In Re : Reliance Infrastructure Limited
GST
2018 (5) TMI 647 – AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA – 2018 (13) G. S. T. L. 449 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA – AAR
Dated:- 21-3-2018
NO. GST-ARA-11/2017/B- 14
GST
Mr. B. V. Borhade (Member) And Mr. Pankaj Kumar (Member)
PROCEEDINGS
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Sewices Tax Act, 2017)
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 [hereinafter referred to as “the CGST Act and MGST Act”] by Reliance Infrastructure Limited, the applicant, seeking an advance ruling in respect of the following :
i. Whether reinstatement charges paid to Municipal Authorities would be liable to CST?
ii. Whether access charges paid to Municipal Authorities would be liable to GST?
At the outset, we would like to make it clea
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bearing Registration No. 27AACCR7446Q1ZM.
3. The Applicant has obtained a license under Section 14 of the Central Electricity Act, 2003 ('Electricity Act') to distribute electricity as a distribution licensee. Accordingly, the Applicant is operating and maintaining a robust distribution system for supplying electricity to the consumers in the authorized areas ('area of supply'), in terms of his license to supply electricity. The distribution system made up of wires and associated facilities between the delivery points on the transmission lines, generating station connection and the point of connection to the installation of its consumers in Suburban Mumbai.
4. The Applicant's distribution network is spread across its North Division (Borivali to Bhayender), East Division (Chunabhatti to Vikhroli and Mankhurd) Central Division (Goregaon to Kandivali), South Central Division (Andheri, MIDC, Marol and SEEPZ, Jogeshwari) and South Division (Bandra to Vile Parle).
5. In terms of Sectio
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ctricity Act confers power on the appropriate Government to prescribe procedure to enable the licensee to carry out the specified works. This Section inter alia lays down that in order to carry' out the aforesaid works, the licensee would be required to obtain consent/permission from the appropriate Government, local authority, owner or occupier, as the case may be, Further, the licensee would be liable to pay compensation or rent to the parties affected by such works. Alternatively, Section 67 of the Electricity Act also allows the owner or occupier to undertake works and be reimbursed the expenditure incurred in connection therewith.
7. Section 67 also empowers the appropriate Government to lay down rules prescribing the manner of restoration of property affected by such works and maintenance there of and also the procedure for deposit of compensation payable by the licensee and furnishing of security in respect thereto.
8. The Government of Maharashtra has formulated the Maharas
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t where the restoration work is carried out by the concerned local authority, payment may be recovered by the local authority from the distribution licensees.
* Rule 13 of the Electricity Work Rules provides that any amount of compensation payable by the license under these rules shall be deposited by means of demand draft.
9. In the instant case, in respect of the area of supply, Municipal Corporation of Greater Mumbai ('Municipal Authority') is the concerned authority set up under the Mumbai Municipal Corporation Act, 1988 (“MMC Act”). Further, Municipal Authority has issued the Policy Guidelines No. AMC/ES/7725/II dated 18.12.2014 (hereinafter referred to as 'MCGM Trenching Policy') for granting trench excavation permissions to underground service provider utility agencies such as distribution licensees and for collection of the following charges in respect of excavation activity carried out for the distribution licensees:
i) Reinstatement Charges: For the reinstatement of tre
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ching Policy have been vided provided below:
6. Reinstatement Charges
Along with Reinstatement Charges: 50% Additional amount shall be obtained from the utility agency as security deposit which can be utilized to recover penalties for various lapses, additional reinstatement charges in case the utility agency exceeds the excavation than length allowed in permit etc. Such deposit which has to be deposited with MCGM with each and every permit can be waived; if the utility agency deposits certain fixed amount of standing security deposit with MCGM for the purpose stated hereinabove. the Astt. Commissioner of respective ward shall decide the amount of such standing security deposit which in his opinion will be sufficient to meet the recoveries from the utility agency. It the utility agency deposits such standing security deposit which the respective ward then no separate security deposit shall be insisted along with demand note”
ii) Access Charges: In addition to the payment of the r
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al case shall be Informed to the applicant utility agency through demand note along with the reinstatement Charges.”
10. Therefore, every distribution licensee would be required to make payment of reinstatement charges and access charges to the Municipal Authorities to carry out the excavation of roads for laying, repair and maintenance of electric supply lines. Such charges are levied based on the dimensions of the trench, nature of surface etc, For the purposes of understanding, the entire transaction along with the process and the documents involved is depicted hereunder:
a) The Applicant makes an application for excavation of roads to MCGM. Copy of the application is enclosed as Exhibit A.
b) On receipt of such application, the Municipal Authorities inspect the site on which such excavation activity is proposed to be undertaken and provide an in-principle approval subject to the deposit of security deposit, reinstatement charges and access charges. Copy of the in-principle ap
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e similar payments of reinstatement charges and access charges to other authorities namely Mumbai Metropolitan Region Development Authority (MMRDA) and Mira Bhayandar Municipal Corporation.
STATEMENT CONTAINING THE APPLICANT'S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED
2. SUBMISSIONS OF APPLICANT
GST is not payable on Reinstatement charges paid to Municipal Authorities
2.1 In terms of Entry 4 to Notification No. 12/2017 -Central Tax (Rate) dated 28.06.2017 ('NN 12/2017'), services by Central Government, State Government, Union territory, local authority or governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution are exempt from le of GST. The relevant extract of NN 12/2017
Sl. No.
Chapter, Section, heading, Group or Service Code (Tarif
Description of Services
Rate (percent)
Condition
4
Chapter 99
Services
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uthorities would constitute 'works contract' and thereby 'services'.
2.4 In terms of Section 2(119) of the CGST Act, works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. Thus, the activity of restoration of roads will be considered as works contract in terms of Section 2(119) of the CGST Act.
2.5 In terms of clause (a) of Entry 6 of Schedule Il to the CGST Act, works contract as defined in Section 2(119) of the CGST Act has to be treated as supply of service. Therefore, activity of restoration of roads provided by the Municipal Authorities would constitute 'service'. Hence, Condition I stands satisfied in the instant case.
Condition II
2.6 The term “local authority' has bee
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ndition II in Entry 4 to NN 12/2017 stands fulfilled as the MCGM, MMRDA and Mira Bhayandar Municipal Corporation would be treated as local authority
Condition III
2.8 The Condition Ill requires that the services should be by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution,
2.9 It is a settled position in law' that the term “in relation to” is a very broad expression which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context.
2.10 Further, the functions entrusted to a Municipality under Article 243 W of the Constitution is reproduced hereunder:
“Subject to the provisions of the Constitution, the Legislature of a State may. by law, endow
(a) the Municipalities with such powers and authority as may be necessary 10 enable them to function as institutions of self-government and such law may
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oads can be said to be provided by way of any activity in relation to any function entrusted to a municipality under Article 243 W of the Constitution and accordingly, reinstatement charges for restoration of roads collected by the Municipal Authorities can be said to be exempt from the applicability of GST.
Access charges (right of wav) is exempt from levy of GST
2.14 In addition to the reinstatement charges, the Municipal Authorities also recover access charges for providing right of way to carry out the excavation work of laying, repair and maintenance of underground electric cables. It is to be noted that in the instant case, the access charges for access of roads are payable in conjunction with the reinstatement charges. Therefore, whenever the Applicant is required to carry out the excavation of roads for laying, repairing and maintaining of electric cables, it is necessary for the Applicant to make the payment of access charges for the purpose of right of way over roads to ca
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dled and are supplied in conjunction with each other in the ordinary course of business of granting permission to the licensee for carrying out the excavation works. Thus, it can be said that it would constitute a composite supply in terms of Section 2(30) of the CGST Act wherein the service of restoration of roads would be the principal supply.
2.18 As discussed above, in terms of Section 8 of the CGST Act, the composite supply shall be treated as supply of principal supply and GST would be applicable based on such principal supply. In the instant case, principal supply is the supply of service for restoration of roads which is exempt from the levy of GST in terms of NN 12/2017. Therefore, GST would not be applicable on the access charges collected by the Municipal Authorities.
3. SUMMARY OF SUBMISSIONS
In the light of the above, it can be said that no GST is leviable on reinstatement charges in terms of Entry 4 to Notification No. 12/2017 -Central Tax (Rate) dated 28.06.2017. Furt
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on the discussion and deliberations during the course of the hearing, we understand that it is undeniable that the Condition I and Condition Il are fulfilled in the instant case. The only doubts raised by Your Honour during the course of the hearing was whether the services provided by the Municipal Corporation ('local authority') can be said to constitute an activity in relation to any function entrusted to a municipality under article 243 W of the Constitution of India.
3. In this connection, the Applicant wishes to submit that Article 243 W of the Constitution inter alia empowers the Municipalities in order to enable them to carry out the responsibilities conferred upon them including in relation to the subject matters listed in Twelfth Schedule to the Constitution. Out of the several matters listed in Twelfth Schedule to the Constitution, some of the entries under which the activity of road reinstatement may fall are reproduced hereunder:
“I. Urban Planning including town plann
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ctivities or functions are explicitly specified as regards the subject matters listed under the Twelfth Schedule of the Constitution of India. Further, the functions entrusted to the municipality in relation to roads and bridges have not been defined anywhere in the Constitution of India or CGST Act, 2017 or any other Act. Thus, any activity carried out in relation to roads and bridges would be covered under the Twelfth Schedule of the Constitution.
7. In view of this, one cannot limit the nature of activities or functions of Municipalities to construction, maintenance or upkeep of roads and bridges. However, such activities shall be interpreted to cover all activities or functions carried out by the Municipalities in relation to roads and bridges. It is submitted that the Applicant is a utility company and the distribution of power is considered as one of the basic necessities of modern society. The distribution of power is not possible without laying the cables which lead to reinsta
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ublic at large but it can also be provided for commercial purposes or industrial purposes to business entities. Hence, the services of the restoration of roads carried out for the Applicant would also get covered under the Twelfth Schedule to the Constitution of India.
9. Further, the Applicant also wishes to draw attention to the fact that the entries under NN 12/2017 can be classified under the following categories:
(i) Where the service is exempted from GST without any reference to the service provider or service recipient (refer Entries
2, 9B, 25, 12, etc.)
(ii) Where the service is exempted from GST when provided by the specified persons without any reference to the service recipient(Refer 1, 4, 5, etc.)
(iii) Where the service is exempted from GST when received by the specified persons without any reference to the service provider (Refer 16, 40, etc.)
(iv) Where the service is exempted from GST when received by the specified persons and provided by the specified person
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he absence of such provisions, exemption cannot be denied in the instant case. Thus, the exemption cannot be said to be available only when provided to public at large and the benefit of exemption is available even if the service is provided to particular business entity.
13. The Applicant also places reliance on the decision of M/s B.R. Enterprises vs. State of U.P. & Ors-MANU/SC/0330/1999 wherein the Hon'ble Supreme Court has inter alia held that the different use of words in the two provisions/clauses is for a purpose, if the field of two provisions/clauses are to be the same, the same words would have been used. The relevant extract of the judgment is reproduced below:
“77. This bring us back to Article 298 to see whether there is any significant difference between the words used under Article 298 and Article 301. This difference could indicate the scope and periphery of the field of operation of these two Articles, Relevant portion of Article 298 is quoted hereunder
In differ
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e or business” is used it necessarily has different and wider connotation than merely 'trade and commerce'. 'Business' may be of varying activities. may or not be for profit. hut it necessarily includes within is ambit 'trade and commerce' so sometime it may be synonymous but its field stretches beyond 'trade and commerce,
14. In support of the above contention, reference may also be made to the following judgements wherein, in the absence of any specific definition of the term 'railways' under the Finance Act, 1994 or any similar restriction limiting the benefit of exemption only to government railways or railways used for public carriage of goods or passengers, it was held inter alia held that benefit of exemption shall also be available to railways constructed for use by private entities:
* Steadfast Corporation Ltd 2016(45) STR 583 (AAR) = 2016 (9) TMI 50 – AUTHORITY FOR ADVANCE RULINGS
* SMS Infrastructure Ltd vs. CCEI & cus. Nagpur 2017 (47) STR 17 (Tri-Mumbai) = 2016 (9) T
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that the Exemption Notifications are beneficial Notifications intended to benefit the industry and public at large and the same cannot be interpreted in a manner which renders the purpose of the Notification futile. It is a settled position of law that beneficial legislations should be interpreted liberally in order to extend the benefit of the statute to the assessee. In this connection, the Applicant places reliance on the case of Commissioner of Customs (Prev.), Mumbai Versus M. Ambalal & co. 2010 (260) E.L.T. 487 (S.C.) = 2010 (12) TMI 16 – Supreme court of India, wherein the Apex Court held as under:
“10. It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. The rule regarding exemptions is that exemptions Should generally be Strictly but beneficial exemptions having their purpose as encouragement or promotion of certain acti
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as under:
“31. Moreover, a liberal construction requires to be given to a beneficial notification. This Court in Commissioner of Customs (Preventive) Mumbai V. M. Ambalal and Company, (2011) 2 SCC 74 2010 (260) ELT. 487 (S.C.) = 2010 (12) TMI 16 – Supreme court of India , (in which one of us was the party) has observed that the beneficial notification providing the levy of duty at a concessional rate should be given a liberal interpretation.
25 The notification requires to be interpreted in the light of the words employed byit and not on any other basis. There cannot be any addition or subtraction from the notification for the reason the exemption notification requires to be strictly construed by the Courts. The wordings of the exemption notification have to be given its natural meaning, when the wordings are simple, clear and unambiguous.
19. In view of the aforesaid, judicial precedents, it is clear that the Exemption Notifications are beneficial one and the same has to be inte
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30) CGST Act, “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. Further, in terms of Section 8 of the CGST Act, the tax liability of a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.
22. In the present case, the Municipal Authorities provide services of restoration of roads and also right of way to carry out excavation work. The services of giving right of way and restoration of roads are naturally bundled and are supplied in conjunction with each other in the ordinary course of business of granting permission to the licensee for carrying out the excavation works. Thus, it can be said that it would constitute a composite supply i
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“access charges paid to Municipality for restoration work of roads damaged by excavation work undertaken by the applicant are exempted from GST in terms of entry no. 4 of the Notification No. 12/2017- Central Tax (rate) dated 28.06.2017.
In support of their contention, they have argued that since such services provided by a governmental authority (Municipality) fall under the function entrusted to a municipality under article 243W of the Constitution, qualify for exemption in terms of entry no. 4 of the Notification No. 12/2017- Central Tax (rate) dated 28.06.2017.
Notification No. 12/2017- Central Tax (rate) dated 28.06.2017 provides NIL rate of duty on the service provided by the Municipality (local authority) by way of an activity in relation to a function entrusted under article 243 W of the Constitution and that includes the activities as mentioned in Twelfth Schedule of Article 243 W. Entry no. 4 of the Twelfth Schedule mentions “Roads and Bridges”.
The local authorities,
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for furtherance of their business and hence attracts GST.
In terms of entry no. S of the Notification No. 13/2017- Central Tax (rate) dated 28.06.2017, the leviable GST is payable by the recipient i.e. M/S. RIL on reverse charge basis.”
04. HEARING
The case was taken up for preliminary hearing on dt.31.01.2018 when Sh. Gopal Mundhra (Advocate) attended alongwith Shi Thomas. K. D (DGM). On dt.28.02.2018, Shi Gopal Mundhra -(Advocate), Ms. Ginita Bodani (Advocate) and Sh Thomas. K. D (DGM) and reiterated the contention as made in the written submission. A request was made to make a further submission. The same has been tendered. Ms. Sapna Makhija, Superintendent attended on behalf of the officer from the Central Tax Office. She also requested time to make a written submission which has been tendered.
05. OBSERVATIONS
We have gone through the facts of the case. The questions raised in the application are as under –
1. Whether reinstatement charges paid to Municipal Authorities wo
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reinstatement charges do not guarantee the grant of permission.
d. The Permit issued for the location of the trench as specified therein states that simultaneous work order for reinstatement is issued to Ward Contractor and further that he will take up the work on the date of completion of the applicant's work mentioned in the permit or in phases as per clause no. 10 of the Permit.
The applicant before us is Reliance Infrastructure Limited and the supply would be by the Municipal authorities. We may refer to the GST Act to understand the mechanism of an Advance Ruling, Clause (a) of Section 95 says thus –
“95. In this Chapter, unless the context otherwise requires,-
(a) “advance ruling” means a decision provided by the Authority or the Appellate Authority to an appellate on matters or on questions specified in sub-section (2) of section 97 or sub-section (l) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by th
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of supply of services mentioned in column (2) Table below; supplied by a person as specified in column (3) of the said Table, the whole of central / state tax leviable under section 9 Of the said Central Goods and Services Tax Act, shall be paid
On reverse charge basis by the recipient Of the such services as specified in Column (4) of the said Table:
Table
Si No.
Category of Supply of Services
Supplier of
service Recipient of Service
(1)
(2)
(3)
(4)
5
Services supplied by the Central Government, State Government, Union Territory of local authority to a business entity excluding,-
(1) renting of immovable property, and
(2) services specified below-
(i) services by the Department of posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a por
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t the arguments of the applicant. It has been contended that the service falls under entry 4 of Notification No. 12/2017 -Central/State Tax (Rate) dated 28.06.2017. We shall reproduce the said entry thus-
Si. No.
Chapter, Section, Heading, Group or Service Code (Tariff)
Description of Service
Rate (per cent.)/CGST+MGST=IGST]
Condition
4
Chapter 99
Services by Central Government, State Government, Union territory, local authority or governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the constitution
Nil
Nil
The entry covers services provided by a local authority. However, it has been specifically mentioned that the service has to be by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution. Article 243 W of the Constitution says-
“243 W. Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow-
(a) the
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re shall be constituted in every State,-
(a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say, an area in transition from a rural area to an urban area;
(b) a Municipal Council for a smaller urban area; and
(c) a Municipal Corporation for a larger urban area,
in accordance with the provisions of this Part:
…………………………………………………..”
Since there is a reference to the Twelfth Schedule, we also refer to the same thus –
TWELFTH SCHEDULE (Article 243 W')
l. Urban planning including town planning.
2 Regulation of land-use and construction of buildings.
3 Planning for economic and social development.
4 Roads and bridges.
5 Water supply for domestic, industrial and commercial purposes.
6 Public health, sanitation conservancy and solid waste management.
7 Five services.
8 Urban forestry, protection of the environment and promotion of ecological aspects.
9 Safeguarding the interests of weaker
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e use by the general public. These are sovereign functions. The applicant is inter alia engaged in the business of generation, transmission and distribution of electricity. This calls for laying and maintenance of the power lines and other incidental work which requires the digging up of trenches. The Municipal Authorities grant the needful permissions. However, these permissions come with charges for restoring the street or pavement which has been dug up. Thus, the activity in the present case is the charges recovered by the Municipal Authorities to restore that portion of the street or pavement which has been dug up. It does not amount to construction of the entire road, as such. The copies of the application for undertaking excavation work reveal that the permission was sought and was granted for a trench of length/ are of 10 mtrs. The function in relation to 'Roads' as entrusted by the Constitution does not entitle the Municipality, as the one performing the function, to receive an
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lso not in the nature that the Municipal Authorities are performing any job of construction for the applicant. The street or pavement or road that is dug up is a general road. In view of all above, we are of the firm view that it should not be disputed that the recovering of charges for restoring the patches which have been dug up by business entities of the nature as the applicant cannot be equated to performing a sovereign function as envisaged under article 243 W of the Constitution.
Further, we find that there is specific entry in Notification No. 12/2017-Central/State Tax (Rate) dated 28.06.2017 which reads as udner-
Si. No.
Chapter, Section, Heading, Group or Service Code (Tariff)
Description of Service
Rate(per cent) GST+MGST=IGST]
Condition
4
Chapter 99
Services by the Central Government, State Government, Union territory or local authority excluding the following services-
(a) Services by the Department of Posts by way of speed post, express parcel post, life insura
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the case laws, we only observe that the facts and provisions aren't in pari materia with those in the present case.
We find that there is no other entry in the Schedule contained in the Notification No.12/2017-Central/State Tax (Rate) for services exempted from GST which would cover the impugned transaction. Neither is a specific entry for the impugned transaction in the Notification No. 11/2017-CentraI/State Tax (Rate) for services taxable to GST at various rates. In view thereof, the residuary entry no.35 of the Notification No.11/2017-Central/State Tax (Rate) covering “services nowhere else classified” and attracting GST @18% [9% each of CGST and MGST] would be applicable.
Question 2
Whether access charges paid to Municipal Authorities would liable to GST?
The reinstatement charges apply towards restoration of excavation work on the roads carried out by the various business entities providing services such as gas, telephone, electricity, etc. The Guidelines for Trenching activ
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ities in general and not any specific Municipal Authority with complete details and therefore is not answered.
06. In view of the detailed deliberations held hereinabove, it is ordered thus –
ORDER
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA-11/2017/B- 14 Mumbai, dt. 21.03.2017
For reasons as discussed in the body of the order, the questions are answered thus –
Question 1 Whether reinstatement charges paid to Municipal Authorities would be liable to GST?
Question 2 Whether access charges paid to Municipal Authorities would be liable to GST?
Answer Both the questions are answered in the affirmative
Case laws, Decisio
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