The Kerala Authority of Advance Ruling held that the services in transferring the right to collect sand and mud from reservoirs by the irrigation department under Kerala Government are liable to an 18% Goods and Service Tax on a Reverse Charge Mechanism.
The applicant, M/s. Dharti Dredging and Infrastructure Ltd, is a private limited company that has been awarded a tender by the Irrigation Department, Government of Kerala, for the desiltation of Mangalam Reservoir in Palakkad, Kerala. The applicant has been granted the right to extract and appropriate the sand and mud lying beneath the reservoir of Mangalam Dam.
The applicant paid the State Government an agreed sum of Rs. 15 crores for the right to desilt the dam and remove the sand and mud lying beneath for appropriation.
The applicant claimed that the service supplied to the State Government is a pure service and should be exempted from GST under Entry No. 3 of the exemption announcement. The applicant further claims that because they are not the provider of the service, thus, not required to pay GST on the consideration given to the State Government.
The State Government claimed that the applicant’s offering is not just a service since the applicant has acquired ownership to the sand and mud, which is a good. The Government also claimed that because they are the supplier of the service, the applicant is obligated to pay GST on the consideration paid to them.
The AAR observed that the service provided to the State Government is not a pure service because the applicant is acquiring title to the sand and mud, which is a good. The authority further noted that the petitioner is a receiver of services provided by the Government of Kerala’s Irrigation Department.
According to Sl. No. 5 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017, the tax on services supplied by the Central Government, State Government, Union territory, or local authority to a business entity shall be paid by the business entity located in the taxable territory on a reverse charge basis. As a result, the AAR determined that the petitioner must pay GST at 18% on a reverse charge basis on the consideration provided to the State Government.
The Bench comprising Sreeparvathy S.L and Abraham Renn S held that the petitioner is liable to pay GST at 18% on the consideration provided to the State Government on a reverse charge basis.
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