following as the same are transaction in money:
  6. Transactions of physical fund flow between the companies by the way of repayment of existing loan, availment of fresh loans, etc. on actual basis without any interest component on such fund flow.
  7. Income such as transmission charges, Scheduling and Systems Operating charges, Reactive Energy Charges, etc. received from open access consumers by the applicant and adjusted through payable to TANTRANSCO.
  8. The exemption under Sl.No. 25 of Notification No. 12/2017-C.T.(Rate) dated 28.06.2017 as amended is not applicable to the below stated transactions between TANGEDCO Ltd and TANTRANSCO Ltd, namely-
  9. Supply of Operation and maintenance materials used in the regular day to day functioning as the same is ‘Supply of Goods’;
  10. Transfer of capital Assets as the same is declared as ‘Supply of Goods’;
  11. Deployment of Employee under their role and related fund flow-not a service involving distribution of electricity exempted in the said entry;
  12. On the non-payment of long term open access transmission charges payable to TANTRASCO, no ruling is offered as the applicant is not the person supplying the service and Advance Ruling is a decision in relation to the supply undertaken by the applicant as per Section 95 (a) of CGST/TNGST Act 2017.
  13. Depository Contribution Works is classifiable under SAC 99873 and the applicable rate of tax is CGST (4, 9% as per Sl.No. 25 of Notification No. 11/2017-C.T. (Rate) dated 28.06.2017 and SGST C 9% as per Sl.No. 25 of Notification No. II (2)/ CTR/ 532 (d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended and the same is not exempted.
  14. TANGEDCO is a ‘Government Entity’ as defined under Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended and 12/2017-C.T.(Rate) dated 28.06.2017 as amended by Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017 and Notification No. 32/2017-C.T.(Rate) dated 13.10.2017 effective from 13.10.2017
  15. The applicability of GST on the ‘Transmission Charges’ billed by GAIL is not answered as not admitted, under sub-section (2) of section 98 of the CGST Act, 2017 and the TNGST Act, 2017 read with Section 95(a) of the Act.

SHREE SAWAI MANOHARLAL RATHI,

Computation of threshold limit for the purpose of GST registration – Receipt of Interest on savings / loans – receipts in the course or furtherance of Business or not – scope of supply – Interest received in form of PPF – Interest received on Personal Loans and Advanced to family/friends – Interest received on Saving Bank Account – whether the interest should be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

HELD THAT:- The services regarding interest income are covered under the above Notification. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. Therefore, in given case GST is not leviable on Interest Income earned by the Applicant.

The applicant is an individual with an annual turnover of more than ₹ 20 Lakh. Since this income is interest-related, the turnover is exempt from GST. However, the Applicant also supplies services of “Renting of immovable property” along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. His turnover from the rent income is ₹ 9.84 Lakh and we know that this transaction (Renting of immovable property) is chargeable to GST. However, his taxable turnover is only ₹ 9.84 Lakh. Going by the definition of “aggregate turnover”, the Applicant is required to consider the value of both the taxable supply i.e. “Renting of immovable property” and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at “Aggregate Turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.

The Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. “Renting of immovable property” for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for obtaining registration under GST law.

The Interest received in form of PPF should be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law – Interest received on Personal Loans and Advanced to family/friends should be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law – Interest received on Saving Bank Account should be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law.

No.- GUJ/GAAR/R/2020/10 (In Application No. Advance Ruling/SGST&CGST/2018/AR/50)

Dated.- April 19, 2020

SANJAY SAXENA AND MOHIT AGRAWAL MEMBER

Present for the applicant : Shri Hartik Vora & Shri Sushil Kabra

BRIEF FACTS

The applicant has submitted that he is an individual having not engaged in any business. His receipts are only from savings, personal loans and advances and deposits, which are reflected in the Income Tax Returns.

2. The applicant has further submitted that his estimated receipts for the F.Y. 2018-19 is likely to be totally ₹ 20,12,000/-, which includes,

(i) Rent receipts: ₹ 9,84,000/-,

(ii) Bank interest: ₹ 3,000/-,

(iii) Interest on PPF deposit: ₹ 2,76,000/- and

(iv) Interest on Personal Loans and Advances: ₹ 7,49,000/-.

3. The applicant further submitted that their interpretation of law is that if interest is received on loans and advances, deposits and savings Bank account by an individual person, who is not engaged in any such business and who is not a money lender, then such Interest Receipts is not a Supply and does not attracts GST, as the same is neither “In the course of Business” nor “In the furtherance of Business”.

4. The applicant further submitted that he relies on the definition of “Scope of Supply” given under Section 7 of the CGST Act, 2017, which clearly states that the receipts should be “In the course or furtherance of Business”.

5. The applicant further submitted that the receipts from personal loans and advances, deposits and Bank Interest are not covered under “Business” as per the definition of “Business” given under Section 2(17) of the CGST Act, 2017.

6. In view of the above, the applicant further submitted that for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for obtaining registration under GST law, such interest receipts are not required to be aggregated.

7. In light of the above backdrops, the applicant is seeking an advance ruling in respect of the following questions:

1. Whether Interest received in form of PPF would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

2. Whether Interest received on Personal Loans and Advanced to family/friends would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

3. Whether Interest received on Saving Bank Account would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

8. At the time of personal hearing, the Authorised Representative of the applicant reiterated the facts as stated in the Application and mentioned herein above.

DISCUSSION & FINDINGS:

9. We have considered the submissions made by the applicant in their application for advance ruling as well as at the time of personal hearing.

10. In this case, a moot point is to be decided as to whether interest received on deposit in Public Provident Fund (PPF), Personal Loans & Advances to family/friends and deposit in Saving Bank Accounts, would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

11. “Aggregate Turnover” is relevant to a person to determine the threshold limit to obtain registration under the Act (supply of Services or (goods and services both): ₹ 20 Lakh (₹ 10 Lakh in case of supplies effected from special category states).

12. Section 2(6) of the Central Goods & Services Tax Act, 2017 defines the term “aggregate turnover” as under:

“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.”

12.1 We find that the “aggregate turnover” is an all-encompassing term covering all the supplies effected by a person having the same PAN. It specifically excludes:

  • Inward supplies effected by a person which are liable to tax under reverse charge mechanism; and
  • Various taxes under the GST law, Compensation cess.

12.2 “Exempt supply” is defined under Section 2(47) of the CGST Act, 2017 (hereinafter referred as “The Act”) as reproduced below-

“Exempt Supply” means supply of any goods or services or both which attracts nil rated of tax or which may be wholly exempt under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes Non- Taxable supply.

12.3 “Nil rated supply” is nowhere defined in GST Law. The basic difference between nil rated and exempt supply is that the tariff is higher than 0% in case of exempt supply. But there is no tax payable due to exemption notification. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax without the exemption notification.

12.4 Thus, the different kinds of supplies covered under the “aggregate turnover” are:

(i) Taxable Supplies;

(ii) Supplies that have a NIL rate of tax;

(iii) Supplies that are wholly exempted from SGST, UTGST, IGST or Cess; and

(iv) Supplies that are not taxable under the Act (alcoholic liquor for human consumption and articles listed in section 9(2) and in Schedule III);

(v) Export of goods or services or both, including zero-rated supplies.

13. We further find that under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability.

13.1 Section 7 of the Central GST Act, 2017 defines the term “Supply” as under:

7. (1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and  

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

(2) Notwithstanding anything contained in sub-section (1),––

(a) activities or transactions specified in Schedule III; or

(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.

13.2 Thus, the Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.

13.3 Supply has two important elements:

a) Supply is done for a consideration;

b) Supply is done in course of furtherance of business.

13.4 Notification No. 12/2017-Central Tax (Rate) and Notification No.9/2017-Integrated Tax (Rate), both dated 28.06.2017,as amended, provides a list of services exempted from payment of Central Tax on intra-State supply and Integrated Tax on Inter-State supply. Entry 27(a) of the Notification No. 12/2017 and Entry 28(a) of the Notification No. 9/2017 relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest.

13.5 The services regarding interest income are covered under the above Notification. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. Therefore, in given case GST is not leviable on Interest Income earned by the Applicant.

14. From the above, it is revealed that the applicant is an individual with an annual turnover of more than ₹ 20 Lakh. Since this income is interest-related, the turnover is exempt from GST. However, the Applicant also supplies services of “Renting of immovable property” along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. His turnover from the rent income is ₹ 9.84 Lakh and we know that this transaction (“Renting of immovable property”) is chargeable to GST. However, his taxable turnover is only ₹ 9.84 Lakh. Going by the definition of “aggregate turnover”, the Applicant is required to consider the value of both the taxable supply i.e. “Renting of immovable property” and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at “Aggregate Turnover” to determine the threshold limit for the purpose of obtaining registration under the GST Act.

15. In view of the above, we conclude that the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. “Renting of immovable property” for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for obtaining registration under GST law.

16. In light of the foregoing, we rule as under –

R U L I N G

Ques.1: Whether Interest received in form of PPF would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

Answer: Answered in the Affirmative, as discussed above.

Ques. 2: Whether Interest received on Personal Loans and Advanced to family/friends would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

Answer: Answered in the Affirmative, as discussed above.

Ques. 3: Whether Interest received on Saving Bank Account would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?

Answer: Answered in the Affirmative, as discussed above.

M/S. SRISAI LUXURIOUS STAY LLP

Classification of supply – Benefit of exemption / Rate of GST – Hostel accommodation – Exemptions under N/N. 12/2017 – Central Tax (Rate) vide entry 14 – whether hostel accommodation is treated at par with accommodation of hotels, inns, guest houses, etc., and accordingly chargeable at different GST rates based on the daily tariff per unit? – HELD THAT:- The supply of services by a hotel, inns, guest houses, clubs or campsite or any other commercial place, by whatever name called, for residential purposes would be exempted if the declared tariff of a unit of accommodation is below ₹ 1,000 per day or equivalent, as per entry no.14 of the Notification No.12/2017 -Central Tax (Rate) dated 28.06.2017. If it exceeds ₹ 1.000-00 per day or equivalent then the services become taxable as per entry no.7 of the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017.

Proposed Tariff – HELD THAT:- The monthly rent charged is ₹ 12,500-00 at maximum and the daily tariff would amount to ₹ 416-00, which is less than ₹ 1000-00 per day. Further, even when given on daily basis, it is seen that the maximum amount charged is ₹ 500-00 per day which is below ₹ 1000-00 per day. Hence the tariff amount per unit of accommodation is less than ₹ 1000-00 per day. Hence the service provided is where the tariff is below ₹ 1,000-00 per day or equivalent – Further, the entry no.14 of Notification No.12/2017-Central Tax (Rate) is analysed and it says all services of SAC 9963 provided by such a supplier having a declared tariff of less than ₹ 1000-00 per day or equivalent would be exempt. Further since in this supply, all the supplies are made as a package with the accommodation service being the principal service, the entire supply would be treated as a composite supply of accommodation service as per section 8 of the CGST Act, 2017. Hence, the proposed supply of services in question by the applicant would not be liable to tax as per entry no.14 of the Notification No.12/2017 -Central Tax (Rate) dated 28.06.2017 as amended from time to time.

Provision of other services in addition to the facilities that are in addition to the compulsory services provided and charge the clients for the same – whether these amount to providing of services under a separate contract and as per the facilities provided, as these services are independent of the accommodation services provided? – HELD THAT:- The Group 9963 of the Service Accounting Codes as annexed to Notification No.11/2027-Central Tax (Rate) relates those services which are coming under Food, Edible preparations, alcoholic and non-alcoholic beverages serving services, and if the additional services provided by the applicant belong to the Group 9963, then the turnover of these services will also be exempt as they are covered under the entry 14 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017. But those services which are supplied independently to the clients which do not belong to the Group 9963 are liable to tax at appropriate rates, provided that the applicant is liable for registration – If the applicant charges additional charges for extra facilities opted by the inhabitants in addition to the facilities that are currently included in the tariff received by the inhabitants but the overall price would be less than the present exemption limit of ₹ 1,000-00 per day per unit, then the same is liable to tax at the rates applicable to them as they are independent supplies, if they do not belong to the Group 9963. If they belong to the Group 9963, then the same are exempt as per entry no.14 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.

No.- KAR ADRG 20/2020

Dated.- March 31, 2020

  1. M.P. RAVI PRASAD AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri. Ramanatha Rai, Chartered Accountant

ORDER UNDER SUB-SECTION (4) OF SECTION 98 OF CENTRAL GOODS AND SERVICES TAX ACT, 2017 AND UNDER SUB-SECTION (4) OF SECTION 98 OF KARNATAKA GOODS AND SERVICES TAX ACT, 2017

  1. M/s Srisai Luxurious Stay LLP, No.160, 5th Main, 4th Cross, NGEF Layout, Sanjaynagar, Bengaluru 560094, an unregistered person having PAN AEAFS6168R, has filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of the KGST Act, 2017 read with Rule 104 of KGST Rules 2017, in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.
  2. The applicant is a Limited Liability Partnership concern not registered under the provisions of the Goods and Services Act, 2017. The applicant states that engaged in the business of developing, running, maintaining, operating, setting up, owning, dealing in, buying, selling, renting, subletting, and managing paying guest accommodations, service apartments, flats aimed to suit all type of customers by whatever name called.
  3.  The applicant has sought advance ruling in respect of the following questions:
  4. Whether the daily accommodation services ranging from ₹ 300 to ₹ 500 per bed are eligible for exemption under Notification No.12/ 2017-Central Tax?
  5. Whether the monthly accommodation services ranging from ₹ 6,900 to ₹ 12,500 per bed is eligible for the exemption under Notification No.12/ 2017- Central Tax?
  6. Whether the said notification would be applicable if LLP decides to charge additional charges for the extra facilities opted by the inhabitants in addition to the facilities that are currently included in the tariff received by the inhabitants but the overall price would be less than the present exemption limit of ₹ 1000 per day per Unit?
  7.  The applicant furnishes some facts relevant to the stated activity.
  8. The applicant states that they were set up as a Limited Liability Partnership under the provisions of the Limited Liability Partnership Act, 2008 in the state of Karnataka under the jurisdiction of the Registrar of Companies, Bangalore and has been allotted LLPN AQ-6204 on 20.09.2019.
  9. The applicant was incorporated with two designated partners and established with the main objective to carry on, within India, the business of developing, running, maintaining, operating, setting up, owning, dealing in, buying, selling, renting, subletting, and managing paying guest accommodations, service apartments, flats aimed to suit all type of customers by whatever name called.
  10.  The LLP has been specifically focused on provision of Boarding and Lodging facilities both on monthly and daily tariffs for inhabitants and also ancillary services to the above only to the inhabitants as states below
  11. a) Meals which includes breakfast, lunch and dinner
  12. b) Fully furnished rooms
  13. c) Round the clock security guards at the premises
  14. d) Housekeeping facilities
  15. e) Washing Machine facilities
  16. f) Television in each room
  17. g) Internet facilities (WIFI available)
  18. h) Vehicle parking facilities
  19. All the above mentioned facilities are included in the tariffs that they charge from the inhabitants and the tariff rates are as below:
Type of tariff (per unit) 1 unit = 1 bed Range From to (in Rs.)
Monthly Tariff 6,900 to 12,500
Daily Tariff 300 to 500
Maximum no. of beds in a room Three beds to one bed

The tariff range mentioned above are based on the following factors:-

  1. Size of the room taken by the inhabitant
  2. No. of people sharing the room
  3. Invoices per bed are raised on daily or monthly basis depending on the occupation of the inhabitants.
  4.  The LLP is yet to commence the business. Post clarification on the exemption of GST to their nature of business, compliance under GST Act would be accordingly carried out.
  5.  Regarding the interpretation of law, the applicant states that hostel accommodation is treated at par with accommodation of hotels, inns, guest houses, etc., and accordingly chargeable at different GST rates based on the daily tariff per unit. However, it is exempted vide Exemption Notification No.12/2017 – Central Tax (Rate) vide entry 14 where services by a hotel, inn, guest-house, club or camp-site by whatever name called, for residential or lodging purposes, having a declared tariff of a unit of accommodation below one thousand rupees per day or equivalent. SAC Code 996311. The applicant states that he needs clarification on the applicability of this entry for his nature of business.

PERSONAL HEARING: / PROCEEDINGS HELD ON 20.02.2020

  1.  Sri Ramanath Rai, Chartered Accountant and duly authorised representative of the above concern appeared for personal hearing proceedings on 20.02.2020 before this authority and reiterated the facts.

FINDINGS & DISCUSSION

  1. We have considered the submissions made by the applicant in their application for advance ruling as well as the submissions made by Sri. Ramanath Rai, Chartered Accountant and duly authorised representative of the above concern appeared for the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.

7.1 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

7.2 There is no dispute on the side of revenue or on the side of the applicant that what is going to be supplied by the applicant to his customers is a supply of service for a consideration in the course or furtherance of business. The applicant has only sought an advance ruling whether the supply of services provided by him is liable to tax or not under the CGST Act, 2017.

7.3 Regarding the nature of the supply proposed to be made by the applicant, it is very clear that the same are covered under the services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes. The service of the applicant is definitely not renting of residential dwelling. It is very clear that the applicant is providing accommodation services on daily basis and monthly basis and hence is covered under the Service Accounting code 996311 with a description “Room or unit accommodation services provided by Hotels, Inn, Guest House, Club and the like” or Service Accounting Code 996322 with a description “Room or unit accommodation services provided by Hostels, Camps, Paying Guest and the like.”

7.4 Regarding the taxability of the said service proposed to be provided by the applicant, the entries that are to be verified are

(a) Entry No.  7 of the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017 as amended, which reads as under:

(i) Supply of ‘hotel accommodation’ having value of supply of a unit of accommodation above one thousand rupees but less than or equal to seven thousand five hundred rupees per unit per day or equivalent. 6
(vi) Accommodation, food and beverage services other than (i) to (v) above

Explanation:

(a) For the removal of doubt, it is hereby clarified that, supplies covered by items (ii), (iii), (iv) and (v) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5), which is a mandatory rate and shall not be levied at the rate as specified under this entry.

(c) This entry covers supply of ‘hotel accommodation’ having value of supply of a unit of accommodation above seven thousand five hundred rupees per unit per day or equivalent.

9

(only relevant portions extracted)

The term “hotel accommodation” is defined in clause (xxxiv) of paragraph 2 of the Notification as (xxxiv) ‘Hotel accommodation’ means supply, by way of accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes including the supply of time share usage rights by way of accommodation

(b) Entry No. 14 of the Notification No.12/2017 – Central Tax (Rate) dated 28.06.2017 which reads as under:

“Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent”.

7.5 On comparison of the entries it is clear that from the above that the supply of services by a hotel, inns, guest houses, clubs or campsite or any other commercial place, by whatever name called, for residential purposes would be exempted if the declared tariff of a unit of accommodation is below ₹ 1,000 per day or equivalent, as per entry no.14 of the Notification No.12/2017 -Central Tax (Rate) dated 28.06.2017. If it exceeds ₹ 1.000-00 per day or equivalent then the services become taxable as per entry no.7 of the Notification No.11/2017 – Central Tax (Rate) dated 28.06.2017.

7.6 The issue to be seen is what is the proposed tariff of the applicant. The details provided by the applicant shows that he is providing in addition to accommodation services, other facilities and charging a consolidated amount, including for all the mentioned facilities. The monthly rent charged is ₹ 12,500-00 at maximum and the daily tariff would amount to ₹ 416-00, which is less than ₹ 1000-00 per day. Further, even when given on daily basis, it is seen that the maximum amount charged is ₹ 500-00 per day which is below ₹ 1000-00 per day. Hence the tariff amount per unit of accommodation is less than ₹ 1000-00 per day. Hence the service provided is where the tariff is below ₹ 1,000-00 per day or equivalent.

7.7 Further, the entry no.14 of Notification No.12/2017-Central Tax  (Rate) is analysed and it says all services of SAC 9963 provided by such a supplier having a declared tariff of less than ₹ 1000-00 per day or equivalent would be exempt. Further since in this supply, all the supplies are made as a package with the accommodation service being the principal service, the entire supply would be treated as a composite supply of accommodation service as per section 8 of the CGST Act, 2017. Hence, the proposed supply of services in question by the applicant would not be liable to tax as per entry no.14 of the Notification No.12/2017 -Central Tax (Rate) dated 28.06.2017 as amended from time to time.

  1. Regarding the third question, it is seen that the applicant intends to provide other services in addition to the facilities that are in addition to the compulsory services provided and charge the clients for the same. Hence, it would amount to providing of services under a separate contract and as per the facilities provided, as these services are independent of the accommodation services provided. The applicant states that the overall charges collected including the additional services is less than ₹ 1000-00 per day per unit of accommodation. The entry no.14 of the Notification No.12/2017- Central Tax (Rate) dated 28.06.2017 is verified and the description states that“Services by a hotel, inn, guest house, dub, or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent”and these services should belong to Group 9963. The Group 9963 of the Service Accounting Codes as annexed to Notification No.11/2027-Central Tax (Rate) relates those services which are coming under Food, Edible preparations, alcoholic and non-alcoholic beverages serving services, and if the additional services provided by the applicant belong to the Group 9963, then the turnover of these services will also be exempt as they are covered under the entry 14 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017. But those services which are supplied independently to the clients which do not belong to the Group 9963 are liable to tax at appropriate rates, provided that the applicant is liable for registration.
  2. In view of the foregoing, we rule as follows

RULING

  1. The daily accommodation services ranging from ₹ 300 to 500 per bed are eligible for exemption under Notification No.12/2017- Central Tax (Rate) dated 28.06.2017
  2. The monthly accommodation service ranging from ₹ 6,900 to ₹ 12,500 per bed is eligible for exemption under Notification No.12/2017- Central Tax (Rate) dated 28.06.2017.
  3. If the applicant charges additional charges for extra facilities opted by the inhabitants in addition to the facilities that are currently included in the tariff received by the inhabitants but the overall price would be less than the present exemption limit of ₹ 1,000-00 per day per unit, then the same is liable to tax at the rates applicable to them as they are independent supplies, if they do not belong to the Group 9963. If they belong to the Group 9963, then the same are exempt as per entry no.14 of the Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.

M/S. NEW SPACE INDIA LIMITED,

Classification of services – Leasing of Satellite Transponder – covered under SAC 997319 as per HSN Code 8803-parts goods of Heading 8802 (Satellites) from the date of commencement of the service-Leasing of Satellite Transponder or not – rate of GST @ 5% or not – Notification No. 08/2017-Integrated Tax (Rate) dated 28.06.2017 – HELD THAT:- In the instant case satellite transponders had been leased out. Therefore the rate of tax applicable on the service of leasing of the satellite transponders shall be the same as the rate of tax as applicable on the supply of the satellite transponders.

Classification of goods – determination of the rate of tax on supply of service of leasing of satellite transponders – HELD THAT:- The transponder essentially is a repeater which receives the signal transmitted from earth station on the uplink, amplifies the signal, converts to a dissimilar frequency and retransmits the same on the downlink. Therefore the essential / significant features of amplification and frequency conversion are done by the key payload of the communication satellite i.e. the transponder. Therefore the transponder becomes an integral part of the communication satellite, without which the communication satellite becomes defunct.

In the instant case the transponder is a key payload of communication satellite and hence cannot form part of ground segment but is essentially a part of space segment and more specifically the main part to the communication satellite without which the communication satellite becomes defunct. Therefore transponders located on the communication satellite are not covered under the Heading 85256092.

Communication Satellite Transponders are appropriately classifiable under Tariff Heading 8803, more specifically under 8803 90 00 – Transponders, being parts of communication satellites, are covered under 8803 90 00 and any leasing of such transponders would be covered under the Entry No.17 of Notification No. 11/2017 – Central Tax (Rate) dated 28th June 2017 at the rate applicable as on the supply of like goods involving the transfer of title in goods. Admittedly the transponders are goods and any transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is covered under the clause (viii) of Entry No. 17 of the said Notification.

Thus, the applicant is into supply of Leasing of Transponder service only. Therefore it is pertinent to mention here that in case if the applicant is into any other supply, in addition to the instant supply, then the ruling in this case will not be applicable. In such cases, the supply need to be examined whether it amounts to composite supply or mixed supply and accordingly the rate of tax need to be determined.

No.- KAR ADRG 19/2020

Dated.- March 31, 2020

Citations:

  1. Commissioner of Central Excise, Delhi Versus Insulation Electrical (P) Ltd. – 2008 (3) TMI 22 – Supreme Court
  2. COLLECTOR OF C. EX., AURANGABAD Versus MOTOR INDUSTRIES CO. LTD. – 2003 (1) TMI 299 – Supreme Court
  3. SEALOL HINDUSTAN LIMITED Versus UNION OF INDIA – 1988 (3) TMI 74 – HIGH COURT OF JUDICATURE AT BOMBAY
  4. MODERN COMMUNICATION & BROADCASTING SYSTEMS P. LTD. Versus CC., KANDLA – 2008 (12) TMI 578 – CESTAT, AHMEDABAD
  5. U & I SYSTEM DESIGN LTD. Versus COMMISSIONER OF CUS. (APPEALS), BANGALORE – 2007 (8) TMI 139 – CESTAT, BANGALORE
  6. RAJ TELEVISION NETWORK Versus COMMISSIONER OF CUSTOMS, CHENNAI – 2007 (6) TMI 37 – CESTAT, CHENNAI
  7. EUREKA FORBES LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, MEERUT – 2000 (8) TMI 567 – CEGAT, NEW DELHI
  8. MOTOR INDUSTRIES COMPANY LTD. Versus COLLECTOR OF C. EX., AURANGABAD – 1994 (11) TMI 219 – CEGAT, NEW DELHI
  9. PLASTICRAFT INDUSTRIES Versus COLLECTOR OF CENTRAL EXCISE – 1990 (10) TMI 181 – CEGAT, NEW DELHI
  10. COLLECTOR OF C. EX. Versus MP (I) LTD. – 1987 (7) TMI 472 – CEGAT, NEW DELHI
  11. Collector Versus MP (I) Ltd. – 1995 (4) TMI 312 – SC Order
  1. M.P. RAVI PRASAD AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri Radha Krishnan D, Director & Authorised Representative

ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

  1. M/s New Space India Limited, Room No. F01, HSFC Building, New BEL Road, ISRO Head Quarters, Bengaluru – 560094, Karnataka having GSTIN number 29AAGCN4411P1Z1, have filed an application for Advance Ruling under Section 97 of CGST Act 2017 86 KGST Act 2017 read with Rule 104 of CGST Rules 2017 86 KGST Rules 2017, in form GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.
  2. The Applicant is a Limited Company and is registered under the Goods and Services Act, 2017. They are into the business ofLeasing of Satellite Transpondersand sought advance ruling in respect of the following questions:

1) Whether Leasing of Satellite Transponder which is covered under SAC Code 997319 be charged at 5% GST as per HSN Code 8803 – Parts Goods of Heading 8802 (Satellites)?

2) Whether the applicant can levy GST @5% for Leasing of Satellite Transponder Services which is covered under SAC 997319 as per HSN Code 8803-parts goods of Heading 8802 (Satellites) from the date of commencement of the service-Leasing of Satellite Transponder?

  1. The applicant furnishes the following facts relevant to the stated activity:
  2. The applicant stated that they are a commercial arm of Indian Space Research Organisation (ISRO) and are a Government of India company (CPSE) under the administrative control of the Department of Space (DOS). They entered into an agreement MOU with DOS, inter alia, for leasing of Satellite Transponder capacity to service providers, as part of the mandate to carry out production and marketing of space based services.
  3. The applicant enables satellite communication service providers with necessary transponder capacity on INSAT/GSAT fleet in C, Ext C, Ku and Ka-Ku bands to Indian users for Television Broadcasting (TV), Direct to Home (DTH), Digital Satellite News Gathering (DSNG), Very Small Aperture Terminal (VSAT) and Telephony services. They also acquire the transponders from foreign satellite operators on lease and provide the leasing services of the same to the service providers.
  4. A communication satellite has the following basis parts :
  5. Satellite Housing – This is the outside container of the satellite
  6. Power System – This consists of Solar Panels as well as Batteries to power the satellite.

iii. Antenna System – This is to receive signals to make the satellite’s operation in orbit.

  1. Command and control system – This monitors the satellite to ensure that all vital operating parameters are working.
  2. Transponders – Electronic systems that amplify the frequency of an uplink signal for retransmission to earth.
  3. A communication satellite can not be without any of the aforesaid parts. There will not be utility for such an equipment without Transponders, which receive the frequency of uplink signals, amplifies them and retransmit the same to the earth in a downlink frequency. The following two examples showcase the utility of Transponders.
  4. The TV programmes which are seen through DTH (Airtel TV, Dish TV, Tatasky etc.,) are first uplinked to a Transponder from earth and then downlinked to respective antennas at home. Uplinking and downlinking of the signals is not possible without the Transponders.
  5. Financial Transactions through ATMs use satellite network system at the backend. Withdrawal requests through ATM travel from ATM to HUB via satellite link. Further the HUB sends the said requests to respective bank 86 branch to process the transaction and update the bank account statement.
  6. Applicant’s understanding of the law :

The applicant submits, as per their understanding, that Leasing of Transponders is covered under SAC 997319, which covers “Leasing or rental services concerning other machinery and equipment with or without operator”; the applicable GST rate, in terms of Notification No.8/2017-Integrated Tax (Rate) dated 28.06.2017, as amended, under entry No.17, in respect of the services with SAC 9973 and with description “(viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi) and (vii) above” is “same rate of Integrated Tax as applicable on supply of like goods involving transfer of title in goods”; Transponder is a part of Satellite, falling under Chapter Heading 8803 as “Parts of goods of Heading 8802 Satellites”; Goods of Heading 8802 60 00 i.e. Spacecraft (including satellite) and suborbital and spacecraft launch vehicles are charged at Nil rate of Tax (GST) vide Sl.No.140 of Notification No.2/2017-Integrated Tax(Rate) dated 28.06.2017, as amended till date; Parts of goods of Heading 8802, falling under Heading 8803 i.e. Transponder, is charged at 5% IGST under SI.No.245 of Schedule I to Notification No.1/2017-Integrated Tax(Rate) dated 28.06.2017, as amended.

PERSONAL HEARING: / PROCEEDINGS HELD ON 10.03.2020.

  1. Sri Radha Krishnan D, Director and duly authorised representative of the applicant appeared for personal hearing proceedings held on 10.03.2020 86 reiterated the facts narrated in their application and also made the following written submissions inter alia stating that:

5.1 The Applicant, New Space India Limited in short ‘NSIL’ has been incorporated on 05/03/2019 under the provisions of Companies Act 2013 as a wholly owned Government of India undertaking/ Central Public Sector Enterprise(CPSE), under the administrative control of the Department of Space (DOS).

5.2 THE VISION AND MISSION OF NSIL:

VISION

“Excel in providing space related products and services emanating from Indian Space Programme to global customers and to further spur the growth of Indian Industry in undertaking technologically challenging space related activities”

MISSION

“Enabling Indian Industries to scale up high-technology manufacturing base for space programme through technology transfer mechanisms, catering to emerging global commercial small satellite launch service market, satellite services for various domestic and international application needs and enabling space technology spin-offs for betterment of mankind through industry interface.”

5.3 A) MANDATE OF NSIL

NSIL has the primary mandate of commercially exploiting the Research and Development (R&D) activity(ies) carried out by ISRO, in the area of space and also enable production of space systems through Indian Industry. Some of major activities involved are related to viz.,

  1. Small Satellite technology transfer to industry wherein NSIL will obtain license from DOS/ISRO and sub-license it to industries.
  2. Manufacture of Small Satellite Launch Vehicle (SSLV) in collaboration with Private Sector.

iii. Production of Polar Satellite Launch Vehicle (PSLV) through Indian Industry.

  1. Production and marketing of Space based services, including launch and application.
  2. Transfer of technology developed by ISRO Centres and constituent institutions of DOS.
  3. Marketing spin-off technologies and products / services.

vii. Any other subject which Government of India deems fit.

  1. B) TRANSPONDER LEASING SERVICES

NSIL has been mandated with Production and marketing of Space based services, including launch and applications. As a part of marketing of space based services, NSIL has entered into an MOU with Department of Space (DOS), for management of commercial relationship with respect to SATCOM services (MOU No. DOS/ NSIL/ MOU/ 2019 signed on 13 June 2019 enclosed as Annexure -1)

As per MOU, Satellite Communication Program Office (SATCOM PO), on behalf of DOS, allocates satellite transponders/ space segment capacity to various customers and enters into an agreement/MOU with the Customers in this regard. In this agreement/ MOU, NSIL is designated as “Contract Manager” and is vested with the rights and powers to administer the agreements/ MOUs in its entirety. Towards this, NSIL carries out activities related to interfacing with customers and SATCOM-PO for formulating and finalizing the Agreements, amendments, securing caution deposits and bank guarantees, invoice raising and payment receipts. Provisioning of space segment capacity on a transponder from a satellite to user, involves leasing of transponder capacity to the user for a specific period of time for his use. For ease of understanding, this activity could be considered analogous to leasing out a Flat to a tenant, wherein the owner (in case of transponder it is DOS /NSIL) lets out the flat (equivalent of transponder) and the tenant (transponder capacity user) utilizes the flat ( transponder capacity) for his purpose for a specific period of time.

Following relevant clauses of the agreement indicating provisioning of space segment capacity as leasing of transponder capacity is indicated below for reference (Copy of agreement enclosed as Annexure-2).

  1. Article 2, Transponder capacity of the Agreement –It states that DOS provides certain bandwidth capacity on a satellite (part of INSAT/ GSAT system) to the user and this space segment capacity is known as transponder capacity. Both the term, space segment capacity and transponder capacity are used interchangeably.
  2. Article 5, Operational Requirements of the Agreement– It reflects that the ownership of satellite rests with DOS, GOI and only the transponder capacity is made available to the user to meet their requirements. Hence only transponder capacity is leased to the customer. The rights over transponder, satellite and orbital resource rests with DOS/GOI.

III. Frequency Allotment Letter – For example, DOS, vide letter no. SATCOM PO/F.631/ 157 dated February 12,2020 allotted 3 MHz C band capacity on Transponder No. C10 of GSAT-10 satellite. (A copy of frequency allotment letter attached as Annexure-3). The customer will be entitled to utilize this 3 MHz bandwidth for their up-linking and down linking of carriers and will pay a fixed charge for the same on a periodical basis. Once the agreement ends, the said leased capacity will automatically come back to DOS and will be further available for leasing to other users for which separate allotment and agreement will be entered into.

  1. Few other relevant Definitions:
  2. a) INSAT/GSAT System(Annexure 1, Definitions (8)) – INSAT/OSAT System means the system built and operated by ISRO/DOS at a given orbital location andsatellite capacity leased by ISRO/DOS with Government approvals.
  3. b) Space Segment Capacity(Annexure 1, Definitions (16)) – ‘Space Segment Capacity’ or ‘Transponder Capacity’ or ‘capacity’ means any of the radio frequency transmission channels on the Serving Satellite through which DOS shall provide the Capacity to the user. The term Space Segment Capacity and Transponder Capacity are same and are often used interchangeably. Generally, each transponder of INSAT/GSAT Satellite(s) has 36 MHz of bandwidth capacity. Based on the application and usage, customer demands for particular bandwidth capacity in the transponder of a satellite. This bandwidth capacity gets used by the customer for uplink and downlink purposes.
  4. C) PARTS OF COMMUNICATION SATELLITE

A Communication Satellite has the following basic parts:

1) Satellite Bus:

  1. Satellite Structure: This is the mechanical structure of the satellite on which various satellite sub-systems are integrated.
  2. Power System – This consist of Solar Panels as well as Batteries to power the satellite.
  3. Antenna System – This is to receive / transmit signals between earth stations.
  4. Command and Control System – This monitors the Satellite to ensure that all vital operating parameters are working.
  5. Thermal System – This protects the satellite and its sub-system from external environment.
  6. Propulsion System – This is used for station keeping and orbit correction, to ensure that the satellite stays in its orbit.
  7. ii) Satellite Payload:

The payload of a communication satellite is Transponders. Transponder is an electronic part of the satellite that receives the signal at a particular frequency, amplifies it and transmits it back to earth. The transponder has the following parts

  1. Band Pass Filters
  2. Low Noise Amplifier

iii. Mixer and Oscillator

  1. High Power Amplifier
  2. The Band Pass Filteris a device that passes frequencies within a certain range and rejects (attenuates) frequencies outside that range.
  3. Low Noise Amplifier: –An electronic amplifier that amplifies a very low power signal without significantly degrading its signal-to-noise ratio. In general, an amplifier increases the power of both the signal and the noise present at its input. LNAs are designed to minimize additional noise.
  4. Mixer: –An electronic system which converts the input frequencies to output frequencies with the help of oscillator frequency so as to avoid interference between uplink and downlink signals.
  5. High Power Amplifier: –An electronic amplifier that increases the power of a downlink signal to compensate the transmission losses so that user terminal receives sufficient signal strength to function adequately.

A Communication Satellite cannot be without any of the aforesaid parts and there will not be any utility for satellite without transponders.

In a Communication satellite, transponder is the satellite part through which various application services like TV Broadcasting services, Digital Signal Network Gathering (DSNG)services, Direct to Home (DTH) broadcast services, Very Small Armature Terminal (VSAT) for closed network communication services, Telephony, etc., are rendered to the users. Rest of the satellite systems, as detailed under Satellite Bus are the supporting systems for proper functioning of transponders.

  1. D) TAXABILITY OF LEASE OF TRANSPONDERS UNDER GST ACT.

The Applicant submits that in their understanding, leasing of transponders are covered under the SAC Code 997319 – “Leasing or rental services concerning other machinery and equipment’s with or without operator”. The rate of GST applicable is covered vide Notification No. 8/2017 – Integrated Tax (Rate) dated 28/06/2017 as amended till date under the following entry.

SL.No. Heading Description of Services Rate of Tax
17 9973 (viii) Leasing or rental services, with or without operator, other than (i), (ii), (iii), (iv), (v), (vi) and (vii) above. Same rate of integrated tax as applicable on supply of like goods involving transfer of title in goods.

As transponder is a part of satellite, it is covered under HSN 8803 – Parts of goods of heading 8802. Satellite are charged at Nil Rate of tax as per Sl. No. 140, HSN – 8802 60 00 – Space craft (including satellites) and sub-orbital and space craft launch vehicles vide Notification No.2/2017 – Integrated Tax (Rate) dated 28.06.2017 as amended till date.

Parts of goods of heading 8802 (Transponder) is charged at 5% Rate of tax as per Sl. No. 245, HSN 8803 – Parts of Goods of Heading 8802 of Schedule 1 of Notification No. 1/2017 – Integrated Tax (Rate) dated 28.06.2017 as amended till date.

Further the Applicant submits that the transponder cannot be classified under the heading 8525 60 92 as “Other Satellite Equipment” since it consist of ground segment that comprises of the following:

  • Uplink Station (to send signals from earth to Satellite).
  • Downlink Station (to receive signals from earth to Satellite).

Ground Segment is established at earth and which transmits (uplink) the signals to satellite transponders and receive (downlink) the signals from satellite at ground. Whereas, the Space segment comprises of Satellite located at a Specified orbital slot in space with transponder for catering various application/ user needs.

The Applicant further submits that, the tariff heading 8525 60 92 of the Customs Tariff Act – “Other Satellite Communication Equipment” covers those equipment’s which are in the Uplink Station and Downlink Station on earth which are not part of Space Segment. Some of such equipment are as follows:

  1. a) Amplifiers are used to regenerate and amplify signals.
  2. b) Antennas (receiving antennas or transmitting antennas) are Structures used to radiate electromagnetic waves.
  3. c) Modulators: Digital data is sent to the modulator which takes the data and converts it into a modulated signal in the Intermediate Frequency Range.
  4. d) Block up converters (BUC) are used to convert a band or a block of frequencies from lower to higher frequencies.
  5. e) Low-noise block converters (LNB) are down-converters that are used to receive (downlink) satellite signals.
  6. f) Equalizers: are communications equipment used to alter or adjust the frequency response of a device.
  7. g) Considering the above, the Applicant submits that it is clear that Transponders cannot be categorized in the Tariff heading Other Satellite Communication Equipment covered under 8525 60 92 of the Customs Tariff Act.

The Applicant further places on the following judgements wherein a discussion on HSN Code 8525 60 92 and various equipments covered in the context of exemptions under notifications are dealt with. These decisions are referred only with the intent to show that the entry “Other Satellite Equipment” refers to the equipment which are in either Uplink Station or Downlink Station (together can be categorized as On Ground) and not in Space Segment. Further, Satellite Communication Equipment as such are categorized as HSN 8525 60 92 -Other Satellite Communication Equipment.

  1. U & I System Design Ltd. V Commissioner of Customs (Appeals), Bangalore – 2007 (218) ELT 603 (Tri-Bang) = 2007 (8) TMI 139 – CESTAT, BANGALORE.
  2. Modern Communication & Broadcasting Systems P. Ltd V Chief Commissioner, Kandla – 2009 (245) ELT 199 (Tri-Ahmd) = 2008 (12) TMI 578 – CESTAT, AHMEDABAD.
  3. Raj Television network V Commissioner of Customs, Chennai – 2007 (215) ELT 71 (Tri-Chennai) = 2007 (6) TMI 37 – CESTAT, CHENNAI.

The Applicant further places reliance on the Notification No. 153/ 93 – Customs dated 13/08/1993 which was issued in the context of exemption to telematic infrastructural equipment. The annexure in the notification covers the following Satellite Communication Equipment –

II SATELLITE COMMUNICATION EQUIPMENT (GROUND SEGMENT)

  1. High Power Amplifier
  2. Solid State Power Amplifier
  3. Low Noise Amplifier
  4. Ground Communication Equipment
  5. Up/ Down Converter
  6. Modulator / Demodulator
  7. Antenna System
  8. TDMA / TSI
  9. Master Earth Station
  10. Micro Earth Station
  11. Radio Network Terminal
  12. Inter-facility Link
  13. Pilot Receiver”

These entries, which are classifiable under HSN Code 8525 60 92, refer to those equipment which are used to communicate with the Satellite and nowhere Transponders finds a place in this List. This proves that Transponders are not considered as part of the “Other Satellite Communication Equipment”.

The Applicant submits that the uplink and /or downlink operations carried out by the customers require base station at ground which may be owned by them or leased from the Teleport operators. The customers, through the teleport or through their own ground equipment, uplink their data directly to satellite and it can be down linked in the area covered by satellite by using appropriate ground equipment such as antenna, down converters de-modulators, set top boxes, etc., when a customer intends to start any communication service like, Television, Broadcasting, Digital Satellite news gathering, outdoor Broadcasting, Direct to Home, VSAT (Very Small Aperture Terminal – ATM, Retail, Banking etc.,). Department of space (DOS) identifies and allots Satellite Bandwidth Capacity (in MHz) to customer to enable such services. A Transponder lease agreement/ MOU between DOS and the Customer with NSIL as Contract Manager is entered towards this. The Customer starts using the allotted Satellite Bandwidth Capacity after obtaining other regulatory approvals/ clearance. No intervention of NSIL / DOS is involved in either up linking or down linking. One such lease agreement entered on February 12th, 2020 with M/S. Odisha Television Limited is enclosed for your perusal. As per the agreement entered into between DOS with Odisha Television Limited vide Agreement No. DOS/ OT/ NSIL-GSAT10-DSNG-C-03-2020 dated February 12, 2020 for the provision of 3 MHz C band capacity on GSAT 10 satellite, the Customer will utilize this bandwidth (Uplink: 6304.5 -6307.5 MHz/LH, Downlink: 4079.5 – 4082.5 MHz/LV) to transmit and receive DSNG carriers. The agreement for providing bandwidth capacity is entered for a fixed period of time and can be renewed based on mutual consent between DOS and the party. After closure of agreement, this capacity is free for allotment by DOS to any other party. Further the Applicants submits that, the transponders leased by the Applicant to its customers form part of communication satellite and do not form part of any other equipment / aircraft / navigational device, etc. The Applicant also submits that the transponder is a specific part of the satellite without which the Communication Satellite is of no use. Such a satellite transponder cannot be used in any other navigation equipment. It is specifically used only in a satellite. This Satellite Transponder is not of generic use. Any goods specifically designed for a particular product (Satellite in this case) will be classified as part of that machine and not a part of generic use. This is the rule of classification.

The Applicant relies upon the following judgement which explicitly brings out what is a part and also the classification of specific use of the part: – Commissioner of central Excise, Delhi v. Insulation Electrical (P) Lyd 2008 (224) ELT 512 (SC) = 2008 (3) TMI 22 – SUPREME COURT – where in para 19, it is stated… “Chapter 9401 covers all types of seats and not only the seats of a car and a seat is complete even without the rail assembly from seat, adjuster / assembly slider seat and rear back lock assembly. They are not essential parts of the seat. Chapter heading 9401 covers only the parts of the seats and not accessories to the seat. A “part” is an essential component of the whole without which the whole cannot function”.

In the aforesaid judgement, the Apex Court has held that a Part is an essential component of the whole without which the whole cannot function and in the present case, the transponder is a part of the Communication Satellite without which the Communication Satellite cannot function.

Eureka Forbes Limited v. Commissioner of central Excise, Meerut 2001 (130) ELT 146 (Tri – Del) = 2000 (8) TMI 567 – CEGAT, NEW DELHI wherein it was held in Para 8 as under:

“According to note 2(b) parts which are suitable for use solely or principally with particular machines or apparatus are classified in the same heading as those machines or apparatus. This has been confirmed by the Appellant Tribunal and Courts in many cases, including the decision in Sealol industan Ltd., = 1988 (3) TMI 74 – HIGH COURT OF JUDICATURE AT BOMBAY, and Plastic Craft Industries, = 1990 (10) TMI 181 – CEGAT, NEW DELHI, relied upon by the Ld. Advocate for the Appellants. The Board also clarified vide letter F. No. 145/ 12/ 87-CX4, dated 18-03-88 that Ice Trays, freezer doors, etc. would be classified under Heading 84.18 as parts of refrigerator. The Board, however, classified butter box under Chapter 39 as it was not solely designed for use with refrigerator. Accordingly, we hold that applying Rule 2(b) to section XVI, hoses in question are appropriately classifiable along with vacuum cleaner under Heading No. 85. 09 of the Tariff”.

In the Applicant’s case, the transponder is used solely and principally with the Communication Satellite and hence is a part of the Satellite. With regard to the issue as to why a Transponder cannot be categorized as an equipment as it is also made of few more parts, the Applicant submits that if a part is made of a different part, it does not mean that the resultant part will not be a part of a particular product/ equipment (in this case Satellite). In the context of Part of Part being considered as part of Equipment, there are several judgments which goes to show case that, even if the primary part of an equipment is made of other parts, still the character of Primary Part of equipment doesn’t get lost. The Applicant places reliance on the following judicial pronouncements where there are decisions considering part of part being considered as part of equipment. There is no view that since part is made of other part, the main part will become an equipment on its own. In fact, even the so-called equipment if it is intrinsic to a specific primary equipment, will be treated as part of the equipment:

  1. a)Collector of Central Excise v. MP (I) Ltd – 1990 (46) ELT 68 (Tri) = 1987 (7) TMI 472 – CEGAT, NEW DELHI
  2. b)Collector v. MP (I) Ltd – 1997 (95) ELT A142 (SC) = 1995 (4) TMI 312 – SC ORDER
  3. c)Motor Industries Company Ltd v. Collector of Central Excise, Aurangabad – 1995 (75) ELT 65 (Tri) = 1994 (11) TMI 219 – CEGAT, NEW DELHI
  4. d)Collector of Central Excise, Aurangabad v. Motor Industries Company Ltd. 2003 (152) ELT 36 (SC) = 2003 (1) TMI 299 – SUPREME COURT

With regard to the question as to whether Space Segment Capacity include spectrum as mentioned in Article 2 of the Agreement between NSIL and DOS, the scope of the agreement is leasing of bandwidth capacity on a satellite (part of INSAT/GSAT system) to the user and this space segment capacity is known as transponder capacity. Hence the scope of the agreement covers only Leasing of Satellite Transponder capacity and not Spectrum.

Considering the above, the Applicant states that it is clear that Satellite transponder, which is designed for specific use in satellite is to be classified as Part of Satellite and classified under HSN 8803.

  1. FINDINGS & DISCUSSION:

6.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by Sri. Radha Krishnan D, Director and duly authorised representative of the applicant during the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.

6.2 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

6.3 The Applicant seeks advance ruling in respect of the following question:

  1. Whether Leasing of Satellite Transponder which is covered under SAC Code 997319 be charged at 5% GST as per HSN Code 8803 – Parts Goods of Heading 8802 (Satellites)?
  2. Whether the applicant can levy GST @ 5% for Leasing of Satellite Transponder Services which is covered under SAC 997319 as per HSN Code 8803-parts goods of Heading 8802 (Satellites) from the date of commencement of the service-Leasing of Satellite Transponder?

The applicant contends that leasing of satellite transponder is covered under SAC 997319 and the said transponder is classifiable under Tariff heading 8803 as part of satellite, which is classified under Tariff heading 8802, and hence is taxable at 5% GST.

6.4 A copy of the Memorandum of Understanding between the Department of Space and the applicant was submitted to explain the business activity of the applicant. The applicant is a Government of India company under the administrative control of the Department of Space. The applicant is engaged in a variety of activities, inter-alia, including leasing of space segment capacity on satellites, leasing of space segment capacity procured from Foreign Service Providers/Operators, launch services, satellite services, remote sensing and data services etc. In respect of Satellite services the applicant is empowered to market complete satellite systems. Further they are empowered to negotiate with the end user/customer for finalising the technical, commercial and contractual terms of the work proposed to be done. Further the applicant is christened as the ‘Contract Manager’ in all the agreements entered by the Department of Space with users for provision of INSAT transponder capacity with rights and powers to administer the agreements/MOUs in entirety. The MOU shows that the agreement is in respect of INSAT and GSAT satellites, which are purely communication satellites.

6.5 In the instant application the applicant, with regard to supply of the service of leasing/rental of satellite transponders and seeks clarification on the rate of tax applicable in respect of the said service.

6.6 In the subject matter and in relation to the questions for Ruling we examine the provisions of Notification No. 08/2017-Integrated Tax (Rate) dated 28.06.2017 and as amended subsequently. Serial Number 17 of the Notification, Heading 9973, pertains to Leasing or rental services, with or without operator. Against the aforementioned Heading the entries in Column (3) of the Notification from (i) to (vii) pertain to issues not related to the application. The entry at serial (viii) is a residual entry and applies to the applicant. Therefore the services provided by the applicant are aptly covered under Serial Number 17, sub-serial (viii) of the said Notification. In so far as the rate of tax applicable to the said service is concerned the Notification provides that the rate shall be as mentioned in Column (4) against the description of the service. The entry in Column (4) of the Notification against Serial No. 17 (viii) reads as follows:

Same rate of integrated tax as applicable on supply of like goods involving transfer of title of goods.

In the instant case satellite transponders had been leased out. Therefore the rate of tax applicable on the service of leasing of the satellite transponders shall be the same as the rate of tax as applicable on the supply of the satellite transponders. This brings us to the question of determination of the rate of tax on supply of service of leasing of satellite transponders which in turn requires us to determine the classification of the said goods.

6.7 Before proceeding to examine the entries in the Tariff, we shall examine the nature and characteristics of a satellite transponder to understand its features, characteristics etc to correctly determine its classification.

6.8 A Transponder is an automatic electronic monitoring or control device that receives, cross examines, amplifies and retransmits the arriving signal and is primarily implemented in wireless communication (as ascertained from independent sources). The word ‘Transponder’ itself is a combination of two words i.e. transmitter and responder. A transponder works by receiving a definite signal from a specific source (up link) on a component called “interrogator”, then it amplifies the signal, converts the signal to a dissimilar frequency, through “frequency converter”, than that of the one received and automatically transmits the signal (down link). Therefore the input and output signals can be sensed concurrently. The device on board the satellite that performs the amplification and frequency conversion and also the main/key payload of any communication satellite is the “Transponder”.

In view of the above, the transponder essentially is a repeater which receives the signal transmitted from earth station on the uplink, amplifies the signal, converts to a dissimilar frequency and retransmits the same on the downlink. Therefore the essential / significant features of amplification and frequency conversion are done by the key payload of the communication satellite i.e. the transponder. Therefore the transponder becomes an integral part of the communication satellite, without which the communication satellite becomes defunct.

6.9 The Applicant contends that the said transponders merit classification under Tariff Heading 8803 as part of Spacecraft (including satellites), falling under Tariff heading 8802. The alternate classification is under Tariff heading 8525 as “Other Satellite Communication Equipment”. We proceed to examine the two Tariff Headings.

6.10 In respect of Tariff Headings and determination of Classification, Explanations (iii) and (iv) appended to the Notification No. 01/2017- Central Tax (Rate), dated 28.06.2017 are relevant. The said explanations are reproduced below for ease of reference.

(iii) “Tariff item”, “sub-heading” “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

(iv) The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.

Accordingly we make a reference to the Section Notes and Chapter Notes of the relevant Chapters of the Customs Tariff and also the corresponding Explanatory Notes.

6.11 Chapter 85 is covered under Section XVI and Chapter 88 is covered under Section XVII of the Customs Tariff Act. We proceed to examine the two competing entries sequentially.

6.12 The applicant has stated that the competing entry in the Tariff is 85256092- “Other Satellite Communication Equipment”. The Tariff entry 8525 reads as under:

Tariff Item Description
8525 Transmission apparatus for radio broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras, digital cameras and video camera recorders
852550 Transmission apparatus
85255010 Radio broad cast transmitter
85255020 TV broad cast transmitter
85255030 Broadcast equipment sub-system
85255040 Communication jamming equipment
85255050 Wireless microphone
85255090 Other
852560 Transmission apparatus incorporating reception apparatus
Two way radio communication equipment
85256011 —- Walkie talkie set
85256012 —- Marine radio communication equipment
85256013 —- Amateur radio equipment
85256019 —- Other
Other:
85256091 —- VSAT Terminals
85256092 —- Other satellite communication equipment
85256099 —- Other
852580 Television cameras, digital cameras and video camera recorders:
85258010 Television cameras
85258020 Digital Cameras
85258030 Video Camera recorders
85258090 Other

It could be seen from above that the heading 8525 primarily deals with transmission apparatus for radio broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus in addition to television cameras, digital cameras and video camera recorders. The heading is divided into three major sub-headings namely (a) Transmission apparatus under heading 8525 50, (b) Transmission apparatus incorporating reception apparatus under heading 8525 60 and (c) Television cameras etc., under heading 8525 80. Further 8525 60 1 series covers two way communication equipment and 8525 60 9 series covers others which include VSAT terminals, other satellite communication equipment.

6.13 In this regard our attention is drawn towards the brief outline of the basic satellite communication set-up. The basic elements of a satellite communication system include the ground segment and the space segment. The ground segment comprises the transmitting and the receiving Earth stations together with their associated instruments, antennae, electronic circuits etc.,. These earth stations provide access to the space segment by transmitting/receiving information to/from the satellite. The space segment comprises one or more satellites, which act as repeater stations.

6.14 The tone and tenor of the goods covered under Heading 8525 shows that the transmission apparatus (i.e. Radio broadcast transmitter, TV broadcast transmitter, wireless microphone etc under Heading 852550), transmission apparatus incorporating reception apparatus (i.e. two way radio communication equipments etc.) are apparatus and equipments based on the land. Further the entry VSAT Terminals’ under the category of ‘Others’ also relates to an earth station. VSATs are Very Small Aperture Terminal (VSAT) and are two-way ground stations that transmit and receive data from satellites. The competing entry “Other Satellite Communication Equipment’ immediately follows the VSAT entry. This throws light on the nature of the equipments covered under ‘Other Satellite Communication Equipment’. Such equipments ought to be in the nature of equipments located on the ground and used to establish communication with the satellite much as VSATs. This leads one to the conclusion that these equipments shall not be located on the satellite, but on the ground and used to establish communication from the ground up with the satellite. The flow of the classification of the apparatus/equipments, thus, leads to the inference that goods not specifically covered under 852550 and 852560 but used in transmission/communication from a ground station to the satellite find classification under the specific heading 85256092. In view of the above, it is evident that the goods / equipment covered under the heading 8525 60 are primarily meant for communication with the satellite and form part of ground segment.

6.15 In the instant case the transponder is a key payload of communication satellite and hence cannot form part of ground segment but is essentially a part of space segment and more specifically the main part to the communication satellite without which the communication satellite becomes defunct. Therefore transponders located on the communication satellite are not covered under the Heading 85256092.

6.16 We now proceed to examine the Tariff Heading 8803. The transponders are stated to be parts of Communication Satellites. In this regard we find that Heading 8802, and more specifically Heading 88026000 covers Spacecraft including Satellites. Therefore Satellites are covered under Tariff Head 8802. The next Heading in the instant Chapter is 8803 and it covers “Parts of goods of heading 8801 and 8802’. Therefore it now remains to be determined whether the transponders qualify to be considered as parts of Satellite and whether the same are covered under Heading 8803 or not.

6.17 Chapter 88 falls under Section XVII of the Customs Tariff. Section Note 3 to Section XVII of the said Tariff stipulates that “References in Chapters 86 to 88 to “parts” or “accessories” do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory”.

6.18 Further we are draw reference to the Explanatory Notes of the relevant Section and Chapter. Explanatory Notes to Section XVII at General (III) Parts & Accessories stipulate that all the following three conditions should be satisfied, for a product to be classified as a Part under the said Section.

(a) They must not be excluded by the terms of Note 2 to Section XVII (see paragraph (A) below)

(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88 (see paragraph (B) below)

(c) They must not be more specifically included elsewhere in the Nomenclature (see paragraph (C) below)

6.19 The communication satellite transponders are not covered in the list of parts/parts and accessories appearing under Note 2. Therefore the transponders are not excluded by the terms of Note 2 to Section XVII. Therefore the first condition stands complied with.

6.20 The second condition prescribes criterion of sole or principle use (paragraph (B)) inter alia stating that under Section Note 3, parts and accessories which are not suitable for use solely or principally with articles of Chapters 86 to 88 are excluded from those chapters. The effect of Note 3 is therefore that when a part or accessory can fall in one or more other sections as well as in Section XVII, its final classification is determined by its principal use. Further in case parts and accessories classifiable in two or more headings of the Section i.e. when certain parts and accessories are suitable for use on more than one type of article/ product they are to be classified in the heading relating to the parts and accessories of the articles / products with which they are principally used.

In the instant case the product “Transponder” being an integral part of the communication satellite can be used solely or principally with the communication satellite falling under Tariff heading 8802. Hence the second condition is also complied with.

6.21 The third condition lists certain parts and accessories covered more specifically elsewhere in the Nomenclature (paragraph (C)). Such parts and accessories, even if identifiable as for the articles of Section XVII, are excluded if they are covered more specifically by another heading elsewhere in the nomenclature. It is observed from the list that the transponder does not find a place. Moreover the transponders are not more specifically classified elsewhere in the Tariff. Therefore the third condition is also complied with.

6.22 On the basis of the discussions above we find that Communication Satellite Transponders are appropriately classifiable under Tariff Heading 8803, more specifically under 8803 90 00.

6.23 Transponders, being parts of communication satellites, are covered under 8803 90 00 and any leasing of such transponders would be covered under the Entry No.17 of Notification No. 11/2017 – Central Tax (Rate) dated 28th June 2017 at the rate applicable as on the supply of like goods involving the transfer of title in goods. Admittedly the transponders are goods and any transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is covered under the clause (viii) of Entry No. 17 of the said Notification.

6.24 The applicant seeks advance ruling on the rate of tax applicable in respect of supply of service of Leasing of Transponder and hence we considered that the applicant is into supply of Leasing of Transponder service only. Therefore it is pertinent to mention here that in case if the applicant is into any other supply, in addition to the instant supply, then the ruling in this case will not be applicable. In such cases, the supply need to be examined whether it amounts to composite supply or mixed supply and accordingly the rate of tax need to be determined.

  1. In view of the foregoing, we pass the following

RULING

  1. The service of Leasing of Satellite Transponders, covered under SAC 9973 19, falls under the Entry No.17 (viii) of Notification No. 8 / 2017 -Integrated Tax (Rate) dated 28th June 2017, as amended, and is taxable to GST at the rate of 5% IGST (i.e. 2.5% of CGST and 2.5% of KGST), as applicable on the supply of like goods (transponder – part of communication satellite) involving the transfer of title in goods, covered under 8803 90 00, in terms of Entry no. 245 of the Schedule I of the Notification No. 1/2017 – Integrated Tax (Rate) dated 28th June, 2017, as amended.
  2. The applicant cannot levy GST @ 5% for Leasing of Satellite Transponder Services covered under SAC 997319, as per HSN Code 8803-parts goods of Heading 8802 (Satellites), from the date of commencement of the said service that has already been provided, if tax (GST) is already charged & collected under any invoice. Any excess collection of tax needs to be paid to the Government within the specified time and the mistake shall only be corrected through a debit note-credit note mechanism, if applicable and subject to such conditions and within such time as specified in section 34 of the CGST Act.

M/S. T AND D ELECTRICALS

Requirement of separate registration – Execution of contract in different state – whether agreement would suffice as address proof since nothing else is with the assesse and service recipient will not provide any other proof? – What documents would be required with transporter to transit/ ship material at Karnataka site from dealer/ supplier of Rajasthan and in case of dealer/ supplier is of Karnataka. Advance ruling may kindly be issued in case of registration is required or not required in both the situation?

Whether separate registration is required to execute the aforesaid contract in Karnataka State or not? – HELD THAT:- Section 22 of the CGST Act 2017 is relevant to registration and stipulates that every supplier shall be liable to be registered in the state from where the said supplier makes the taxable supply of goods or services or both, subject to the threshold limit of the aggregate turnover in a financial year – In the instant case, the applicant intends to supply goods or services or both from their principle place of business, which is located in Rajasthan. The applicant has only one principle place of business, for which registration has been obtained and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore the location of the supplier is nothing but the principle place of business which is in Rajasthan. Thus there is no requirement for a separate registration in Karnataka for execution of the contract.

If registration is not required in Karnataka state and if we purchase goods from dealer of Rajasthan and want to ship goods directly from the premises of dealer of Rajasthan to township at Karnataka then whether CGST & SGST would be charged from us or IGST by the dealer of Rajasthan? – If registration is not required in Karnataka state and if we purchase goods from dealer of Karnataka to use the goods at township at Karnataka then whether IGST would be charged from us or CGST & SGST by the dealer of Karnataka? – HELD THAT:- In this situation the supplier i.e. dealer is situated in Karnataka & the recipient of goods i.e. the applicant, is situated in the state of Rajasthan and hence the impugned supply becomes inter-state supply, in terms of Section 7(1) of the IGST Act 2017. Further the said supply gets covered under Bill to – Ship to transaction, in terms of Section 10(1)(b) of the IGST Act 2017. Thus IGST has to be charged by the dealer in the relevant invoice. However, the applicant also has to charge IGST in their invoice addressed to M/s. Karnataka Cement Project (a unit of Shree Cement Ltd.,).

What documents would be required with transporter to transit/ ship material at Karnataka site from dealer/ supplier of Rajasthan and in case of dealer/ supplier is of Karnataka. Advance ruling may kindly be issued in case of registration is required or not required in both the situation? – HELD THAT:- The impugned question does not gets covered under the issue/s on which the advance ruling can be sought under CGST Act 2017, in terms of Section 97 (2) of the said Act. Therefore no ruling is given to this question.

No.- KAR ADRG 18/2020

Dated.- March 31, 2020

DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: NA

ORDER UNDER SECTION 98(4) OF THE CGST TAX ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

1. M/s. T & D Electricals, S-1/8, RIICO Shopping Complex, Road No. 1, VKIA, Jaipur – 302013 Rajasthan, having User ID 291900000213ART, have filed an application for Advance Ruling under Section 97 of CGST Act,2017 & KGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in form GST ARA-01, discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.

2. The Applicant is registered under the Goods and Services Act, 2017 as works contractor and wholesale supplier in Jaipur, Rajasthan, having GSTIN 08AADPT8381Q1Z9. They have been awarded a contract by M/s. Shree Cement Limited, Rajasthan for electrical, instrumentation and IT jobs (works contract) at township, Karnataka Cement Project (a unit of Shree Cement Ltd.,). The applicant had sought advance ruling, on the same questions & same issues that have been raised in the instant application, before the Authority for Advance Ruling, Rajasthan, Jaipur, who have not passed any ruling on the grounds that the questions pertain to GST registration in Karnataka which are beyond the purview of the said authority. In view of this, the applicant filed the instant application, as an unregistered person, seeking advance ruling in respect of the following questions:

1. Whether separate registration is required in Karnataka state ? If yes, whether agreement would suffice as address proof since nothing else is with the assesse and service recipient will not provide any other proof?

2. If registration is not required in Karnataka state and if we purchase goods from dealer of Rajasthan and want to ship goods directly from the premises of dealer of Rajasthan to township at Karnataka then whether CGST & SGST would be charged from us or IGST by the dealer of Rajasthan ?

If registration is not required in Karnataka state and if we purchase goods from dealer of Karnataka to use the goods at township at Karnataka then whether IGST would be charged from us or CGST & SGST by the dealer of Karnataka?

3. What documents would be required with transporter to transit/ ship material at Karnataka site from dealer/ supplier of Rajasthan and in case of dealer/ supplier is of Karnataka. Advance ruling may kindly be issued in case of registration is required or not required in both the situation?

3. Admissibility of the application : The applicant filed the instant application as an unregistered person, in relation to the contract awarded by M/s. Shree Cement Ltd., & supply of goods or services or both proposed to be undertaken by the applicant, in Karnataka. Further the applicant claims that they have sought advance ruling in respect of the questions on the issues covered under Section 97(2)(d) & (f) of the CGST Act 2017. But it is observed that only one question is covered under Section of the CGST Act 2017. Therefore the application is partially admitted.

4. Applicant’s statement of relevant facts: The applicant furnishes the following facts which have a bearing on the questions raised by them in the instant application:

a) They are registered under GST Act having GSTIN 08AADFT8381Q1Z9 as works contractor and wholesale supplier in Jaipur, Rajasthan. They have been awarded a contract by M/s. Shree Cement Ltd., Rajasthan for electrical, instrumentation and IT jobs (works contract) at township, Karnataka Cement Project (a unit of Shree Cement Ltd.,) in the state of Karnataka.

b) The scope of work of the contract include complete electrical & instrumentation jobs; installation, testing and commissioning at township. The job involves supply of material and installation, testing and commissioning of the same. The basic value of the contract is ₹ 297.85 lacs.

c) The contractor i.e. applicant herein have to arrange all required tools and tackles with manpower/electrician/technician with required material as per Annexure A of the contract.

d) The invoices have to be addressed to Karnataka Cement Project (a unit of Shree Cement Ltd.,), P.E. No. I, Kodla village, Benkanahalli Taluk, Kalaburagi District, Karnataka, PIN-585222 and the GSTIN of the Shree Cement Ltd., (Karnataka) is required to be mentioned in the invoices.

e) The contractor i.e. applicant herein does not have any premises in Karnataka as M/s. Shree Cement Ltd., will only provide temporary small space for office & store in their premises without any written documents, as per para 1.17.1 of the contract.

5. Applicant’s interpretation of law :

a) Section 22 of the CGST Act 2017 provides requirement for registration according to which every supplier shall be liable to be registered under this Act in the state or union territory, other than special category of states, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

b) Section 2(71) defines location of supplier and in the instant case location of supplier (applicant) is Rajasthan, as the supply is made from Rajasthan. Further Section 2(71) also defines ‘location of supplier of services’ and in the instant case the location of the applicant (works contractor) will be the state where his principal place of business is registered (unless he has established office / establishment in the place where the services are supplied)

c) The place of supply, in case of works contract services, shall be the location at which the immovable property (construction site) is located, as per Section of IGST Act 2017.

d) Therefore we understand that we are not required to have any separate GST registration in Karnataka State. Further according to the Advance Ruling of AAR, Rajasthan, the jurisdictional officer also opined that registration is not required.

e) Documents required for proof of principal place of business, as per GST Act are Legal Ownership Document, Consent Letter, Electricity Bill, Municipal Khata Copy, Property Tax Receipt, Rent / Lease agreement & Rent receipt with NOC (in case of expired agreement); we do not have any of these documents as M/S Shree Cement Ltd., have not agreed to provide said documents and hence we do not have any permanent establishment in Karnataka State.

f) Section 10(1) of the IGST Act 2017 determines the place of supply of goods, other than supply of goods imported into, or exported from India, which has two clauses i.e. (a) and (b). We understand that clause (b) is applicable to the instant case and hence CGST & SGST should be charged in case when registration is not required and goods are purchased from Rajasthan and shipped directly from dealer of Rajasthan to township at Karnataka. Further if the goods are purchased from a dealer of Karnataka and shipped to the site of Karnataka, then IGST should be charged in terms of Section 10(1)(b) of the IGST Act 2017.

PERSONAL HEARING

6. A hearing opportunity was given to the applicant, which has not been availed by either applicant or the authorized representative. However, Sri. Ravi Guptha, Advocate & the authorized representative, vide letter dated 17.12.2019, sent through e-mail, requested to issue advance ruling on the basis of written submission in the application on consideration of the same as their oral submissions and hence personal hearing may not be granted.

7. DISCUSSION & FINDINGS:

7.1 We have considered the submissions made by the Applicant in their application for advance ruling as well as the issues involved & relevant facts having a bearing on the questions in respect of which advance ruling is sought by the applicant.

7.2 At the outset, we would like to state that the provisions of both the CGST Act, 2017 and the KGST Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the corresponding similar provisions under the KGST Act.

7.3 The applicant herein has got the contract form M/s. Shree Cement Ltd., Rajasthan for execution of the same at the location situated in Kalaburagi district of Karnataka State. The applicant is a registered person in Rajasthan and with this background has sought advance ruling in respect of the questions mentioned at para 2 supra. We take up each question at a time for discussion.

7.4 The first question is whether separate registration is required to execute the aforesaid contract in Karnataka State or not. Section 22 of the CGST Act 2017 is relevant to registration and stipulates that every supplier shall be liable to be registered in the state from where the said supplier makes the taxable supply of goods or services or both, subject to the threshold limit of the aggregate turnover in a financial year.

7.5 In the instant case, the applicant intends to supply goods or services or both from their principle place of business, which is located in Rajasthan. The applicant has only one principle place of business, for which registration has been obtained and does not have any other fixed establishment other than the principle place of business, as admitted by the applicant. Therefore the location of the supplier is nothing but the principle place of business which is in Rajasthan. Thus there is no requirement for a separate registration in Karnataka for execution of the contract referred supra.

7.6 The second question consists of two parts i.e. a & b. The first part of the said question (part a) is related to the situation where the goods are purchased by the applicant from the dealer of Rajasthan and shipped directly to the township (location of the project) in Karnataka, if separate registration is not required in Karnataka. In this situation whether the dealer in Rajasthan has to charge CGST & SGST or the IGST?

In this situation the supplier i.e. dealer in Rajasthan and the recipient of goods i.e. the applicant, both are situated in the same state of Rajasthan and hence the impugned supply becomes intra-state supply, in terms of Section 8 of the IGST Act 2017 and the said supply gets covered under Bill to – Ship to transaction, in terms of Section 10(1)(b) of IGST Act 2017. Thus CGST & SGST has to be charged by the dealer in the relevant invoice. However, the applicant has to charge IGST in their voice addressed to M/s. Karnataka Cement Project (a unit of Shree Cement Ltd.)

7.7 The second portion (part b) of the said question is related to the situation where the goods are purchased by the applicant from the dealer of Karnataka and shipped directly to the township (location of the project) in Karnataka, if separate registration is not required in Karnataka. In this situation whether the dealer in Karnataka has to charge CGST & SGST or the IGST?

In this situation the supplier i.e. dealer is situated in Karnataka & the recipient of goods i.e. the applicant, is situated in the state of Rajasthan and hence the impugned supply becomes inter-state supply, in terms of Section 7(1) of the IGST Act 2017. Further the said supply gets covered under Bill to – Ship to transaction, in terms of Section 10(1)(b) of the IGST Act 2017. Thus IGST has to be charged by the dealer in the relevant invoice. However, the applicant also has to charge IGST in their invoice addressed to M/s. Karnataka Cement Project (a unit of Shree Cement Ltd.,).

7.8 The third question is related to the documents required to be carried by the transporter of goods, when purchased from (a) the dealer in Rajasthan and (b) the dealer in Karnataka and shipped to Karnataka Cement Project (a unit of Shree Cement Ltd.,) in Karnataka.

The impugned question does not gets covered under the issue/s on which the advance ruling can be sought under CGST Act 2017, in terms of Section 97 (2) of the said Act. Therefore no ruling is given to this question.

8. In view of the foregoing, we pass the following

RULING

1) The applicant need not obtain a separate registration in Karnataka, to execute the project in Karnataka. However, they are at liberty to obtain the said registration, if they are able & intend to have a fixed establishment at the project site in Karnataka.

2) (a) The dealer in Rajasthan has to charge CGST & SGST when the goods, purchased by the applicant, are shipped to project site in Karnataka, under bill to ship to transaction in terms of Section of the IGST Act 2017.

(b) The dealer in Karnataka has to charge IGST when the goods, purchased by the applicant, are shipped to project site in Karnataka, under bill to ship to transaction in terms of Section 10(1)(b) of the IGST Act 2017.

3) No ruling is given on this question as it does not cover under Section 97(2) of the CGST Act 2017.

M/S. SRI. TAGHAR VASUDEVA AMBRISH

Group of lessors – Renting of residential premises – Exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 – Levy of GST while issuing the invoice for the lease service to M/s. Dtwelve Spaces Pvt. ltd. – HELD THAT:- It is clear that the applicant is not providing the service in individual capacity to the lessee, but as a part of the group of lessors. The applicant has not provided any details of registration or constitution of the group, whether they have entered into a partnership or association etc. and hence the taxability of the transaction needs to be examined in this background.

Entry 13, Heading 9963 or Heading 9972, is related to “renting of residential dwelling” “for use as residence” – The contract of the applicant group with the Company is verified and found that what is given is an immovable property consisting of only rooms with attache toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. They are like hotel rooms and the entire leased premises has 42 rooms, which can by no imagination be termed as a residential dwelling.

The exemption prescribed under entry no. 13 of N/N. 9/2017 – Integrated tax (Rate) dated 28th June 2017 cannot be sought and the lessors (as an entity) have to charge GST while issuing the invoice for the lease services to M/s. DTwelve Spaces Pvt. Ltd, provided they are registered under the GST Act – The lease services does not fall under the exemption “Services by way of renting of residential dwelling for use as residence” as listed in entry 13 of Notification No. 9/2017 – Integrated tax (Rate) dated 28th June 2017.

No.- KAR ADRG 17/2020

Dated.- March 23, 2020

DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri. Taghar Vasudeva Ambrish

ORDER UNDER SECTION 98(4) OF THE CGST TAX ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

1. Sri. Taghar Vasudeva Ambrish, #8/2, 36th Cross, 11th “A” Main, 4th T Block, Jayanagar, Bengaluru, having GSTIN number 29AHKPA8401C1ZQ, have filed an application for Advance Ruling under Section 97 of the CGST Act,2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of the KGST Act, 2017 read with Rule 104 of KGST Rules 2017 & KGST Rules 2017, in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.

2. The applicant states that he is a proprietary concern registered under the provisions of the Goods and Services Act, 2017. The applicant states that engaged in the business of providing affordable residential accommodation to students on a long term basis (starting from 3 to 11 months).

3. The applicant has sought advance ruling in respect of the following questions:

1. Whether exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 can be sought and the lessors (here Ambrish Vasudeva and 4 others) need not charge GST while issuing the invoice for the lease service to M/s. Dtwelve Spaces Pvt. ltd.

2. Whether the lease service falls under the Exemption prescribed and can be described as “Services by way of renting of residential swelling for use as residence”? as listed in the aforesaid Notification.

4. The applicant furnishes some facts relevant to the stated activity.

a. The applicant along with four others collectively has let out a Residential complex to M/s. D. Twelve Spaces Pvt. Ltd which is engaged in the business of providing affordable residential accommodation to students on a long term basis (starting from 3 to 1 1 months). Along with such accommodation, the Company is also engaged in providing a host of other services such as maintenance, food, Wi-Fi etc. generally called as a Paying Guest Accommodation.

b. The applicant contends that “renting of immovable property” is covered under Schedule II of CGST Act 2017 which defines it as the supply of services on which the applicable GST rate is 18%.

c. The applicant further states that Schedule Il enlists activities to be treated as supply of goods or as supply of services. Entry 2(b) reads as any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

d. The applicant further refers to the Notification No. 9/2017-lntegrated Tax (Rate) dated 28thJune, 2017 in which certain exemptions have been prescribed for specified activities. Entry 13 of such Notification provides that:

“Services by way of renting of residential dwelling for use as residence” are exempt from GST.

e. Further M/s. D TweIve Spaces Pvt. Ltd. Has entered into sub lease agreement students for providing residential accommodations with living amenities, security, entertainment facilities for a long stay for a period varying from 3 months to Il months. Thereby, D TweIve has concluded that the rental accommodation services provided by D Twelve to the students will not attract GST. Consequently, there would be no GST obligation on D TweIve in case of lease arrangement with their lessor too (Here Ambrish Vasudeva and 4 others). Therefore, D Twelve is of the opinion that the lessor should not charge GST to D TweIve when issuing the invoice for the lease service.

5. Regarding the relevant facts that have a bearing on the questions raised, the applicant states as under:

a. Schedule II enlists activities to be treated as supply of services. Entry 2 (b) reads as any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

b. Section 2(17) of the CGST Act 2017 defines “business” as:

“business” includes –

a. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for pecuniary benefit;

b. any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

c. any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

d. supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

provision by a club, association, society or any such body (for a

e. subscription or nay other consideration) of the facilities or benefits to its members;

f. admission, for a consideration, of persons to any premises;

g. services supplied by a person as holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

h. services provided by a race club by way of totalizator or a license to bookmaker in such club;

i. any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”

c. The applicant states that Section 7 of the CGST Act defines the scope of supply. The expression “supply” include all forms of supply such as lease, rental made or agreed to be made for a consideration by a person in the course or furtherance of business. Section 7 (1-A) guides in determining whether a supply shall be treated as supply of goods or supply of services as referred to in Schedule II. The applicant states that Schedule Il provides that Entry 2(b) reads as any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. The applicant states that as they, Ambrish Vasudeva along with four others have let out a residential complex to M/s D twelve Spaces Pvt. Ltd. to conduct their business are of the view that GST should be charged for invoices raised towards lease service.

PERSONAL HEARING: / PROCEEDINGS HELD ON 09.01.2020

6. The applicant, Sri. T. V. Ambrish, Proprietor of the above concern appeared for personal hearing proceedings on 09.01.2020 before this authority.

FINDINGS & DISCUSSION

7. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by Sri. T.V. Ambrish, Proprietor of the above concern appeared for the personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts.

7.1 At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act.

7.2 The copy of the lease deed entered between the lessors, of which the applicant  is one of the them and the D twelve Spaces Private Limited (hereinafter called as  “Company”) shows that the lessors (totally five in number) have collectively leased out their premises to the Company by way of a single agreement. Each of the lessor has owns a part of the property and they have pooled up their properties and then leased it to the Company. Further, the agreement is a single agreement and the description of the leased premises also shows that the property consists of “42 room along with the 2400 sq.ft of terrace area” on the execution date. The terms and conditions for the transaction is common and the agreement is for the entire property. Further, para 7.1 of the agreement shows very clearly that the consideration for the contract is settled at Rs. xxx per month. The consideration payable is paid to the bank accounts at a fixed percentage of that monthly rent. This clearly shows that the contract is for the entire property and the lessors have pooled their individual properties into a single one and then given the same as a single piece, and even the sharing of the rent is only an apportionment of the common income.

7.3 The para 12 of the agreement also proves that the entire property is let out as the lessee has taken the total property from the lessors and has the right to sub-lease to any third party. All the terms and conditions are applicable to the total property and the lessee deals with the total property only.

7.4 In view of the above, it is clear that the applicant is not providing the service in individual capacity to the lessee, but as a part of the group of lessors. The applicant has not provided any details of registration or constitution of the group, whether they have entered into a partnership or association etc. and hence the taxability of the transaction needs to be examined in this background.

8. Regarding the nature of the transaction, it is seen from the agreement that lessors are providing the service of leasing / renting of the immovable property for a consideration. The reasons are as under:

a. The lessor, of which the applicant is a part, is providing the right to use the immovable property without transfer of the ownership of the immovable property. For this transaction, they are collecting an amount which is the consideration for such transfer of right to use the property. This is in the course or furtherance of business and hence as per Section 7 (1) of the CGST Act, 2017, the transaction between the lessor and the Company would constitute a “supply”. Further, this would be a supply of service as per section 7 (1-A) of the CGST Act, 2017 read with the entry no. 2(b) of the Second Schedule to the CGST Act, 2017, which reads as under:

“(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.”

b. Hence the lessor, of which the applicant is a part, is providing services of leasing of a building for business or commerce to the Company. The applicant is not individually providing this service, but as a group of persons they are providing the services, after pooling in their assets. As could be noticed from the agreement, the contract is not between the individuals and the Company, but between the group of individuals and the Company, which needs to be highlighted.

-Since, the applicant is not providing service to the Company, but as a part of the group, for the transaction between the Group and the Company, invoice needs to be issued by the Group to the Company and the transaction between the individuals and the Group are a different transactions, as the individuals are distinct from the Group of Individuals. The exact nature of the group cannot be ascertained and it is not a question and hence it is not answered. It is suffice here only to rule that the question of charging or not charging GST for the transaction between the applicant and the Company does not arise as the applicant himself is not effecting any supply of service to the Company directly.

9. Regarding the first question, the related entry is verified and found that the same reads as under:

“Entry 13. Heading 9963 or Heading 9972 – Services by way of renting of residential dwelling for use as residence”

This is related to “renting of residential dwelling” “for use as residence”. The contract of the applicant group with the Company is verified and found that what is given is an immovable property consisting of only rooms with attache toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. They are like hotel rooms and the entire leased premises has 42 rooms, which can by no imagination be termed as a residential dwelling. Even if the same is given for residential purposes, the services provided is not for use as residence by the lessee. Services by a hotel, inn, guest house, club site or campsite, by whatever name called, or other commercial places for residential or lodging purposes are covered by different entries in the schedule of this notification or under different notifications and this shows that rooms though given on rent for residential purposes would not amount to residential dwelling and hence the entry is not applicable for the transaction of the lessor with the lessee.

10. Regarding the second question in para 3 above, the same has been discussed in para 9 above and is answered in negative.

11. In view of the foregoing, we rule as follows

RULING

1. The exemption prescribed under entry no. 13 of Notification No. 9/2017 – Integrated tax (Rate) dated 28th June 2017 cannot be sought and the lessors (as an entity) have to charge GST while issuing the invoice for the lease services to M/s. DTwelve Spaces Pvt. Ltd, provided they are registered under the GST Act.

2. The lease services does not fall under the exemption “Services by way of renting of residential dwelling for use as residence” as listed in entry 13 of Notification No. 9/2017 – Integrated tax (Rate) dated 28th June 2017.

M/S. MEGHA AGROTECH PRIVATE LIMITED

Valuation of taxable supply – inclusion of subsidy amount granted to the farmer – or to the supplier on behalf of the farmer – by Horticulture / Agriculture / Sericulture Department of Government of Karnataka under PMKSY scheme or any other Central / State Government approved schemes – refund of input tax credit accumulation.

HELD THAT:- The receipt of any amount received by the farmer from the Government Department has no bearing on the price or value of the supply of goods and/or services by the applicant. The Bank or Government Department makes payment to the applicant only on behalf of the farmer.

As per sub-section (1) of section 15, it is very clear that the value of supply is the transaction value and the transaction value is defined as the “price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient are not related and the price is the sole consideration for the supply” – In the pertinent case, it is clearly evident that the applicant and the farmer are not related persons and the price is payable by the farmer irrespective of the fact that he receives assistance from the government department or not or whether the Bank makes the payment or not. The consideration of the contract is not fixed taking into the account the amount receivable by the farmer as financial assistance and the entire amount is invoiced. Hence price is the sole consideration for supply and the entire invoice value would be the transaction price.

Subsidy – HELD THAT:- the amount receivable or received from the Government is received by the farmer and this amount may be received by him directly in option 1 or by the Bank in case of option 2 or by the applicant in option 3 – the method of receipt of payment has no bearing on the price of the supply and also the receipt of payment by the applicant from the Bank or the Government Department (on the authorization of the farmer concerned) is on the account of the farmer only. Hence the price is independent of the assistance amount and hence would not be covered under clause (e) of sub-section (2) of section 15 of the CGST Act.

No.- KAR ADRG 16/2020

Dated.- March 23, 2020

DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri. RadhaKrishna K.B., CA & DAR

ORDER UNDER SECTION 98(4) OF THE CGST TAX ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

M/s. Megha Agrotech Private Limited, #196, Bannerghatta Road, Arekere, Bengaluru- 560076 (hereinafter called the ‘Applicant’), having GSTIN number 29AANCA2059B1ZS, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 and Section 97 of the KGST Act, 2017, in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act.

2. The Applicant is a private limited company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:

a) Whether under section 15(2)(e) of CGST Act, for calculating “value if taxable supply”, the subsidy amount granted to the farmer by Horticulture / Agriculture / Sericulture Department of Government of Karnataka under PMKSY scheme or any other Central / State Government approved schemes but disbursed to the supplier to be treated as “subsidy” in the hands of the supplier and to be excluded while ascertaining the “transaction value”?

b) Whether the question of inclusion or exclusion of subsidy amount in the value of taxable supply would arise under Section 15(2) of the CGST Act, when such subsidy is not impacting the transaction value, which is price actually paid or payable for the supply of goods by the customer i.e., farmers and when the subsidy is disbursed by Horticulture / Agriculture / Sericulture Department to the supplier on behalf of recipient of the supply (farmers)?

c) Whether supplier would be entitled to refund of input tax credit accumulation, which may arise if subsidy is not treated as part of taxable value?

3. The applicant furnishes some facts relevant to the stated activity:

a. The applicant states that he is in the business of manufacturing and supplying of LLDPE pipes and micro irrigation system and its accessories.

b. The applicant states that under PMKSY, Karnataka Government Departments such as Horticulture / Agriculture / Sericulture Departments are sanctioning 90% subsidy to eligible farmers who install micro irrigation system in their farm land. As a matter of policy, while the subsidy is calculated on the basis of the extent of farm land brought under micro irrigation by a farmer, the disbursement of the same is made to the supplier post supply of micro-irrigation system and post receipt of consent from the farmers for release of subsidy amount to supplier on farmer’s behalf. Thus, payment towards the price of micro-irrigation system is partially received from farmers and partly the same is received from the Government departments on behalf of the farmers, as in terms of PMKSY or other schemes, Governments have granted subsidy to farmers and it is only for ease of administration, payment of subsidy are disbursed to suppliers of micro-irrigation system.

c. The applicant states that hitherto, the supplier is to raise invoice for the full value of micro-irrigation system sold to the farmer and charge 6% CGST and 6% SGST on the price charged in the invoice. This method is well accepted by the Horticulture / Agriculture Department of the State of Karnataka as well as Horticulture / Agriculture Department of other States.

d. The Applicant states that the Agriculture Department of Karnataka vide Circular No. GST/2018-19/2019-20 dated 08.11.2019 has given direction to the effect that no GST to be charged on the subsidy portion. Apparently, the Circular has made reference to Section 15(2)(e) of CGST Act.

4. Regarding the applicant’s interpretation of law and/or facts, the applicant states as under :

a. he is of the view that GST is payable on the price paid or payable by the farmers to micro-irrigation company and the subsidy which is granted to the farmer and used by farmers to discharge its payment obligation to the supplier (by way of giving consent to the Government Department to make payment of the same to the supplier) shall not be considered as subsidy in the hands of the supplier. Hence, he states that the amount so reimbursed is not covered under section and should be included in the value of supply and both CGST and SGST is to be charged at the applicable rates.

b. he is of the view that provisions of section 15(2) is not invocable in the instant scenario as the subsidy is not influencing the price charged by the supplier from its customers and hence it cannot be said to be a subsidy linked to price.

c. he is of the view that in terms of PMKSY or other schemes, the subsidy is granted to farmers depending on certain criteria such as maximum ceiling land for which subsidy is available per farmer, lock-in period between two subsidy claims by a farmer, etc. and that it is only for administrative convenience, the disbursement is made to suppliers of micro-irrigation systems and that also post certification of installation of irrigation system by farmers, post receipt of consent from farmer for disbursement of subsidy entitlement to irrigation system supplier, etc. Therefore, when only for administrative purposes, the subsidy is distributed to the suppliers, it cannot be said that the subsidy is received by the supplier and /or it is linked to price charged by the supplier.

d. The applicant questions that in the event, it is decided that GST is to be charged only on the non-subsidy portion, will the supplier be eligible to claim refund of unutilized input tax credit which may arise if subsidy is not treated as part of taxable value and when in their case, rate of tax on various inputs is higher than rate of tax on output.

5. Sri Radhakrishna K.B., Chartered Accountant and duly authorised representative of the above concern appeared and reiterated the submissions made by the applicant in his application and also made the following submissions:

a. That the process of the sanction and receipt of payments are as under:

i. The eligible farmers applies to the Government Department for the sanction of financial assistance under a scheme and the applicant has no role to play in the said transaction. The Department concerned would conduct a verification of the eligibility of the farmer for financial assistance and the applicant has no role to play even in this process.

ii. Once approved, the farmer approaches the applicant (vendor of the materials) and obtains a quotation. In this issue, the list of vendors are shortlisted by the Government Department and the farmer is free to approach any of the enlisted vendors. The vendor of materials would provide a quotation in the name of the concerned farmer and here also the applicant has nothing to do with the Department.

iii. The farmer then submits the quotation issued by the vendor to the Department and there are three options available for the farmer to be exercised:

1. Option 1: The farmer can use his own financial resources and gets the work executed. The farmer purchases the materials from the vendors and makes payment for the supplies received and submits the details of claim to the department. The department then sanctions the amount of financial assistance which goes to the farmer’s account directly. There is no contract or contact between the department and the applicant vendor and the contract is only between the vendor applicant and the farmer and is clearly of supply to the farmer for the invoiced amount. There is no mention of the subsidy amount and irrespective of the fact whether the farmer receives assistance from the Government or not, the farmer is liable to pay the full consideration to the vendor applicant. There is no privity of contract between the applicant vendor and the Government Department.

2. Option 2: The farmer concerned takes loan from Banks or financial institutions and it is these banks which finance the project, either as a standalone project or as a part of a bigger project. The Banks pays the consideration to the vendor applicant for the supply of materials from the loan account of the farmer and the financial assistance provided by the Government Department is directly credited to the loan account of the farmer. Even in this model, there is no privity of contract between the vendor applicant and the Government Department in deciding the price and also not even with the Bank. The contract is only between the farmer and the vendor applicant and whether the farmer receives assistance from the Government or not, the farmer is liable to pay the full consideration to the vendor applicant. The Bank pays the full amount billed by the applicant vendor and the farmer shall be liable to pay the full consideration to the vendor applicant if Bank does not make the payment.

Option 3: The farmer pays of the consideration to the applicant vendor and the applicant vendor bills the entire value and the remaining amount is given on credit. The farmer then gives a no-objection certificate to the Department concerned that if the assistance is sanctioned to him, the 90% of the amount, i.e. the entire assistance amount may be paid to the applicant vendor on his account. The Department on sanction of the amount of assistance would make the payment to the applicant vendor on account of the farmer as per his directions. In case, the farmer is not sanctioned any assistance or in default, the entire balance amount is recoverable from the fanner by the applicant vendor. Here the vendor applicant invoices the full value of the commodities to the farmer and the privity of contract is only between the farmer and the vendor applicant.

b. Hence the learned representative stated in all the three options supra, the contract is for supply of goods and /or services between the farmer and the applicant vendor and the value of the supply is the entire invoice value. The financial assistance received by the farmer has no bearing on the price of the contract and the farmer is liable to pay the consideration irrespective of the receipt of financial assistance or not. The consideration received by the applicant may be from himself as in option 1 above or from the Bank on account of the farmer as in option 2 or from the Government Department as in option 3 and the way the consideration is received has no bearing on the price of the contract. Further he stated that Bank or the Government Department is only making the payment for the supply made by him to the farmer on the account of farmer only and not directly in their account with the vendor. He stated that there is no privity of contract between the Banker and the applicant or between the Government and the applicant and hence the financial assistance cannot be treated as subsidy affecting the value of supply within the meaning of section 15(2) of the Act.

6. DISCUSSION & FINDINGS:

6.1 At the outset we would like to make it clear that the provisions of CGST, Act 2017 and KGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.

6.2 The application for advance ruling and the arguments made by the applicant and also the submissions made by the learned representative during the time of hearing were all considered and the issue that needs to be addressed is related to whether the amount paid by the Government Department to the farmer would constitute a part of the value of supply of not as per Section 15 of the Act.

6.3 Section 15 of the CGST Act, 2017 reads as under:

“15. Value of taxable supply.-

(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include –

(a) …………………….

(b) …………………….

(c) …………………….

(d) …………………….

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation.- For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.”

6.4 The nature of contract between the farmer and the applicant is verified and found that the applicant is entering into a contract with the farmer alone for the supply of goods and/or services and there is no involvement of the third party in the same. The consideration for the contract is the full value of the goods and / or services and it is the recipient of the supply, i.e. farmer who has to pay the entire consideration. The payment received by the applicant from the Bank in case of option 2 supra or received by the applicant from the Government Department in case of option 3 supra are received on account of the farmer only and there is no privity of contract between the applicant and Bank or Government Department. In case of option 1, the farmer himself makes the payment of consideration to the applicant and the contract ends here. The receipt of any amount received by the farmer from the Government Department has no bearing on the price or value of the supply of goods and/or services by the applicant. The Bank or Government Department makes payment to the applicant only on behalf of the farmer.

6.5 As per sub-section (1) of section 15, it is very clear that the value of supply is the transaction value and the transaction value is defined as the “price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient are not related and the price is the sole consideration for the supply”. In the pertinent case, it is clearly evident that the applicant and the farmer are not related persons and the price is payable by the farmer irrespective of the fact that he receives assistance from the government department or not or whether the Bank makes the payment or not. The consideration of the contract is not fixed taking into the account the amount receivable by the farmer as financial assistance and the entire amount is invoiced. Hence price is the sole consideration for supply and the entire invoice value would be the transaction price.

6.6 Coming to the issue of subsidy, it is very clear that the value of supply shall include the subsidies directly linked to the price, excluding subsidies provided by the Government. The financial assistance provided by the Government is to the farmer to enable him to afford the facility and Government is not making payment to the applicant vendor nor the amount receivable by the farmer has any bearing on the price of the supply. If the subsidies provided by the Government is directly linked to the price, then the same would be excluded from the value of taxable supply. In the instant case, the amount receivable or received from the Government is received by the farmer and this amount may be received by him directly in option 1 or by the Bank in case of option 2 or by the applicant in option 3. The farmer has a choice of either opting option I or option 2 or option 3 and choice of any one of the option has no impact on the price of the supply of goods and /or services. Further, the liability of the farmer with the applicant for the supply received by him will get extinguished only when the applicant receives the consideration and it is immaterial from whom he actually receives the amount and the amount received in only credited against the liability of the farmer with him. Hence the method of receipt of payment has no bearing on the price of the supply and also the receipt of payment by the applicant from the Bank or the Government Department (on the authorization of the farmer concerned) is on the account of the farmer only. Hence the price is independent of the assistance amount and hence would not be covered under clause (e) of sub-section (2) of section 15 of the CGST Act.

7. In view of the foregoing, we pass the following

RULING

1. The amount of assistance received by the farmer or on account of the farmer from the Government Department has no bearing on the price and hence on the value of supply made by the applicant to the farmer and is not covered under section 15(2)(e) of the CGST Act, 2017.

2. There is no question of excluding the amount of assistance or subsidy received from the transaction value or value of taxable supply.

3. The question of entitlement of refund does not arise.

M/S. ATTICA GOLD PVT. LIMITED

Valuation – Input Tax Credit – Purchase and sale of second hand goods being old jewellery – applicability of sub-rule (5) of rule 32 of Central Goods and Services Tax Rules, 2017 – purchases made from the dealer from whom marginal scheme if applicable – purchases used / second hand gold jewellery from individuals who are not dealers under the GST and at the time of sale there is no change in the form/ nature of goods?

HELD THAT:- In the instant case, the supplier, i.e. the applicant is effecting the supply of second-hand jewellery which is taxable under the GST Act as it is covered under entry no. 13 of Schedule V to the Notification No. 01/2017-Central Tax (Rate) dated 28th June, 2017 which is taxable at 1.5% under the CGST Act and similarly taxable under the KGST Act, 2017 also at 1.5%. Hence the supplier satisfies the condition that the supply made by him must be a taxable supply.

The supplier must be a person dealing in buying and selling of second-hand goods. It is seen that the applicant has admitted that he is purchasing used gold jewellery from individuals and selling the same, after cleaning and polishing them. He must not avail any input tax credit on the purchase of such goods. The goods so purchased must be supplied as such and if at all any process is involved, that must not change the nature of the product – it is clear that, subject to the condition of invoicing them as “second hand jewellery”, the applicant satisfies the second condition also.

The valuation of the supply of second hand jewellery may be made as prescribed in sub-rule (5) of rule 32 of the Central Goods and Services Tax Rules, 2017.

Whether ITC is allowed to be claimed if purchases are made from the dealer whom marginal scheme is applicable? – HELD THAT:- The applicant, if he purchases the second hand goods from other registered persons, then the applicant can claim the input tax credit on such purchases if he is eligible to claim under section 16 of the GST Act, 2017 and in that case, he would become ineligible to apply marginal scheme for supplies of such second hand goods.

No.- KAR ADRG 15/2020

Dated.- March 23, 2020

Citations:

  1. Swedish Match AB Versus Securities & Exchange Board of India – 2004 (8) TMI 389 – Supreme Court
  2. GOVT OF AP & ANR Versus ROAD ROLLERS OWNERS WELFARE ASSOCIATION & ORS – 2004 (4) TMI 602 – Supreme Court
  3. Gurudevdatta VKSSS Maryadit & Others Versus State of Maharashtra & Others – 2001 (3) TMI 976 – Supreme Court
  4. Nelson Motis Versus Union Of India And Another – 1992 (9) TMI 355 – Supreme Court
  5. In Re: M/s. Safset Agencies Pvt. Ltd. (Astaguru. com) – 2019 (6) TMI 822 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

DR. RAVI PRASAD M.P. AND SRI. MASHHOOD UR REHMAN FAROOQUI, MEMBER

Represented by: Sri. Muniraju P.R. Chartered Accountant & DAR

ORDER UNDER SECTION 98(4) OF THE CGST TAX ACT, 2017 & UNDER 98(4) OF THE KGST ACT, 2017

1. M/s. Attica Gold Private Limited (hereinafter called the ‘Applicant’), having GSTIN number 29AANCA2059B1ZS, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 and Section 97 of the KGST Act, 2017, in FORM GST ARA-01 discharging the fee of ₹ 5,000-00 each under the CGST Act and the KGST Act.

2. The Applicant is a private limited company and is registered under the Goods and Services Act, 2017. The applicant has sought advance ruling in respect of the following question:

a) Whether applicant dealing in second hand goods and tax is to be paid on the difference between the selling price and purchase price as stipulated in Rule 32(5) of CGST Rules, 2017 if dealer purchases used / second hand gold jewellery from individuals who are not dealers under the GST and at the time of sale there is no change in the form/ nature of goods?

b) Whether ITC is allowed to be claimed if purchases are made from the dealer from whom marginal scheme if applicable?

3. The applicant furnishes some facts relevant to the stated activity:

a. The applicant states that he is in the business of sale of used (second-hand goods). He states that he is purchasing used gold jewellery from unregistered persons and selling the same to others.

b. The applicant states that as per Rule 32(5) of the CGST Rules, 2017, if a person engaged in supply of second hand goods, he can avail the benefit of marginal scheme as per Notification No. 10/2017- Central Tax (Rate) dated 28.06.2017 under GST provided that he shall satisfy all the conditions prescribed in the above said rule.

c. The applicant states that Rule 32(5) of the CGST Rules, 2017 provides valuation for taxable supply by a person dealing in buying and selling of second-hand goods. In such case, value of supply shall be the difference between selling price minus purchase price. To opt for the said valuation, conditions are required to be met are:

i. Used goods are sold as such; or after minor processing which does not change the nature of the goods; and

ii. Where no input tax credit has been availed on the purchase of such goods.

If under the margin scheme, difference between selling price minus purchase price is negative, then GST is not applicable on such transaction.

d. The applicant states that this issue is already heard in the case of Safset Agencies Private Limited by the Maharashtra Advance Ruling Authority [Order no. GST-ARA-86/2018-19B Mumbai dated 15.01.2019 = 2019 (6) TMI 822 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] where the dealer who deal in old jewellery and that jewellery falls under Heading 7113 of the GST Tariff, which overs Articles of jewellery and parts thereof, of precious metal or of metal clad with precious metal. The provisions of Rule 32(5) if CGST Rules are applicable to them in respect of old jewellery which are purchased by them. It is clarified that he can avail the benefit of Margin Scheme.

e. The applicant states that his contention is that he is also engaged in sale of second hand goods having GST Tariff 7113, he can also avail the benefit of Margin Scheme under GST.

f. The applicant explains that Rule 32(5) of the CGST Rules 2017 provides that where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

g. A person dealing in second hand goods is allowed to pay the tax on margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply. The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.

h. The applicant states that the term “second hand goods” as per rule 32(5) of CGST Rules would mean used goods as such or after such minor processing which does not change the nature of goods and where no input tax has been availed on purchase of such goods.

i. Second hand things are not new and have been owned by some one else (Collins Dictionary)

ii. Having had a previous owner; not new (English Oxford Dictionary)

Rule 32(5) of CGST Rules clearly and unambiguously applies to person dealing in second hand goods. As states in facts of the case, applicant is dealing in old jewellery.

i. The applicant states that it is settled jurisprudence principle that when the words of a statute is clear, plain and unambiguous, i.e. they are reasonable susceptible to only one meaning, the courts are bound to give effect to that meaning inespective of consequences. Moreover, if the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. This rule of interpretation is followed in plethora of judgements. A few of the judgements are as under:

i. Nelson Motisv. Union of India (AIR 1992 SC 1981) = 1992 (9) TMI 355 – SUPREME COURT

ii. Gurudevantt VKSSS Maryadit v. State of Maharashtra (AIR 2001 SC 1980) = 2001 (3) TMI 976 – SUPREME COURT

iii. Swedish Match AB v. Securities and Exchange Board of India (AIR 2004 SC 4219) = 2004 (8) TMI 389 – SUPREME COURT

iv. Government of Andhra Pradesh v. Road Rollers Owners Welfare Association [2004 (6) SCC 210] = 2004 (4) TMI 602 – SUPREME COURT

j. The applicant, as said in the earlier paragraphs, quotes the ruling issued by the Maharashtra Advance Ruling Authority in support of his contentions.

4. Sri Muniraju.P.R., Chartered Accountant and duly authorised representative of the above concern appeared and made the following submissions:

a. That the applicant is involved in the purchase and sale of second hand jewellery and is no conversion is made using the above materials. Further he stated that the applicant is only cleaning and polishing the old used second hand jewellery and selling the same as such.

b. He also brought to the notice that a press release issued bearing date 13.07.2017 captioned “Further Clarification on tax in reverse charge on gold ornaments”. The contents are reproduced and the same reads as under:

“In the GST master class held on 73.072017, in one of the replies given to an on-the-spot question, it was informed that purchase of old gold jewellery by a jeweller from a consumer will be subject to GST @ 3% under reverse charge mechanism in terms of the provisions contained in Section 9(4) of the CGST Act, 2017.

2. On further examination, it is felt that the issue needs to be clarified.

3. Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism. This provision, however, has to be read in conjunction with section 2(105) read with section 7 of the said Act. Section 2(105) defines supplier as a person supplying goods or services. Section 7 provides that a supply is a transaction, for a consideration by a person in the course or furtherance of business.

4. Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly, the sale of old jewellery by an individual to a jeweller will not attract the provisions of section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply”.

c. The learned representative stated that the applicant is presently paying taxes on the entire value without availing marginal scheme, but intends to avail the benefit of marginal scheme and hence applied. He stated that the applicant has advertised himself in media that he is purchasing old used jewellery and since he is selling the same as it is, i.e. after cleaning and polishing, without changing the nature of the ornament, he would be dealing only in second hand goods and hence not a dealer in first hand goods and hence would be eligible to utilise the benefit of marginal scheme for valuation of supply.

FINDINGS & DISCUSSION:

5. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.

6. The application for advance ruling and the arguments made by the applicant and also the submissions made by the learned representative during the time of hearing were all verified and the issues that needs to be addressed is related to whether the applicant is eligible to utilise the sub-rule (5) of rule 32 of Central Goods and Services Tax Rules, 2017.

6.1 Rule 32 of the CGST Rules, 2017 reads as under:

“Rule 32. Determination of value in respect of certain supplies.-

(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall, at the option of the supplier, be determined in the manner provided hereinafter.

(2) ……………………..

(3) ……………………..

(4) ……………………..

(5) Where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored:

Provided that the purchase value of goods repossessed from a defaulting borrower, who is not registered, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.”

6.2 This rule stipulates the method of working of the taxable value of a supply and is applicable if the following conditions are satisfied:

(a) the supply made by the supplier must be a taxable supply

(b) the supplier shall be a person dealing in buying and selling of second-hand goods that means

(i) used goods as such or after such minor processing which does not change the nature of the goods and

(ii) where no input tax credit has been availed on the purchase of such goods.

6.3 In the instant case, the supplier, i.e. the applicant is effecting the supply of second-hand jewellery which is taxable under the GST Act as it is covered under entry no. 13 of Schedule V to the Notification No. 01/2017-Central Tax (Rate) dated 28th June, 2017 which is taxable at 1.5% under the CGST Act and similarly taxable under the KGST Act, 2017 also at 1.5%. Hence the supplier satisfies the condition that the supply made by him must be a taxable supply.

6.4 Regarding the next condition, the supplier must be a person dealing in buying and selling of second-hand goods. It is seen that the applicant has admitted that he is purchasing used gold jewellery from individuals and selling the same, after cleaning and polishing them. He must not avail any input tax credit on the purchase of such goods. The goods so purchased must be supplied as such and if at all any process is involved, that must not change the nature of the product. The applicant has stated that he is not melting the jewellery to convert it into bullion and then remaking it to new jewellery but only cleaning the old jewellery and polishing it without changing the nature and form of the jewellery so purchased. These goods are then supplied to other persons. Further, he shall have to invoice the goods as “second hand jewellery” to differentiate then from the “first hand jewellery”. Hence it is clear that, subject to the condition of invoicing them as “second hand jewellery”, the applicant satisfies the second condition also.

6.5 In view of the applicant satisfying both the aforesaid conditions, the valuation of the supply of second hand jewellery may be made as prescribed in sub-rule (5) of rule 32 of the Central Goods and Services Tax Rules, 2017.

7. Regarding the other question, whether ITC is allowed to be claimed if purchases are made from the dealer whom marginal scheme is applicable, the following are noticed:

7.1 The applicant, if he purchases the second hand goods from other registered persons, then the applicant can claim the input tax credit on such purchases if he is eligible to claim under section 16 of the GST Act, 2017 and in that case, he would become ineligible to apply marginal scheme for supplies of such second hand goods.

8. In view of the foregoing, we rule as follows

RULING

1. In the case of applicant dealing in second hand goods and invoicing his supplies as “second hand goods”, the valuation of supply of second hand gold jewellery which are purchased from individuals who are not registered under GST and there is no change in the form and nature of such goods, can be made as prescribed under sub-rule (5) of rule 32 of the Central Goods and Service Tax Rules.

2. In case the applicant purchases second hand jewellery from registered person, the applicant is eligible to claim input tax credit on such inward supplies but if he claims the input tax credit against such inward supplies he would not be eligible for the margin scheme of valuation as prescribed in sub-rule (5) of rule 32 of the Central Goods and Services Tax Rules for the outward supplies of such second hand jewellery.

SHRI. HAZRATH VALIYAPARAMBIL AZEEZ

Levy of GSply of goods & services by way of catering to students of Govt. Industrial Training Institute, Kalamassery as per the Govt. Scheme for ₹ 12.40/- per student per day – requirement of GST registration – applicability of TDS under Section 51 of the GST Act – refund of GST is eligible in the case of TDS deducted and paid – HELD THAT:- The supply made by the applicant falls under Service Classification Code – 9963 – 996337 – Other contract food services – as per the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 – As per the Explanatory Notes to the Scheme of Classification of Services this service code includes food preparation and /or supply services based on contractual arrangements with the customer, at institutional, governmental, commercial or industrial locations specified by the customer other than for transportation companies, on an ongoing basis; food service concession services, i.e. the provision of operating services by operators of eating facilities such as canteens and cafeterias.

The exemption to catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory; provided to an educational institution as per Sl. No. 66 of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 is not applicable to institutions other than institutions providing services by way of pre-school education and education up to higher secondary school or equivalent.

As per the details of the academic qualifications prescribed for admission to the courses conducted by the ITI, the institute can be classified as an institution providing services by way of education up to higher secondary school or equivalent. As the exemption to catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory; provided to an educational institution as per Si No. 66 of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 is applicable to the institutions providing services by way of education up to higher secondary school or equivalent, the catering services to the trainees in the Industrial Training Institute is eligible for exemption from GST.

Requirement of GST registration – HELD THAT:- As per Section 22 of the CGST/SGST Act, 2017; every supplier shall be liable to be registered under this Act in the State from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. Section 23 (1) of the CGST Act, 2017 stipulates that any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax shall not be liable to registration. In view of the provisions of Section 23 of the CGST Act, 2017, the applicant is not liable to registration if the applicant is exclusively engaged in the supply of goods / services.

Applicability of TDS under Section 51 of the GST Act – HELD THAT:- As per Section 51 of the CGST/SGST Act, 2017 a department or establishment of the State Government shall be liable to deduct tax at the rate of two per cent from the payment made or credited to the supplier of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees. As the activity of the applicant is exempted from GST the provisions of TDS is not attracted.

Refund of GST is eligible in the case of TDS deducted and paid – HELD THAT:- The amount deducted as TDS will be credited to the Electronic Cash Ledger of the applicant on filing of TDS returns by the Deductor as the applicant is registered. Since the supply made by the applicant is exempted from GST, the applicant can claim refund of the excess balance in the Electronic Cash Ledger as per provisions of Section 54 of the CGST Act, 2017.

No.- KER/74/2019

Dated.- March 23, 2020

SHRI. SIVAPRASAD .S, IRS & SHRI.B.S. THYAGARAJABABU, B.SC, LL.M

Authorized Representative : M/s. Jayalekshmi & Co, Cost Accountants.

The Principal, Government Industrial Training Institute, Kalamassery awarded a contract to the petitioner for the supply of Boiled milk without sugar, Banana fresh, Bread, Cooked egg with shell to the students as per the Government scheme. In the circumstances the applicant requested advance ruling on the following:

  1. i) Whether supply of following goods & services by way of catering to students of Govt. Industrial Training Institute, Kalamassery as per the Govt. Scheme for ₹ 12.40/- per student per day attract GST?
Entry No. HSN No. Description of goods
25 0401 Boiled milk without sugar
50 0803 Banana fresh
97 1905 Bread
28 0407 Cooked egg with shell
  1. ii) Whether GST registration is required for supply of goods and services of above items?

iii) Whether TDS under Section 51 of the GST Act is applicable in the above supply of goods and services?

  1. iv) Whether refund of GST is eligible in thecaseof TDS deducted and paid under Section 51 of the GST Act?

The authorized representative of the applicant was heard. It is stated that in order to improve the nutritional status of students who are undergoing training in Govt. Industrial Training Institutes any one of the following nutritional foods are supplied to each trainees by the applicant:

  1. Boiled Milk 150 ml + One Boiled egg.
  2. Boiled Milk 150 ml + Banana.
  3. Boiled Milk 150 ml + 2 slice brown bread.

Accordingly the contract for the supply of these items for the period 2019-20 was awarded to the petitioner @₹ 12.40/- per trainee per day. It is stated that all items supplies are exempted commodities under GST vide Notification No.2/2017 Central Tax (Rate) dtd.28-06-2017 – Exempted goods:

(a) Fresh Banana Sl.No.50 HSN 0803;

(b) Bread (2 slices per student (Sl.No.97 HSN 1905;

(c) Boiled Milk (150 ml without sugar per student) Sl.No.25 HSN 0401;

(d) Cooked Egg with Shell Sl.No.28 HSN 0407.

As per Notification No.12/2017-Central Tax (Rate) dtd.28-06-2017 – SI.No.66 Heading 9992 or 9963 no GST is applicable for services provided to an educational institution by way of catering including any mid-day meals scheme sponsored by the Central Government, State Government or Union Territory. It is also added that the basic qualification required for ITI is 10th standard pass for majority of courses and 10th failed for some other courses, and if the students write examination of additional two papers under National Institute of Open School (NIOS), students are eligible for getting certificate equivalent to 12th or 10th for the courses listed in NIOS – ITI scheme. Hence the supply qualifies as exempted supply under the above notification.

The matter was examined in detail. The 1st issue to be decided is whether the supply of goods and services by way of catering i.e; Boiled Milk without sugar, Fresh Banana, Bread and Cooked Egg with shell to the students of ITI as per the Government Scheme is liable to GST?

As per clause (b) of Paragraph 6 of Schedule II of the CGST Act, 2017; supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration is a supply of services.

The supply made by the applicant falls under Service Classification Code – 9963 – 996337 – Other contract food services – as per the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.

As per the Explanatory Notes to the Scheme of Classification of Services this service code includes food preparation and /or supply services based on contractual arrangements with the customer, at institutional, governmental, commercial or industrial locations specified by the customer other than for transportation companies, on an ongoing basis; food service concession services, i.e. the provision of operating services by operators of eating facilities such as canteens and cafeterias.

The exemption to catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory; provided to an educational institution as per Sl. No. 66 of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 is not applicable to institutions other than institutions providing services by way of pre-school education and education up to higher secondary school or equivalent.

Hence the question, whether the Industrial Training Institute can be considered as an institution providing services by way of education equivalent to higher secondary will determine the eligibility of the exemption to the supply of the applicant. The qualification for different courses conducted by the institution is SSLC or below. The details are available in http://wvvvv.itikalamassery.kerala.gov.in/academiciadmission/admission-criteria. As per the details of the academic qualifications prescribed for admission to the courses conducted by the ITI, the institute can be classified as an institution providing services by way of education up to higher secondary school or equivalent. As the exemption to catering, including any mid-day meals scheme sponsored by the Central Government, State Government or Union territory; provided to an educational institution as per Si No. 66 of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 is applicable to the institutions providing services by way of education up to higher secondary school or equivalent, the catering services to the trainees in the Industrial Training Institute is eligible for exemption from GST.

In view of the observations stated above, the following rulings are issued:

(i) Whether supply of following goods and services by way of catering to students of Govt. Industrial Training Institute, Kalamassery as per the Govt. Scheme for ₹ 12.40/- per student per day attract GST?

Entry No. HSN No. Description of goods
25 0401 Boiled milks without sugar
50 0803 Banana fresh
97 1905 Bread
28 0407 Cooked egg with shell.

The activity of the applicant of supply of the above items by way of catering to students of Industrial Training Institute under the scheme sponsored by the State Government is classifiable as a service falling under Service Classification Code – 9963 – 996337 – Other contract food services and qualifies for exemption from GST under Sl. No. 66 of the Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017 as the institution is providing service by way of education up to higher secondary school or equivalent.

(ii) Whether GST registration is required for supply of goods and services of above items?

As per Section 22 of the CGST/SGST Act, 2017; every supplier shall be liable to be registered under this Act in the State from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. Section 23 (1) of the CGST Act, 2017 stipulates that any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax shall not be liable to registration. In view of the provisions of Section 23 of the CGST Act, 2017, the applicant is not liable to registration if the applicant is exclusively engaged in the supply of goods / services as detailed in (i) above.

(iii) Whether TDS under Section 51 of the GST Act is applicable in the above supply of goods and services?

As per Section 51 of the CGST/SGST Act, 2017 a department or establishment of the State Government shall be liable to deduct tax at the rate of two per cent from the payment made or credited to the supplier of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees. As the activity of the applicant is exempted from GST the provisions of TDS is not attracted.

(iv) Whether refund of GST is eligible in the case of TDS deducted and paid under Section 51 of the GST Act?

The amount deducted as TDS will be credited to the Electronic Cash Ledger of the applicant on filing of TDS returns by the Deductor as the applicant is registered. Since the supply made by the applicant is exempted from GST, the applicant can claim refund of the excess balance in the Electronic Cash Ledger as per provisions of Section 54 of the CGST Act, 2017.