M/s. Nepra Resource Management Pvt. Ltd. (herein after referred to as the “appellant”) filed an application for advance ruling before the Gujarat Authority for Advance Ruling (herein after referred to as the ‘GAAR’) wherein it has been submitted that it is eligible for the exemption provided under Sr. No.3 of the Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 which reads as “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 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. The appellant cited the judgement of the Income Tax Appellate Tribunal, Ahmedabad in the case of the Income Tax Officer, Surat Vs. Sachin Notified Area, [ITA No. 1315/Ahd/2007] and the judgement of the Hon’ble Supreme Court of India in case of Saij Gram Panchayat Vs. State of Gujarat & others., (1992) 2 SCC 366 wherein it was held that a notified area, so created, would be governed by all the provision of the Gujarat Municipalities Act, 1963, applicable to notified areas under that act.

2. An agreement was entered into between the appellant and the Notified Area Authority, Vapi (herein after referred to as the ‘NAA, Vapi’) on 04.02.2019, where under the appellant is required to provide services for collection, sorting, recovery of solid waste and establish / set up Material Recovery Facility for sustainable waste management in Vapi Notified Area on DBFOOM (Design, Build, Finance, Own, Operate & Maintain) model for five years, for an amount of ₹ 1,71,10,000/-.

3. The appellant raised the following question for advance ruling before the GAAR:-

(i) Whether the solid waste management service provided by the applicant to Notified Area Authority, Vapi under the above referred agreement is exempted under Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017?

4.1 The GAAR examined various provisions of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as the “CGST Act, 2017” and the “GGST Act, 2017” respectively and “GST Acts” collectively), including Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 which contains the Chapter, Section and Heading of classification of services along with GST Rate Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 which contains a list of exempted services and other relevant material.

4.2 The GAAR has observed that Entry No. 3 of Notification No. 12/2017Central Tax (Rate) dated 28.06.2017 exempts Pure Services 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 Municipality under Article 243W of the Constitution. Since pure service has not been defined under the GST Acts, the same can be constructed in general terms as if a person provides only service to any person without involvement of supply of goods along with supply of services, then the same would be termed as supply of pure service. On going through the work order/ agreement of the applicant with the NAA, Vapi, it has been observed by the GAAR that the rate of supply of services include cost of the collection vehicle with license holder driver, fuel, oil, pick axes, tools, plants, suction machine, machinery, gumboots, hand gloves etc. and so the service provided by the applicant includes supply of goods also, hence it could not be considered as Pure Service. Further, one of the clauses of Agreement specifically mentions that the rate should be filled inclusive of all taxes which mean rate should be inclusive of GST. The GAAR has observed that this clause itself nullifies the contention of the appellant that they are providing pure services to the NAA, Vapi. In view of the foregoing, the GAAR passed the following ruling.

(i) The solid waste management service provided by the applicant M/s Nepra Resources Management Pvt. Ltd, Ahmedabad to Notified Area Authority, Vapi under the mentioned agreement is not exempted under the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

5. Aggrieved by the aforesaid ruling, the appellant has filed the present appeal.

6.1 The appellant has submitted that an agreement was entered into between the appellant and NAA, Vapi on 04.02.2019. Under the said agreement the appellant has to provide services for collection, sorting, recovery of solid waste and establish / set up Material Recovery Facility for sustainable waste management in Vapi Notified Area on DBFOOM (Design, Build, Finance, Own, Operate & Maintain) model for five years. In entire process the appellant provides only services to NAA, Vapi and there is no supply of goods whatsoever during providing such solid waste management and recycling service to NAA, Vapi.

6.2 It has been submitted by the appellant that the waste management services include door to door collection of garbage / waste; that sorting and recovery of waste is pure service as there is no supply of goods involved in this activity. Setting up of material recovery facility and Food Compost Facility operation and maintenance does not involve any transfer in goods and these are not the activities for which consideration is given by the NAA, Vapi to the appellant. Neither the agreement provides anywhere for supply of goods to the NAA, Vapi. Therefore, as per the agreement, the activities undertaken by the appellant are nothing but a pure service.

6.3 The appellant has further submitted that the GAAR has relied upon clauses of the agreement entered into between the appellant and the NAA, Vapi, wherein it is stated that the work includes all cost of collection vehicles, fuel, oil, workers, licensed drivers, tolls etc. and on the basis of this clause only it is decided that the appellant has not provided pure services to NAA, Vapi. None of the clauses of the said agreement provides that the appellant is required to supply any goods to the NAA, Vapi. The appellant has further submitted that these are expenses which are incurred by the appellant for itself for providing its output services to NAA, Vapi. The appellant has submitted that it is not the case of the GAAR that the appellant has provided any goods to the NAA, Vapi. The GAAR has come to conclusion merely on the basis of finding that the cost of appellant’s expenses is included in the price of the contract, but the agreement nowhere specifies that the appellant supplies goods to the NAA, Vapi. The appellant has provided only solid waste management services to the NAA, Vapi. Therefore, it has been submitted that the GAAR has come to wrong conclusion that the appellant has not provided pure services to the NAA, Vapi for claiming exemptions under Serial No. 3 of Notification No. 12/2017Central Tax (Rate) dated 28.06.2017.

6.4 The appellant has also submitted that the GAAR has not disputed any other submissions made by the appellant for claiming exemption under Serial No. 3 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017.

6.5 In view of the foregoing submissions, the appellant has prayed to quash and set aside the impugned advance ruling dated 17.09.2020 passed by the the GAAR along with request to grant the appellant personal hearing.

FINDINGS :-

7. We have considered the submissions made by the appellant in the appeal filed by them as well as submissions at the time of personal hearing, Ruling given by the GAAR and other materials available on record.

8. The issue involved in this case is whether the activities being carried out by the appellant viz. solid waste management service provided to the NAA, Vapi under the agreement referred to in their submission, is covered under Sr. No. 3 of Notification No. 12/2017- Central Tax (Rate) and Notification No. 12/2017-State Tax (Rate) (the Central Tax (Rate) Notification referred to includes the reference to corresponding State Tax (Rate) Notification also] and thereby exempted from payment of Goods and Services Tax or otherwise.

9. The appellant has submitted that it has provided ‘pure service’ to ‘local authority’ i.e. NAA, Vapi in relation to function entrusted to Municipality under Article 243W of the Constitution. The appellant has submitted that the GAAR has not disputed other submissions made by the appellant for claiming exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate). However, we observe that the GAAR has only examined whether the activity of the appellant is ‘pure service’ or otherwise and on that basis itself, it has been held that the services provided by the appellant are not exempted under Notification No. 12/2017-Central Tax (Rate). The GAAR has not found it necessary to examine other aspects relevant for deciding admissibility of exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) and it has been specifically mentioned so in the advance ruling issued by the GAAR. Even otherwise, since the issue before us is whether the service being provided by the appellant to the NAA, Vapi is covered under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) or otherwise, the issue needs to be examined in its entirety and we need not confine ourselves to only one of the facets of this case.

10. It would, therefore be appropriate to refer to the relevant entry at Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which reads as follows :-

11.1 It is apparent that the aforesaid exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) is admissible only in case of ‘Pure Services’ excluding ‘works contract service’ or other composite supplies involving supply of any goods.

11.2 The GAAR has referred to various clauses of the agreement entered into between the appellant and the NAA, Vapi and has observed that the rate of supply of services includes the cost of the collection vehicle with license holder driver, fuel, oil, pick axes, tools, plants, suction machine, machinery, gumboots, hand gloves, raincoat in the monsoon period etc., therefore the services provided by the appellant includes supply of goods also, hence it cannot be considered as ‘Pure Service’. The appellant has argued that it has been providing ‘Pure service’ to the NAA, Vapi.

11.3 We observe that under Item-I of the agreement entered into between the appellant and the NAA, Vapi, pertaining to ‘Point to Point collection, sorting & food waste to Compost Facility Operation and Maintenance (including all machinery and manpower), it has been stipulated as follows –

“Collection of garbage (dry & wet) from Point to Point & disposed off at MSW site & cleaning of dustbins in area every day. This work is inclusive of supply of workers & Collection Vehicles (over all notified area inclusive all Industrial Zone) per day, with all tools & plants like brooms, masks, Aprons, hand gloves, gumboots, rain coats in monsoon period etc. to all workers.

………..”

It appears from the aforesaid stipulation that the appellant is required to collect garbage from point to point, dispose it off at MSW site and clean dustbins in area every day. In order to carry out this work, the appellant is required to provide workers and collection vehicles with required tools, equipments etc. However, neither the collection vehicles nor the tools and equipments are being supplied by the appellant to the NAA, Vapi. Instead, the appellant itself (through its workers) is required to use the collection vehicle for collection of garbage from point to point and dispose it off at specified place. The appellant is also required to deploy workers for this work to whom necessary tools and equipments are required to be provided. Thus, it cannot be said that the appellant is supplying goods to the NAA, Vapi. In fact, the appellant is required to use various goods in order to supply the service of ‘point to point collection and disposal of garbage’ to the NAA, Vapi.

11.4 The appellant is also required to carry out Operation and Maintenance of ‘Food Waste to Compost Facility’, for which it has to make required shed and deploy personnel. Here again, it appears that the appellant is required to make shed for ‘Food Waste to Compost facility’ and the said ‘shed’ is not for supply to the NAA, Vapi.

11.5 Even in case of setting up of Material Recovery Facility under DBFOOM (Design, Build, Finance, Own and Operate Model), it appears that all the equipments would be under the ownership and control of the appellant and none of the equipments would be supplied / handed over to the NAA Vapi.

11.6 The appellant has specifically submitted that setting up of material recovery facility and Food Compost Facility operation and maintenance does not involve any transfer in goods. Under these circumstances, we are of the view that use of required goods and equipments by the appellant (workers deployed by the appellant) in order to provide service to the NAA, Vapi would not change the nature of service from ‘pure service’ to supply of ‘service with goods’.

12.1 The exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) is admissible when ‘Pure Services’ is provided to the Central Government, State Government or Union Territory or local authority or a Governmental authority or a Government Entity.

12.2 The appellant has submitted that the NAA, Vapi is a wing of municipal corporation which is basically a local body established by the State Government to function as a self-government under Part IX of the Constitution of India; that the NAA, Vapi, like any other local body, provides municipal services in the industrial area of GIDC, Vapi, therefore, the NAA, Vapi is a local authority. The appellant has cited two judgements in support of this contention.

12.3 The phrase “local authority” has been defined under clause (69) of section 2 of the GST Acts as follows :-

“2 (69) “local authority” means –

(a) a “Panchayat” as defined in clause (d) of article 243 of the Constitution;

(b) a “Municipality” as defined in clause (e) of article 243P of the Constitution;

(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;

(d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006);

(e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;

(f) a Development Board constituted under article 371 [and article 371J] of the Constitution; or

(g) a Regional Council constituted under article 371A of the Constitution;”

12.4 The appellant has not specified under which of the sub-clauses of section 2(69) of the GST Acts defining “local authority”, the NAA, Vapi falls. As defind in clause (d) of Article 243 of the Constitution of India, “Panchayat” means an institution (by whatever name called) of self-government constituted under Article 243B, for the rural areas. Admittedly, the NAA, Vapi is not a “Panchayat”, therefore, it does not fall under sub-clause (a) of clause (69) of section 2 of the GST Acts.

12.5.1 Further, the NAA, Vapi is neither a Municipality, nor a Municipal Committee, nor a Zilla Parishad, nor a District Board. The appellant has also not submitted any evidence so that the NAA, Vapi can be termed as ‘any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund’. The submission of the appellant that the NAA, Vapi is a wing of municipal corporation, which is basically a local body established by the State Government to function as a self-government under Part-IX of the Constitution of India, is without any basis and not supported by any evidence. It appears from the copy of the agreement submitted by the appellant that the NAA, Vapi has been formed under the Government of Gujarat, Industries, Mines and Power Department’s Notification No. GHU/72/66/IND/1672/2471-G dated 06.07.1972 read with Notification No. GHU:8/2008-GID:102004:1496:G dated 01.04.2008. We have perused the said Notification dated 01.04.2008 available in the public domain. However, the said Notification does not contain any specific provision which may support the contention of the appellant that the NAA, Vapi is a local authority.

12.5.2 The appellant has relied upon the decision of the Hon’ble Income Tax Appellate Tribunal in the case of Income Tax Officer, Ward 2(4), Surat Vs. Sachin Notified Area [(2011) 43 SOT 411 (Ahmedabad)] wherein it has been held that the assessee (Sachin Notified Area) is a municipality under Section 10(20) of the Income Tax Act. The appellant has also cited the judgement of the Hon’ble Supreme Court in the case of Saij Gram Panchayat Vs. State of Gujarat and Others [(1999) 2 SCC 366], which has been referred to by the Hon’ble ITAT in the aforesaid decision of Sachin Notified Area case.

12.5.3 In this regard, it may be pointed out that the similar issue has been decided by the Hon’ble Supreme Court in the case of New Okhla Industrial Development Authority Vs. Chief Commissioner of Income Tax & Ors. [Civil Appeal Nos. 792793 of 2014] wherein the judgement in the case of Saij Gram Panchayat was also referred. The Hon’ble Supreme Court has inter-alia held as follows –

“30. Applying rules of interpretation as laid down by this Court, it is clear that proviso is an exception to the constitutional provisions which provide that there shall be constituted in every State a Nagar Panchayat, a Municipal Council and a Municipal Corporation. Exception is covered by proviso that where an industrial township is providing municipal services the Governor having regard to the size of the area and the municipal services either being provided or proposed to be provided by an industrial establishment specify it to be an industrial township. The words industrial township have been used in contradiction of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. The object of issuance of notification is to relieve the mandatory requirement of constitution of a Municipality in a State in the circumstances as mentioned in proviso but exemption from constituting Municipality does not lead to mean that the industrial establishment which is providing municipal services to an industrial township is same as Municipality as defined in Article 243P(e). We have already noticed that Article 243P(e) defines Municipality as an institution of self-government constituted under Article 243Q, the word constituted used under Article 243P(e) read with Article 243Q clearly refers to the constitution in every State a Nagar Panchayat, a Municipal Council or a Municipal Corporation. Further, the words in proviso a Municipality under this clause may not be constituted clearly means that the words may not be constituted used in proviso are clearly in contradistinction with the word constituted as used in Article 243P(e) and Article 243Q. Thus, notification under proviso to Article 243Q(1) is not akin to constitution of Municipality. We, thus, are clear in our mind that industrial township as specified under notification dated 24.12.2001 is not akin to Municipality as contemplated under Article 243Q.”

[underlining supplied]

12.5.4 Though the aforesaid judgement of the Hon’ble Supreme Court is in the context of section 10(20) of the Income Tax Act, 1961, the ratio laid down therein is equally applicable in the present case. Therefore, the NAA, Vapi cannot be termed as a “Municipality” as defined in clause (e) of Article 243P of the Constitution.

12.6 The NAA, Vapi also does not fall under any of the sub-clauses (d) to (g) of clause (69) of section 2 of the GST Acts.

12.7 We also do not find any merit in the submission of the appellant that the NAA, Vapi, like any other local body, provides municipal services in the industrial area of GIDC, Vapi, therefore, the NAA, Vapi is a local authority for the simple reason that the definition of the “local authority” under section 2(69) of the GST Acts do not provide so. The said definition do not provide that any authority providing municipal services can be termed as “local authority”. The definition of “local authority” under section 2(69) of the GST Acts is an exhaustive definition inasmuch as it uses the word ‘means’ and not ‘includes’. Therefore, the scope of the definition cannot be expanded. As the NAA, Vapi do not fall under any of the sub-clauses of the definition of “local authority”, as defined in clause (69) of section 2 of the GST Acts, we hold that the same cannot be considered as “local authority”.

13.1 The appellant has submitted that in case the NAA, Vapi is not considered as “local authority”, then it should be considered as “Governmental Authority”.

13.2 The phrase “Governmental authority” has been defined under clause (zf) of Paragraph 2 of Notification No. 12/2012-Central Tax (Rate) dated 28.06.2017, as amended vide Notification No. 32/2017-Central Tax (Rate) dated 13.10.2017, as follows –

“(zf) “Governmental Authority” means an authority or a board or any other body, –

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with 90 per cent, or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution.”

13.3 The appellant has submitted that the NAA, Vapi should be considered as “Governmental Authority” under sub – clause (i) of definition provided at clause (zf) of Paragraph 2 of the Notification. The appellant has also submitted that the condition of 90% or more participation by way of equity or control shall be applicable only to sub-clause (ii) of the said definition and has relied upon the ruling given in the case of NHPC Limited [2018 (19) GSTL 349 (AAR-GST)].

13.4 The appellant has not submitted any evidence in support of the aforesaid contention that the NAA, Vapi has been set up by an Act of Parliament or State Legislature. It appears from the copy of the agreement submitted by the appellant that the NAA, Vapi has been formed under the Government of Gujarat, Industries, Mines and Power Department’s Notification No. GHU/72/66/IND/ 1672/2471-G dated 06.07.1972 read with Notification No. GHU:8/2008-GID:102004:1496:G dated 01.04.2008. Apparently, the NAA, Vapi has not been set up by an Act of Parliament or State Legislature. Obviously, an authority or entity constituted or set up under an Act of Parliament or State Legislature cannot be equated with an authority or entity constituted or set up by an Act of Parliament or State Legislature. Therefore, the NAA, Vapi does not fall under sub-clause (i) of definition of “Governmental Authority” provided at clause (zf) of Paragraph 2 of the Notification.

13.5 Though the appellant has not argued that the NAA, Vapi may fall under sub-clause (ii) of definition provided at clause (zf) of Paragraph 2 of the Notification, we have examined this aspect as well to satisfy ourselves whether the NAA, Vapi can be considered as “Governmental Authority”.

13.6 The Government of Gujarat, vide Notification No. GHU:8/2008GID:102004:1496:G dated 01.04.2008 has notified the Gujarat Industrial Development (Notified Area) Rules, 2007. Rule 3 of the said Rules provide for constitution of ‘Board of Management’ as follows :-

“3. Constitution of Board of Management – (1) In every notified area there shall be a committee called “the Board of Management” appointed by the Government. The Board of Management shall consist of the following members, namely :-

(a) the President of the Industries Association of the notified area;

(b) the Honorary Secretary of the Industries Association of the notified area;

(c) two members, other than the members specified in clauses (a) and (b), as may be nominated by the Industries Association of the notified area;

(d) one representative of industries as may be nominated by the Corporation;

(e) one representative of from amongst the local residents as may be nominated by the Board of Management

(f) two officers not below the rank of Assistant Manager or Deputy Executive Engineer, as may be nominated by the Corporation;

(g) one officer not below the rank of Assistant Manager or Deputy Executive Engineer, shall be nominated by the Corporation as the Chief Officer, who shall be the Secretary of the Board of Management.

2. ……..”

It is apparent from the composition of the Board of Management prescribed under the aforesaid Rules that the Government does not have 90 per cent, or more participation by way of control on the NAA, Vapi. Further, neither the aforesaid Rules provide anything regarding Government’s participation by way of equity in the Notified Area Authority, nor the appellant has submitted anything to this effect.

13.7 We, therefore hold that the NAA, Vapi cannot be considered as “Governmental Authority”.

14.1 The appellant has submitted that it renders service which is entrusted to a Municipality under Article 243W of the Constitution.

14.2 As per Article 243W of the Constitution of India, the Legislature of a State may, by law, endow the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for devolution of powers and responsibilities upon Municipalities with respect to (i) the preparation of plans for economic development and social justice; (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule. Further, the Twelfth Schedule of the Constitution of India, inter-alia contains the following –

Twelfth Schedule

(Article 243W)

1. to 5.……

6. Public health, sanitation conservancy and solid waste management

7. to 18……..

14.3 Thus, from the provisions of Article 243W of the Constitution of India and the matters listed in the Twelfth Schedule, it can be said that the activity of the appellant or service being provided by the appellant to the NAA, Vapi, as emerging from the copy of agreement entered into between them submitted by the appellant, is covered under activities mentioned in the Twelfth Schedule of the Constitution.

15. As the appellant has not been providing services to the Central Government, State Government or Union Territory or local authority or a Governmental authority or a Government Entity, the benefit of Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) is not admissible to the appellant even if the appellant is providing ‘pure service’ in relation to solid waste management which is a matter enlisted in Twelfth Schedule of the Constitution.

16. In view of the foregoing, we hold that the activities being carried out by the appellant viz. solid waste management service provided to the NAA, Vapi under the agreement, is not covered under Sr. No. 3 of Notification No. 12/2017- Central Tax (Rate), as amended, and Notification No. 12/2017-State Tax (Rate), as amended.