TDS Notification not applicable to Exempt Supplies: AAR [Read Order]

The West Bengal Authority for Advance Rulings (AAR) has held that the Notification on TDS is applicable on exempt supplies.

The Applicant is stated to be providing conservancy/solid waste management service to the Conservancy Department of the Howrah Municipal Corporation (HMC). The applicant wanted to know whether HMC, is bound to deduct TDS while paying consideration for the above supply.

The AAR held that when the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST under Sl No. 3 or 3A of the Exemption Notification, provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value.

It was noted that the recipient is a municipal corporation, which is a local authority as defined under section 2(69) of the GST Act.

The Aar noted that “in the Work Orders issued to the Applicant the recipient describes the nature of the work as lifting and removing of daily garbage etc. accumulated from the vats, dumping yards, containers and other ptaces on the roads, lanes and bye-lanes of HMC area. ln the Specification and Terms and Conditions of Work it is further specified that the Applicant must provide vehicles suitable for removal of garbage including payloaders with drivers, labours, unloading equipment, machinery, fuel/lubricants etc. and shall be responsible for repair and maintenance of the vehicles. There is, however, no reference to any supply of goods in the course of executing the work. The vehicles used and the fuel consumed and the machinery used do not result in any transfer of property in goods to HMC. The consideration to be paid measures the work only in terms of the quantity of the garbage lifted and removed. Based on the above documents, it may, therefore, be concluded that the Applicant’s supply to HMC is a pure service.”

It was, therefore, held that the Applicant’s service to HMC, therefore, is exempt under Sl No. 3 of the Exemption Notification.

“The TDS Notifications bring into force section 51 of the GST Act, specify 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 HMC the provisions of section 51 and, for that matter, the TDS Notifications do not apply to his supply,” it said.