Supply of service of removal of hump by dredging to the Government is exempt from levy of GST

The West Bengal Authority for Advance Ruling (AAR) has ruled that services supplied to the Government for removing humps via dredging are exempt from Goods and Services Tax (GST). This exemption applies because the service is considered a composite supply where the value of goods is less than 25% of the total value, and it relates to functions entrusted to municipalities or Panchayats.

The West Bengal AAR, in the case of In Re. Dredging and Desiltation Company (P.) (Ltd.)  [Order No. 25/WBAAR/2023-24 dated December 20, 2023] ruled that, no tax is leviable on the supply of service of removal of hump by dredging to the Government as the supply of aforesaid service is exempt from levy of GST vide Sl. No. 3A of Notification No. 09/2017-Integrated Tax (Rate) dated June 28, 2017("the Service Rate Exemption Notification").

Facts

Dredging and Desiltation Company (P.) (Ltd.) ("the Applicant") has entered into a contract with the Irrigation and Flood Control Department, Government of Delhi ("the Government") for removal of hump (slit/earth/manure/sludge etc.) by dredging. The aforesaid contract mainly constitutes supply of service of dredging and excavation which is a pure service work and the cost of material transferred and consumed for execution and completion of works contract is less than five percent of the total work value. 

The applicant has filed an application for advance ruling on whether the Irrigation and Flood Control Department would come within the purview of Union Territory and therefore, the supply of aforesaid service to the Irrigation and Flood Control Department would be exempt from levy of GST vide Sl. No. 3A of Service Rate Exemption Notification.

Issue

Whether supply of service of removal of hump by dredging to the Government is exempt from levy of GST?

Held

The AAR, West Bengal in the case of Order No. 25/WBAAR/2023-24 held as under:

• Observed that, the central issue to be examined in the present case is whether the activities of delisting and cleaning of drain would fall within the purview of "Public Health Sanitation Conservancy and Solid Waste Management" as per Serial No. 6 of the Twelfth Schedule placing reliance upon Article 243W of the Indian Constitution.
• Noted that, as per Sl. No. 3A of the Service Rate Exemption Notification, the composite supply of goods and services in which the value of supply of goods constitutes not more than 25 percent of the value of the composite supply made to the Central Government, State Government, Union Territory or local authority by way of any activity in relation to any function entrusted to Panchayat under Article 243G of the Indian Constitution or in relation to any function entrusted to municipality under Article 243W of the Indian Constitution is exempted.
• Opined that, the supply made by the applicant is composite supply of goods and services wherein the goods do not constitute more than 25 percent of the value of the aforesaid composite supply.
• Further Opined that, the supply of service by the Applicant to the Government would fall within the purview of aforesaid Entry of Service Rate Exemption Notification.
• Held that, supply of service for removal of hump (slit/earth/manure/sludge etc.) by dredging would be covered under Sl. No. 3A of the Service Rate Exemption Notification and is, therefore, exempted from levy of GST

Relevant extract of the Service Rate Exemption Notification

Sl. No. 3A of the Service Rate Exemption Notification: