GST Registration not needed for Exempted Supplies: AAR [Read Order]

The West Bengal Authority of Advance Ruling ruled that, Supplier is not required to get registration when it supply only exempted supplies.

The Applicant is stated to be providing conservancy/solid waste management service to the Bally Municipal Corporation, which has been merged with the Howrah Municipal Corporation in terms of State Government Notification No. 428lMAlOlC4l1M-3612014 dated 2610612015 of the Municipal Affairs Department.

The Applicant claims that their services to the BMC are exempt under Sl No. 3 of Notification No. 1212017 – Central Tax (Rate) dated 2810612017 (corresponding State Notification No. 1136 – FT dated 2810612017), as amended from time to time. The BMC, however, is deducting TDS while paying consideration for the above supply in terms of Notification No. 5012018 – Central Tax dated 1310912018 (corresponding State Notification No. 1344 – FT dated 1310912018) and State Government Order No. 6284 – F(Y) dated 2810912018 and insists that the Applicant needs to get himself registered under the GST Act.

The Applicant seeks a ruling on whether the notifications regarding TDS are applicable in his case and whether he is required to obtain registration under the GST Act even if he is making exempt supplies only.

The AAR observed that, ln its Circular No.51125/2018-GST dated 31/07/2018 the Central Government clarifies that the service tax exemption at serial No.25(a) of Notification No.25/2012 dated 20106/2012 has been subsfantially, although not in the same form, continued under GST vide Sl No. 3 and 3A of the Exemption Notifications (Service). Sl No. 25(a) of the ST notification under the service tax-exempts “services provided to the Government, a local authority or a governmental authority by way of water supply, public health, sanitation, conservancy, solid waste management or slum improvement and upgradation.”

The Applicant’s eligibility under Sl No. 3 or 3A of the Exemption Notifications (Service) should, therefore, be examined from three aspects: (1) whether the supply being made is pure service or a composite supply, where supply of goods does not exceed more than 25% of the value of the supply, (2) whether the recipient is government, local authority, governmental authority or a government entity, and (3) whether the supply is being made in relation to any function entrusted to a panchayat or a municipality under the Constitution, as clarified in the above paragraphs.

The Authority also said that, ln the agreement referred to in para 2.2 above the Applicant is made responsible for collection, segregation, storing, transport and disposal of municipal solid waste from the municipal area of the BMC. They will organize a house-to-house collection of municipal solid waste, collect waste from slums, hotels, slaughterhouses etc. They will segregate the nonbio-degradable and inert waste and dump it at the Landfill within the Project premise. The Applicant may build a suitable Processing and Composting Plant. The Applicant shall bear the expenditure for maintenance of the collection equipment and pay rental on the equipment taken on lease from the BMC. The consideration to be paid measures the work done in terms of the quantity of the garbage lifted and removed. Based on the above document, it may, therefore, be concluded that the Applicant’s supply to BMC is pure service.

While concluding the order the AAR also said, “The TDS Notifications have given effect to section 51 of the GST Act, specifying the persons under section 51(1Xd) of the Act and have mandated and laid down the mechanism for deduction of TDS. These notifications, therefore, are applicable only if TDS is deductible on the Applicant’s supply under section 51 of the GST Act. Section 51 (1) of the Act provides that the Government may mandate inter alia a local authority to deduct TDS while making payment to a supplier of taxable goods or services or both. As the Applicant is making an exempt supply to the BMC, the provisions of section 51 and, for that matter, the TDS Notifications do not apply to his supply”.