CA Manoj Nahata 
1. Whether liquidated damages and other penalties like milestone penalties levied on suppliers/contractors in the nature of making good the damages for any delays in supply of service or goods in the cases of Supply and Maintenance Contracts and Project Construction Contracts are exigible to GST or not?
Held: GST applicable only on liquidated damages.
In the case of M/s Rashtriya Ispat Nigam Ltd.-AAR West Bengal, the applicant is a PSU engaged in the business of manufacture and selling of steel products. In various contracts entered into by the applicant, there is a clause to deduct liquidated damages (LD) in case of default by the contractor/vendor to complete work/supply in time. The LD is deducted in two cases. One in case of Operation and Maintenance activities and other in the case of construction of new plant in expansion project or renovation of old plant. The applicant sought an advance ruling on the taxability of LD in the above two cases.
The applicant submitted that there is only one contract of supply. The purpose of deducting the amount towards LD is to indemnify the loss to RINL due to non-receipt of goods or services as per the agreed terms. The issues like LD, milestone penalties etc. arise out of the same contract. Since, the executed contract suffers from the levy of GST, further imposition of GST on compensation measures would lead to double taxation on the same contract. Further, the word ‘obligation’ used in entry no. 5(e) of the Schedule-II indicates the need for the existence of the desire in the person for whom the activity is done. Therefore, entry no. 5(e) of the Schedule-II is not applicable in this case. Also, compensation for loss or damage caused by breach of contract is not a service as per the Indian Contract Act, 1872. Therefore, LD and other compensatory charges should not be leviable to GST.
The Authority stated that the agreement provided that the liability of payment of these liquidated damages by the contractor will be established, once the delay in successful execution of work is established on the part of the contractor. Thus, the act of delayed payment has happened and the same has been tolerated by an additional levy in the nature of liquidated damages. Also, levying of LD will not relieve the contractor from his obligations to complete the works under the contract. The income though presented in the form of a deduction from the payments to be made to the contractor was the income of the applicant and would be a ‘supply of service’ by the applicant in terms of entry no. 5(e) of the Schedule-II of the CGST Act, 2017. Also, the levy of LD is not when the delay is occurring but when the delay is established on the part of the contractor. Therefore, the provisions of section-13 and 14 of the GST Act will provide the time of supply of these damages. Thus, the liquidated damages are leviable to GST.
2. Whether paying guest accommodation services to students can be treated as renting of residential dwelling?
Held: No, accordingly liable to GST.
In the case of M/s Taghar Vasudeva Ambrish.- AAR Karnataka, the applicant along with four others collectively has let out a residential complex to a company which is engaged into the business of providing affordable residential accommodation to students on a long term basis. Along with such accommodation, the company is also engaged in providing other ancillary services. The applicant sought an advance ruling on the taxability of the renting of the above said accommodation.
The applicant contended that the renting of immovable property is liable to GST @ 18%. Further, in terms of Schedule-II of the CGST Act, the said activity is a supply of services. In contrast, the lessee company is of the view that the lessor should not charge GST on the lessee as the lessee is providing the service of renting of residential accommodation.
The Authority observed that the contract is for entire property and the lessors have pooled their individual properties into a single one and that property is leased to another company. Further, the property leased is an immovable property consisting of only rooms with attaché toilets as per the layout of the premise and does not fit into the meaning of a dwelling which means a house. They are like hotel rooms which by no imagination can be termed as residential dwelling. Thus, the exemption under Notification No.09/2017-IGST(R) dated 28.06.2017 cannot be sought and the applicant have to charge GST for the lease services
3. Whether ITC of GST paid on replacement of existing lift/elevator to the vendor registered under the Goods and Services Tax Act for manufacture, supply, installation and commissioning of lift/elevator is allowed?
Held: No
In the case of M/s. LAS Palmas Co-Operative Housing Society Limited-AAR Maharashtra, the applicant provides various services to its members for which they are charged maintenance charges. The applicant charges GST on such maintenance bills as applicable. The applicant has proposed to replace the existing lift along with its supporting structures. The applicant sought an advance ruling on whether they shall be entitled to claim Input Tax Credit (ITC) of GST paid, on replacement of existing lift/elevator, to the vendor registered under the GST Act for manufacture, supply, installation and commissioning of lift/elevator?
The applicant referred section-16(1) of the CGST Act, 2017 pertaining to eligibility and conditions for taking ITC.It is of the view that manufacture, supply, installation and commissioning of lifts/elevators is in the nature of ‘works contract’ activity which is covered under the category of ‘services’ under the GST Act. Further, the lift is‘equipment’ which shall be fixed to earth by foundation and structural support and used for making outward supply of services to its members. An “equipment” is “plant and machinery” as per the Explanation mentioned in Section 17 of the Goods and services Tax Act, 2017. Also, plant and machinery is not covered under the blocked list of ITC u/s. 17 and therefore it is entitled to claim ITC as per the provisions of the Goods and Services Tax Law.
The Authority observed that the erection of lift can be done only inside the building structure as an integral part of the building in which the lift is to be installed. The erection of a lift has, to be correlated with and tailored, to meet the needs and requirements of a particular building. Once the lift is installed and commissioned in the building, it becomes integral part of the immovable property i.e. the building. The lift when installed in the building makes the building fit for occupation and becomes a permanent fixture of the building itself. Hence the same will be considered as an immovable property. Further, the Hon’ble Apex Court in the case of Triveni Engg.Industries Ltd. v. CCE. 2000 (120) ELT 273, clearly laid down that after assembling, on completion of process of erection, the item becomes a part of the building or an immovable property. In the case of Quality Steel Tubes (P.)Ltd. v. CCE.)it was held by the Apex Court that Erection and maintenance of the lifts forms part of the immovable property. Also, Explanation to section 17(5) is very clear that ITC is available for “plant and machinery”. Plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes – Land, building or any other civil structures.The lift, after erection and installation is an immovable property because it becomes a part of an immovable property i.e. a building. Hence, the applicant is not entitled to ITC of GST paid on replacement of existing Lift/Elevator, in its premises.
4. Whether GST is payable on water charges collected from the customers for supply of water under a contract entered separately from a contract to provide maintenance services?
Held: Yes
In case of M/S Latest Developers Advisory Ltd.–AAR Rajasthan,the applicant proposes to provide maintenance services to a society/ association under a contract (contract-I). Also, he is going to enter into a separate contract (contract-II) with the individual members of the society to supply water. The applicant sought an advance ruling on whether the service of supply of water is exempt under GST?
The applicant submitted that water is ‘goods’ under section-2(52) of the CGST Act, 2017 and Notification No.02/2017 dated 28.06.2017 C.T (R) exempts supply of water from the levy of GST.
The Authority stated that the contention of the applicant regarding the nature of water holds good. Further, it noted that the applicant is providing services to the society in two ways. In common parlance, it is observed that maintenance services is inclusive of supply of water and hence supply of water provided by the applicant through a separate agreement raises a suspicion because the water received by the society is used in multiple ways and is stored in the common underground water tank which is maintained by the society. It noted that the applicant seems to have bi-furcated the services provided to the society in order to escape from the condition of Rs. 7500 per month per member or it might be crossing the GST registration threshold limit. Even though the applicant might have a separate agreement for the supply of water, but it is not possible to supply water to each apartment separately as the apartments don’t have their own separate water storage tanks. Hence, the supply of water and supply of maintenance services are relevant to each other and there appears no case of direct supply of water to the individual residents of the society. Accordingly, the supply of water is taxable under GST at the rate applicable on contract-I.
5. Whether services provided by way of ‘phytotherapy’ is exempt under GST?
Held: No
In the case of OPTM Health Care (P.) Ltd. –AAR West Bengal,the applicant is providing a form of treatment called “Phytotherapy” to cure osteoarthritis and disorders of similar nature. The applicant has invented the medicines namely phytochemicals that have been approved by the Drug Control Department under the category of Ayurvedic Medicine and are supplied during the course of physiotherapy to cure the osteoarthritis and disorders of similar nature. It sought an advance ruling on the applicability of Exemption Notification No. 12/2017 Central Tax (Rate) dated 28/06/2017 to its services.
The applicant submitted that it is making a composite supply with health care service as the principal supply. Supply of medicine is ancillary to the principal supply. In its clinics the patients suffering from osteoarthritis and disorders of similar nature are being treated by qualified doctors applying the unique phototherapeutic methods. It is registered as a clinical establishment under the West Bengal Clinical Establishments (Registration, Regulation and Transparency) Act, 2017. Its composite supply of health care service from a clinical establishment should, therefore, be exempt under Entry No. 74 of the Exemption Notification.
The Authority stated that in order to qualify for exemption under the Notification No. 12/2017 dated 28.06.2017 C.T (R), the applicant is required to qualify as a ‘clinical establishment’ that provides health care services by way of diagnosis, treatment or care for illness in any recognized system of medicines in India.
The applicant administers certain plant-based medications for the treatment of osteoarthritis and disorders of similar nature. The medicaments are not supplied standalone, but ancillary to the supply of health care service. It is a composite supply of health care service called ‘phytotherapy’. It is observed that the applicant’s ‘phytotherapy’ combines application of plant-based preparations with services having some therapeutic value. If the preparations applied are manufactured exclusively in accordance with the formulae described in any authoritative book of Ayurvedafor use in the diagnose, treatment, mitigation or prevention of specific disease or disorder, they can be called ayurvedic medicine and the treatment provided may be considered a recognized system of medicine in India. But the applicant’s submission do not claim that its plant-based preparations are manufactured exclusively in accordance with the formulae described in any authoritative book of Ayurveda and hence the treatment may not be treated as a recognized system of medicine. Therefore, the services provided by the applicant are not exempt under GST.
6. Whether amount collected towards Land Area Development Fund, which is kept separately and used for the development of the affected area of villages is treated as ‘supply’ under GST? If it is a ‘supply’, then what is the value of such supply?
Held: Supply, value of supply will be the amount collected.
In the case of M/S Karnataka Solar Power Development Corporation Ltd.-AAR Karnataka,the applicant is a joint venture co., formed to establish solar parks in Karnataka. The land for these solar parks are obtained from the farmers on lease basis and are sublet to the Solar Power Developers(SPD) to install the solar panels for generation of solar power. The said project is approved by the Ministry of New and Renewable Energy with the condition that it has to collect Rs. 5,00,000/- to be collected in 5 equal annual installments towards Land Area Development Fund intended to rehabilitation of the affected area. The fund is kept in a separate account. The applicant sought an advance ruling on whether the amount collected by the applicant constitutes ‘supply’ under GST?
The applicant submitted that there is no supply made by the applicant to the SPDs with reference to the LAD Fund as no benefit is derived by the applicant in the said transaction. The amount is collected as per MNRE guidelines and is used only for village development works. Further, the said amount is not collected against any supply of goods or services made by it to the SPDs. Also, the activity is not in the course or furtherance of business. It is just acting as a custodian of funds.
The Authority stated that the applicant had subleased the land to SPD and is collecting the annual lease rent, which amounts to ‘supply’ in terms of section-7(1)(a) of the CGST Act, 2017. Now, in order to determine the value of this supply, the authority referred section-15 of the GST Act. It observed that the amount payable by the SPD towards LAD Fund, are on account of supply made by the applicant and are directly linked to the rent/lease payable and thus are includible in the value of rental/lease service.
7. Whether sale of under construction building under ‘Business Transfer Agreement’ is exempt from GST?
Held: Yes
In case of M/s Rajeev Bansal and Sudarshan Mittal-AAR Uttarakhand,the applicant is a partnership firm engaged in the business of construction of residential and commercial complexes. It entered into an agreement with a buyer (engaged into the same line of business), whereby the buyer would take over the business of the applicant which includes an incomplete project to further carry out the business of constructing and selling the under construction building. The applicant sought an advance ruling on whether ‘Business Transfer Agreement’ as a going concern which consists of transferring under construction project is exempt from GST?
The applicant submitted that the Notification No. 12/2017 dated 28.06.2017 C.T (R) exempts services by way of transfer of a going concern.
The Authority made a reference to section-2(17) of the CGST Act, 2017. Further, the applicant is carrying on the business of constructing residential/ commercial complexes and selling thereof and the applicant firm come into existence particularly for the said project. It had sold the under-construction building as a whole, with all its assets and transferred all rights to the buyer including the approved map. The buyer had purchased the under construction building/ business to carry on the same kind of business. Therefore, the transfer of business shall be treated as going concern and is exempted from GST in terms of the exemption notification.
8. Whether a registered person can be a Goods Transport Agency and also a supplier of goods vehicles to another GTA on hire basis at the same time?
Held: Yes
In the case of M/s Saravana Perumal- AAR Karnataka, the applicant is desirous of providing two services namely Goods transportation services as a Goods Transport Agency and other one by providing services by giving the vehicles on hire basis to other GTAs.The applicant sought an advance ruling on whether he can be GTA and provider of vehicles on hire to another GTA at the same time?
The applicant stated that a communication/flier has been issued by the Central Board of Indirect Taxes and Customs (CBIC) on Goods Transport Agency (GTA) and the said flier lists some services which are exempt from GST, in terms of entry number 18 of Notification No. 12/2017 – Central Tax (Rate), dated 28.06.2017. From that flier, it is clear that transportation of goods by a GTA is not exempt from tax. It also referred clause 2(ze) of Notification No. 12/2017 – Central Tax (Rate), dated 28.06.2017 which defines GTA.
The Authority stated that when the applicant issues a consignment note for the transportation of goods belonging to others and undertakes to transport the same for a consideration, he would become a Goods Transport Agency within the meaning of clause (ze) of Notification No.12/2017 – Central Tax (Rate), dated 28.06.2017. Further, services provided by a person other than goods transport agency (GTA) in relation to transportation of goods, Goods Transport Services are liable to tax at 9% under the CGST Act by clause (vi) of entry No. 9 of Notification No.11/2017 – Central Tax (Rate), dated 28.06.2017 as amended.The services of providing vehicles on hire basis to another GTA is covered under entry No. 22 of Notification No. 12/2017 – Central Tax (Rate), dated 28.06.2017 and this entry exempts the services by way of giving on hire a means of transportation of goods to a goods transport agency. Therefore the services provided as a GTA are different from the services provided by way of giving vehicles on hire basis to another GTA & hence are independent of each other so far as tax treatment is concerned. Further there is no provision in the law barring person being a GTA from renting the vehicle to another GTA. Hence, the registered person can be a Goods Transport Agency and also a supplier of goods vehicles to another GTA on hire basis at the same time subject to the appropriate tax treatments.
