Facts
- The Appellant (M/s The Nurserymen Co-operative Society) has received contract from Government departments like BBMP and KSRTC for undertaking gardening and landscaping activities.
- In order to execute the work, the Appellant has engaged sub-contractors.
- The sub-contractors bill the Appellant for the gardening and landscaping work done at the government departments.
- The Appellant in turn bills the Government department in terms of the contract given to them.
Issue before the AAR
- Whether the supply of services by the sub-contractor to the Appellant for executing the gardening and landscaping work for government departments is exempt from GST?
Discussion and Finding of AAR
- The relevant entries of the GST rate exemption Notification no. 12/2017-Central Tax (Rate) dated 28.06.2017 for the services is reproduced below:
S. No. | Chapter, Section or Heading | Description of Service | Rates (percentage) | Condition |
(1) | (2) | (3) | (4) | (5) |
3. | Chapter 99 | Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any 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. | Nil | Nil |
3A. | Chapter 99 | Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent. of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any 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. | Nil | Nil |
- The entries under Sl. No 3 and 3A above will apply only if the recipient of services is a Government (central/State/UT) or local authority or a Governmental authority or a Government Entity.
- In this case, the Appellant who is the recipient of the supply from the sub-contractor is a Co-operative Society and not an entity specified in S.No 3 and 3A. When this criterion of the Notification is not satisfied, the sub-contractors as suppliers of service will not be eligible for the exemption under the entries 3 or 3A of the above said Notification.
- It is the argument of the Appellant that if the exemption is not available to the subcontractors, then the GST paid by the Appellant on the inward supply from the subcontractors will become a cost to them since they will not be eligible to avail the input tax credit of the tax paid on the inward supply, for the reason that the output supply made by them to the Government Department is exempted.
- While we agree that the Appellant will not be eligible for the input tax credit of the tax paid on the inward supply from the subcontractors, we do not agree that this should be a ground for allowing the sub-contractors to avail the benefit of exemption.
- It is a well settled law that exemption notifications are to be interpreted strictly as to their eligibility. One cannot be influenced by extraneous factors while determining a person’s eligibility to an exemption notification.
- Therefore, on a strict interpretation of the entry S.No. 3 and 3A, we hold that the supply of services by the subcontractors to the Appellant is not eligible for the benefit of exemption under either S.No 3 or 3 A of Notification No 12/2017 CT (R) dated 28-06-2017.
