1. Joint Development Agreements :

Facts : The applicant, an un-registered person, had given irrevocable license to the Developer to execute and complete the project at its sole cost, expense and responsibility, develop the schedule property in accordance with the specifications set out there in and the responsibility to obtain conversion orders, construction plans and other permissions from the respective authorities by the Developer.

The applicant has sought advance ruling in respect of the following question.

Whether the total amounts received by the Owner towards the advances or sale consideration of the flats fallen to his share of 40% in terms of the Joint Development Agreement dated 19.05.2016 and the subsequent Area Sharing Agreement dated 03.01.2018, are not amenable for payment of GST, since Applicant has sold or agreed to sell or gifted, the fiats after obtaining Occupancy Certificate dated 26.08.2019 and that Applicant has not received any part of the sale consideration prior to the said date of occupancy certificate, thus falling under Entry No.5 of Schedule III of CGST Act read with Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 and the corresponding provisions of SGST Act.

The developer is liable to pay tax (GST) on construction service (Construction of complex) intended for sale to a buyer, wholly or partly, at the rate of 18% in terms of the Notification (Central tax rate) No. 11/2017 Central Tax (Rate) dated 28.6.2017 as amended by Notification No. 04/2018 Central Tax (Rate) dated 25.01.2018. Further the valuation of said services is to be determined in terms of paragraph 2 of the Notification No. 11/2017 Central Tax (Rate) dated 28.6.2017, prior to 1.4.2019.

Observations & Findings : We observed on examination of the records that the applicant has entered into JDA, along with irrevocable general power of attorney, on 19.05.2016 with the Developer and Developer obtained necessary plan approval dated 21.02.2017, Commencement Certificate dated 16.06.2017 and the Completion/ Occupancy Certificate dated 26.08.2019, from the authority BBMP. The applicant has executed the sale deeds for sale of the said flats after the occupancy certificate dated 26.08.2019 and thus the transaction is not exigible to GST in terms of clause 5 to Schedule III of the CGST Act 2017, which specifies certain transactions to be treated neither as a supply of goods nor a supply of services. Further Schedule Il to the CGST Act 2017 specifies certain activities / transactions to be treated as supply of goods / services. Clause 5(b) of the said schedule stipulates that “Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly” shall be treated as supply of service except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation whichever is earlier.

Thus, if the applicant themselves or the developer on behalf of the applicant have sold the applicant’s share of units/flats prior to issuance of completion certificate, then the transactions amount to supply of “Works Contract Service” are liable to GST. The value of the aforesaid supply is to be ascertained from open market and would be equal to open market value as per rule 27 of the CGST/SGST rules 2017. Further it is also clarified vide Notification No. 4/2019 Central Tax (Rate) dated 29-03-2019 at paragraph (iii) 1B, which states that “Value of portion of residential or commercial apartments remaining un-booked on the date of issuance of completion certificate or first occupation, as the case may be, shall be deemed to be equal to the value of similar apartments charged by the promoter nearest to the date of issuance of completion certificate or first occupation, as the case may be.”

Ruling : The amounts received by the applicant, either by himself or through his agents, towards sale of their share of flats are not exigible to GST, if and only if the entire consideration related to such sale of flats is received after the issuance of Completion Certificate dated 26.08.2019, as the said activities are treated neither supply of goods nor supply of service in terms of schedule III of the CGST Act 2017 subject to Clause 5(b) of the Schedule-II of the CGST Act, 2017.

[2020 (11) TMI 718 – AAR, Karnataka – Sri. B.R. Sridhar]

2. Exempted Service :

Facts : The Applicant is providing conservancy service to the Military Establishments. The applicant seeks a ruling on whether the above supply is exempted in terms of Serial No. 3 or 3A of Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017.

Observations & Findings : In its Circular No. 51/25/2018-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 20/06/2012 (hereinafter the ST Notification) has been substantially, although not in the same form, continued under GST vide Sl No. 3 and 3A of the Exemption Notification. Serial 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 up-gradation.” The Circular further explains in relation to the specific issue of ambulance service to the government by a private service provider (PSP) that such service is a function of ‘public health’ entrusted to Municipalities under Art 243W of the Constitution, and, therefore, eligible for exemption under Sl No. 3 or 3A of the Exemption Notification.

Ruling : The applicant’s supply to Military Stations, is exempt from the payment of GST under Sl No. 3 of Notification No. 12/2017 – Central Tax (Rate) dated 28/06/2017.

[2020 (12) TMI 189 – AAR, West Bengal – Lokenath Builders]


1. Online Information and Database Retrieval Services :

Facts : The Respondent Company having its registered office USA, has a business division in India engaged in the provision of computer-based test (alternatively referred to as ‘exams’) administration solutions to its clients (test sponsors) like educational institutes, professional licensing organizations, etc. and is registered with Bangalore West Commissionerate as a supplier of Online Information and Database Retrieval Services (OIDAR services).

In India, the Respondent Company has entered into contractual arrangements with independent third-party service providers including a subsidiary company of the Respondent to act as Authorized Test Centers to provide secure test center services to the Respondent Company for delivery of the tests including verification of candidates identity, invigilation etc.

In view of the above, the respondent company filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 in respect of the following questions:

a) Whether the service provided for type 2 test (the specified service) classifies as ‘Online Information and Database Retrieval Services’?

b) If the type 2 test provided by the applicant does not qualify as ‘Online Information and Database Retrieval Services’, whether the applicant is liable to pay integrated tax on the supply of said services to non-taxable online recipients in India?

c) Whether the service provided for type 3 test (the specified service) classifies as ‘Online Information and Database Retrieval Services?

d) If the type 3 test provided by the applicant does not qualify as ‘Online Information and Database Retrieval Services’, whether the applicant is liable to pay integrated tax on the supply of said services to non-taxable online recipients in India?

The Authority for Advance ruling examined the case of the Respondent and vide ruling No. KAR/ADRG 37/2019 dated 22nd May 2020 = 2020 (6) TMI 182 – AAR, Karnataka, arrived at the conclusion that type 3 test does not qualify as OIDAR services. It was held that Sl. No. 10 of Notification No. 09/2017-IGST (R) dated 28.06.2017 exempts Services (not including OIDAR services) received from a provider of service located in a non-taxable territory by the Central Government, State Government, Union territory, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession. If the transaction itself is exempt, there is no liability on the recipient of service. Hence, there will not be any liability on the supplier located outside India and hence the entire transaction is exempted both in the hands of the supplier and also the recipient by virtue of Sl No. 10 of Notification No. 09/2017-IGST (R) dated 28.06.2017.

Nature of Type 3 Test is as under:

These tests contain a mixture of multiple-choice questions and analytical writing assessment section i.e. essay-based questions. For candidates from India, the test is taken at test centres in India at a computer workstation which is physically administered and supervised by an invigilator (proctor) as described in the type 2 test above. The candidates may create a profile, schedule the appointment and remit payment using a registration center (call center). The test is completed in parts viz. at the end of the exam, the test-taker is able to see the final score for multiple choice questions and an indicative score (which is not final) for essay-based questions marked by the computer-based algorithm. However, the essay-based questions are then sent to a human-evaluator in the USA for assessment and final scoring. In addition to this, the essay is scored by an automated essay scorer. In case the difference in score for a single essay question between the electronic computed based algorithms scoring vis-a-vis human scoring is more than I point, then the essay-based questions are again sent to an expert evaluator for assessment and scoring. Once the entire aforesaid scoring activity is completed, the test-taker is then e-mailed a URL to access their official score.

The jurisdictional CGST officer reviewed the impugned order passed by the Authority and being aggrieved by the ruling passed with regard to a particular test, filed this appeal.

Observations & Findings : We find from the information furnished by the Respondent that their activity is primarily to conduct computer-based tests for their clients. The type of computer-based test i.e whether the test is purely multiple-choice questions or a mix of multiple-choice and essay questions depends on the purpose of the test and what the test sponsor aims to measure in a test taker. We are concerned only with the Type-3 test which is a mix of multiple-choice questions and essay-based questions. It is the responsibility of the Respondent to provide the software to enable the candidates to take the online Type-3 test; appoint or establish test centers from where the candidates will take the online Type-3 test; provide for the candidate’s test registration validation at the test center; provide for online and offline proctoring during the test-taking process, provide software for scoring the tests and deliver the test results electronically to the candidate. From the above it is abundantly clear that the Type-3 test is conducted over the internet using a computer system. The process of the test registration, conduct of the test and communication of the result are automated and such a test will not be possible in the absence of information technology. Thus, three out of the four requirements of an OIDAR service are fulfilled. The bone of contention is with regard to the fourth ingredient which is that the service should have minimum human intervention. We find that the lower Authority has taken the view that the scoring by the human scorer for the essay-based responses in the Type-3 test renders the element of human intervention more than minimal thereby disqualifying it as an OIDAR service.

There is no dispute on the fact that there is an element of human intervention involved in the process of scoring the essay responses in the Type-3 test. What needs to be decided is whether the extent of human intervention is ‘minimum’ or not. Since there are no guidelines in Indian laws regarding the concept of minimum human intervention in electronically provided services, we refer to the European Commission VAT Committee Working Paper No 896 wherein the notion of ‘minimal human intervention’ was discussed in the context of determining whether or not a service can be said to fall within the definition of electronically supplied services. However, even in such cases there is no direct human interaction of individualistic nature between the evaluator and the candidate. The Respondent accepts the electronic request for a rescore of the essay and returns the result to the candidate electronically. The candidate who is the service receiver has received a fully digitally provided service. When the Type-3 computer-based test is viewed as a whole, the scoring done by the human scorer is to be regarded as being within the realm of minimum human intervention. As such the ingredient of ‘minimum human intervention’ required to classify the service as OIDAR is also satisfied. We therefore, disagree with the decision of the lower Authority that the Type-3 test is not an OIDAR service.

Order : We allow the appeal filed by the Principal Commissioner of Central Tax, Bangalore West Commissionerate and set aside the ruling given by the AAR with regard to the classification of the Type-3 test.

[2020 (11) TMI 956 – Appellate AAR, Karnataka – M/s NCS Pearson INC]

2. Services by Residential Welfare Associations :

Facts : The Appellant is a Co-operative Housing Society, provides certain services to the members of the Housing Society, as enumerated in the By-laws of the Society. For the purpose of obtaining the objectives of the Society, the Appellant raises fund by collecting contributions from the members of the Society on monthly basis, which are also called “charges” in terms of the Bye-laws. The Society charges include property taxes, water charges, common electricity charges contribution to repair and maintenance fund, contribution to the sinking fund, services charges, car parking charges, interest on the default charges, non-occupancy charges, insurance charges, lease charges, lease rent, non-stop agricultural tax, or any other charges.

The Appellant had filed an Advance Ruling application before the Maharashtra Advance Ruling Authority, seeking clarifications on the following issues:

(i) Whether the said activities carried out by the Appellant would amount to supply, and whether the same are liable to the GST.

(ii) Whether they are correctly discharging the GST liability, for which they provided the illustrative invoices raised on the members of the society.

The Maharashtra AAAR, vide their order GST-ARA-21/2019-20/B-34, dated 17.03.2020 = 2020 (7) TMI 200 – AAAR, Maharashtra, passed the ruling, wherein it was held that the activities carried out by the Appellant, as detailed herein above, would amount to supply in terms of Section 7(1)(a) of the CGST Act, 2017, and accordingly would attract GST, as provided under Section 9 of the CGST Act, 2017. For arriving at the aforesaid conclusion, they have referred to Section 2(17) and Section 2(31) of the CGST Act, 2017 to conclude that the said activities have been carried out by the Appellant for consideration in the course or furtherance of business, and hence the same would qualify as “Supply” in terms of Section 7(1)(a) of the CGST Act, 2017.

Aggrieved by the aforesaid Advance Ruling passed by the MAAR, the Appellant has filed the present appeal before this Appellate Authority for Advance Ruling.

Observations & Findings : The Appellant contention that a particular transaction, which cannot be considered as business under the Income Tax law, cannot be considered as business even under the GST law is not acceptable as the definition of the term ‘business’ provided under the CGST Act, 2017 is much wider than the definition of the term ‘business’ provided under the Income Tax Act, 1961. Therefore, any provision under the Income Tax Act,1961 is not compulsorily applicable even under the CGST Act, 2017.

We would also like to explore the intention of the legislature on this aspect as to whether the society charges are liable to GST or not. For this purpose, we would refer to the clause (c) of Sl. 77 of the Notification No. 12/2017-C.T. (Rate), dated 28.06.2017 as amended by the Notification No. 2/2018-C.T. (Rate), dated 25.01.2018, which stipulates that the service by an unincorporated body or a non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution up to an amount of seven thousand five hundred rupees per month per member for sourcing of goods or services from a third party for the common use of its members in a housing society or a residential complex is exempt from the levy of GST. Thus, it can clearly be inferred from the provisions of the aforesaid notification that any amount, exceeding seven thousand five hundred rupees per month per member, charged by the housing society from its members, for the supply of goods or services for the common use of its members, would be subject to GST provided that the aggregate turnover of such society in a financial year exceed twenty lakh rupees. It is noteworthy that the said exemption limit of seven thousand five hundred rupees would not include the statutory dues/taxes, such as property tax, water tax, electricity charges, collected by the society from its members on behalf of the statutory authorities.

Order : We do not find any reason to interfere with the ruling passed by the AAR in light of the above stated reasons. Accordingly, it is held that activities carried out by the Appellant would amount to supply in terms of Section 7(1)(a) of the CGST Act, 2017, and the same would be liable for GST subject to the condition that the monthly subscription / contribution charged by the society from its members is more than ₹ 7500/- per month per member and the annual aggregate turnover of the society by way of supplying of services and goods is also ₹ 20 lakhs or more.

[2020 (11) TMI 489 – Appellate AAR, Maharashtra – M/s Apsara Co-Op Housing Society Ltd.]

3. Import of Service :

Facts : The appellant, Russian Federation, entered into a Maintenance and Repair Contract with Bharat Coking Coal Ltd., Dhanbad (BCCL) for maintenance of 4 nos. of Electric Rope Shovel, supplied by the appellant. As the agreement, a foreign entity shall be entirely responsible for all taxes, duties, license fees and such other levies imposed outside BCCL’s country. The foreign supplier shall also be responsible for all taxes & duties in BCCL’s country legally applicable during execution of the contract. The appellant raised invoices against BCCL inclusive of tax. BCCL required them to revise the invoices by reducing the tax element paid by BCCL under reverse charge mechanism. According to the appellant, as per Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, the recipient of service, i.e. BCCL is liable to pay the IGST on the services imported by them from the appellant under reverse charge mechanism.

The appellant company sought advance ruling to specify the person who is liable to pay tax in the aforesaid circumstances and whether it is legally justified by BCCL to deduct GST from payments made to the foreign company. The AAR in its Ruling No. 04/WBAAR/2020-21 dated 29.06.2020 = 2020 (7) TMI 140 – AUTHORITY FOR ADVANCE RULING, WEST BENGAL, has held that supply of service to BCCL in terms of the agreement / contract is not import of service. The recipient is not, therefore, liable to pay GST on reverse charge basis in terms of Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017. The applicant, being the domestic entity is liable to pay tax as applicable in terms of the contract.

Aggrieved by the Ruling, the Appellant has filed the instant Appeal against the above Advance Ruling with the prayer to set aside the impugned Advance Ruling passed by the AAR.

Observations & Findings : In the Advance Ruling, it is seen that the AAR has not considered / discussed the various other terms of the agreement which says, inter alia, that the entire control of the activities would rest with the foreign entity, which had entered into an agreement with BCCL. The AAR has observed that the service is ensured from the appellant’s domestic entity for seventeen years of the contract. However, it has not taken into consideration the fact that the appellant is providing service to BCCL since 2015, whereas the domestic entity has come into existence in 2018 only.

The AAR has found that the MARC holder ensures supervision of equipment, supply of spares and consumable and overheads for 5000 annual working hours for seventeen years, indicating sufficient degree of permanence to the human and technical resources employed at the sites and thus the domestic entity of the appellant is a ‘fixed establishment’ as defined under Section 2(7) of the IGST Act, 2017. Let us have a look at the definition of ‘fixed establishment’ as referred above :

fixed establishment means a place (other than the registered place of business) which is characterised by a sufficient degree of performance and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs.”

In the above definition, it is clear that the registered place of business cannot be termed a fixed establishment. Here, the domestic entity IZ-KARTEX is registered with GST authorities and hence, going by the definition, it cannot be termed a fixed establishment. In that sense, the decision of the WBAAR does not hold good in legal terms.

The appellant, on the other hand, has claimed that their activity is import of service and the tax is payable by BCCL. The AAR has not made any observation on this aspect, while holding that the appellant’s domestic entity is the supplier of the service. Import of service, as defined under Section 2(11) of the IGST Act, 2017, contains supply of service containing of the following three elements:

i. The supplier of service should be located outside India

ii. The recipient of service should be located in India

iii. The service should be provided in India.

Order : We modify the order of Advance Ruling to the extent that the supply of service by the appellant to BCCL qualifies as import of service as defined under Section 2(11) of the IGST Act, 2017 and GST is payable on such import of service by BCCL under reverse charge mechanism in terms of Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017.

[2020 (11) TMI 528 – Appellate, AAR, West Bengal – M/s IZ Kartex]

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