Amounts received by the applicant in relation to pure services rendered by the applicants to a Government Entity will be exempt from payment of GST

Amounts received by the applicant in relation to pure services rendered by the applicants to a Government Entity will be exempt from payment of GST In re M/S Mumbai Port Trust ; Maharashtra Authority for Advance Ruling;Mumbai;11.10.2021 The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 by M/S Mumbai Port Trust, the applicant seeking advance ruling in respect of the query that whether in law and in facts and circumstances of the case, the Applicant (“MbPT”) is entitled to exemption from payment of GST in terms of Entry no.3 of the Notification No. 12/2012-CTR dated 20.06.2012 on the following considerations payable to it by Mumbai Metropolitan Reion Development Authority (“MMRDA”) in terms of MoU entered into between the MbPT and MMRDA.

Facts and contention of the Applicant:

• The Applicant is one of the major ports in India. Various types of port operations are undertaken by the applicant port. The applicant is also engaged in the leasing of immovable properties and water areas within its territory, as per the guidelines approved by the Government of India from time to time. That the applicant is duly discharging GST liability in respect of various taxable supplies made by it.
• Mumbai Metropolitan Region Development Authority (MMRDA) has been established for the purpose of planning, coordinating and supervising the proper, orderly and rapid development of the Mumbai Metropolitan Region (MMR).
• The Government of Maharashtra has entrusted the responsibility of the execution of ‘Mumbai Trans Harbour Link’ (MTHL) project to MMRDA. Accordingly, applicant has entered into Memorandum of Understanding (MOU) with MMRDA, to grant MMRDA a lease and way leave permission of land and water areas belonging to it, for the MTHL project. As per the MOU, MMRDA agreed to make payments under several heads.
• Govt. of Maharashtra has designated the MTHL project as a regional development project. Therefore, it is clear that in terms of entry no.(4) of twelfth schedule i.e. ‘roads and bridges’ and entry no. (13) of the eleventh schedule , the construction of MTHL by MMRDA can be said to be covered within the scope of expression –‘function entrusted to Municipality/Panchayat.’
• In view of aforesaid, all payments made to the Applicant by MMRDA under MOU are towards obtaining services of grant of way leave/lease in respect of land & water areas, required for functions listed in articles 243W/243G of the Constitution of India & is exempt from payment of GST as per Entry No.3 of no. 12/2017-CTR dtd. 28.06.2017.
• Entry no. (3) of the Notification No. 12/2017 –CTR provides an exemption from GST in respect of pure services supplied to Governmental Authority, by way of any activity in relation to any function entrusted to a panchayat under article 243 G of the Constitution or to a Municipality under article 243 W of the constitution.
• Accordingly, the applicant wants to examine the applicability of the said entry to payments received by the applicant from MMRDA for activities contemplated under the said MoU. For the purposes of deciding the applicability of the entry no. (3) to the payments received/receivable by the Applicant, supply made should be that of “pure services”, such supply should be made to the Central Government, State Government or Union territory or local authority or governmental authority or a government entity and the services should be in relation to any function entrusted to a panchayat under article 243 G of the Constitution or in relation to any function entrusted to a municipality under article 243 W of the constitution.
• As per the relevant provisions of the CGST Act, services in the nature of the lease, tenancy, easement, license to occupy land is a supply of ‘pure services’ as it does not involve the supply of any goods. Therefore, subject services supplied by applicant are in the nature of “pure services”.
• MMRDA is established by the State of Government of Maharashtra as per MMRDA Act, 1974 and is controlled entirely by the State Government with 100% participation by way of equity or control to carry out the function entrusted to it by the State Government viz. Preparation of Regional Development Plans, providing financial assistance for significant regional projects, providing help to local authorities and their infrastructure projects. Therefore, MMRDA is clearly covered under the definition of Government entity as given in notification no. 31/2017 dated 13.10.2017 referred above.
• The functions entrusted to MMRDA are primarily covered under Sr. No.(1) of the Twelfth Schedule i.e. Urban Planning including town planning. Also, MMRDA is also involved in other functions of the twelfth schedule such as planning for economic and social development, roads and bridges and slum improvement and up-gradation. Hence, MMRDA can be said to be a ‘governmental authority’ in terms of Para 2(zf) of Notification no. 12/2017-CT(R) dated 20.06.2017.
• Further, the third condition of entry no. (3) of notification no. 12/2017-CT(R) dated 28.06.2017 is that pure services should be provided to a government entity, etc. By way of any activity in relation to any function entrusted to a Municipality under article 243 W of the constitution.
• It was found that the impugned services supplied by the applicant can be covered under any of the clauses 1,3 and 4 of the Twelfth Schedule above as well as clause 14 of the Eleventh Schedule pertaining to Articles 243W and Article 243G of the Constitution.
• In view of the aforesaid observations, the Ld. Authority was of the opinion that the applicant is supplying pure services to a Government Entity in relation to any function entrusted to a Panchayat under article 243 G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution and therefore, as per the provisions of Entry No.(3) of the Notification no. 12/2017-CT(R) dated 28.06.2017, mentioned above, the said services supplied by the applicant are exempted from GST.
• Further observations made by the Authority can be enumerated as below:

i. The Way Leave agreement charges at the rate of 15% of security deposit payable by MMRDA to MbPT being amount received in lieu of the lease of land, etc. i.e. pure services rendered by the applicants will also be exempt from payment of GST.

ii. Interest free security deposit equivalent to 12 months Way Leave fee/Lease rent to be received by the applicant from MMRDA to be refunded by MbPT to MMRDA after termination of the lease agreement can be considered as amount received in relation to pure services rendered by the applicants to a government entity, will alos be exempt from payment of GST.

iii. MMRDA will be required to pay to MbPT in advance, a refundable deposit of Rs. 20 Crores to be adjustable by the MbPT only against possible damages during the execution of work, if any, the cost of which is not paid separately by the MMRDA. Such advance would have been refunded by MbPT applicant to MMRDA after completion of work, by deducting the cost of rectification work, if any, not carried out by MMRDA. Such amount received in relation to pure services rendered by the applicants to a government entity, will also be exempt from payment of GST.

iv. Applicant had taken refundable security deposit from MMRDA as security against possible damages during the execution of works. The taxable event in GST is supply of goods and of services or both. After applying several test and detailed consideration of definition of consideration, parameters for supply, and attributes for a payment to be considered as a security deposit, it was found that the security deposit was taken by the applicant merely to secure or to act asa guarantee as per the terms of the MOU against possible damages to the properties. Therefore, the deposit received by the applicant cannot be treated as consideration for the supply made by the applicant and therefore they will not be liable to pay GST on such deposit amount received by them.

Held:

• All in all it was concluded that all amounts received by the applicant are in relation to pure services rendered by the applicants to a government Entity, and will be exempt from payment of GST under entity no.(3) of notification no. 12/2017-CT(R) dated 28.06.2017. Even the refundable deposit received by the applicant from MMRDA as security against possible damages during the execution of works, is in relation to pure services rendered by the applicants to a Government Entity, and will be exempt from payment of GST under said entry.
• Even if at the time of completion of the lease tenure, the entire deposit or a part of it is withheld and not paid back by the applicant, as a charge against a, etc. Then also such amounts are not returned back will not be liable to GST in view of the said entry of the said notification.
• All of the aforesaid, being the amounts received from a Government entity in respect of an activity carried out in relation to any function entrusted to a Panchayat under article 243 G of the Constitution or in relation to any function entrusted to a Municipality under Article 243 W of the Constitution.

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