Annual operation and maintenance of compactor and hook loader for lifting and removal of garbage is a composite supply of goods and services

The AAR, West Bengal in the matter of Banchu Das [Advance Ruling No. WBAAR 23 of 2022 dated October 21, 2022] hasruled that, the supply of services to the Government or Government authority for annual operation and maintenance of capacity portable compactor and hook loader cannot be regarded as pure services and it is a composite supply of goods and services as it involves supply of goods like spare parts. Further, such composite supply is eligible for exemption from the payment of GST vide Sl. No. 3A of the Notification No. 12/2017 - Central Tax (Rate) dated June 28, 2017 ("the Services Exemption Notification"), if the value of goods involved in such composite supply does not exceed 25% of the value of supply.

Facts

Banchu Das ("the Applicant") is engaged in providing conservancy/solid waste management services to the Conservancy Department of the Howrah Municipal Corporation ("HMC").

The Applicant submitted that the services provided by them is a "Pure service" which is covered under Sl. No. 3 of the Services Exemption Notification, which exempts the pure services provided to the Government or a Government Authority by way of an activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution.

Issue

Whether conservancy/solid waste management services provided by the Applicant is exempt from the levy of GST?

Held

The AAR, West Bengal in the matter of Advance Ruling No. WBAAR 23 of 2022 held as under:

• Noted that, the work order issued by the Conservancy Department of HMC describes the nature of the work for annual operation and maintenance of capacity portable compactor and hook loader and the Applicant has issued invoices describing particulars as ‘annual operation and maintenance of Compactor Machine for lifting and removal of garbage’.
• Observed that, the term ‘pure services’ has not been defined under the Central Goods and Services Tax Act, 2017 ("the CGST Act"). However, from the bare reading of Sl. No. 3 of the Services Exemption Notification, it denotes supply of services which does not involve any supply of goods can be regarded as pure services.
• Further observed that, the annual maintenance of compactor and hook loader involves supply of goods like spare parts. Thus, it can be concluded that the services provided by the Applicant cannot be held as ‘pure services’.
• Analysed SI. No. 3A of the Services Exemption Notification, and noted that, the supply for annual operation and maintenance of compactor and hook loader provided by the Applicant is a composite supply of goods and services and such supply can qualify for exemption, only when the value of goods involved in such composite supply does not exceed 25% of the value of supply and the same is provided to the Government or Government Authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.
• Opined that, the functions entrusted to a municipality as listed in the 12th Schedule of the Constitution of India include the functions like sanitation conservancy and solid waste management.
• Held that, the Applicant’s supply to the HMC for operation and maintenance of capacity portable compactor and hook loader is eligible for exemption from payment of tax under Sl. No. 3A of the Services Exemption Notification, if the value of goods involved in such composite supply does not exceed 25% of the value of supply.

Relevant Provisions

Sl. No. 3A of the Services Exemption Notification

12th Schedule of the Constitution of India

"1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.

3. Planning for economic and social development.

4. Roads and bridges.

5. Water supply for domestic, industrial and commercial purposes.

6. Public health, sanitation conservancy and solid waste management.

7. Fire services.

8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

10. Slum improvement and upgradation.

11. Urban poverty alleviation.

12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

15. Cattle pounds; prevention of cruelty to animals.

16. Vital statistics including registration of births and deaths.

17. Public amenities including street lighting, parking lots, bus stops and public conveniences.

18. Regulation of slaughter houses and tanneries."