GST applicable on Company’s provision of water to Society’s Residents

Fact and issue of the case

To file an application before the Authority of Advance Ruling, the applicant must satisfy the conditions prescribed under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act, 2017) and Haryana Goods and Services Tax Act, 2017 (hereinafter referred to as HGST Act, 2017). Since the provisions of both the Acts are parimateria, any reference to provisions of CGST Act, 2017 in this order should be construed as a reference to corresponding provisions in IGST Act, 2017/HGST Act, 2017 as well.

Sections 97(2) of the CGST Act, 2017 prescribes that Advance Ruling may be sought inter alia on the question of (b) Applicability of a notification issue under the provisions of this Act. (e) Determination of the liability to pay tax on any goods or services or both, (g) Whether any particular thing done by the applicant with respect to any goods and/or services or both amounts to or results in a supply of goods and/or services or both, within the meaning of that term.

Proviso with reference to the Section 98(2) of CGST Act, 2017 states that where the questions raised in the application is already pending or decided in any proceedings in the case of the applicant under any provision of this Act, the application may be rejected by the Advance Ruling Authority after providing an opportunity of being heard to the applicant. And in this case, the applicant has undertaken in form ARA-01 that the issue is neither pending nor decided in any proceedings under any of the provisions of the Act. Besides the applicable fees in the case has been paid. So, he is eligible to seek an Advance Ruling under the above provisions and the case is being heard on merits.

Statement of facts as per ARA-01

The applicant is a registered taxpayer under the CGST Act, 2017. The taxpayer is a Pvt. Ltd. company. We are developers and developing residential complexes which includes, plots, commercial shops, group housing flats. We are doing various activities under this GST registration. We are collecting GST as applicable from the customers and depositing the same with the department after adjusting the input tax credit available to us.

Now, the main issue is whether the activity of the supply of water to the residents of this society is a taxable event or not under the GST Act, 2017? In this regard, it is observed by the authority that as per the notification no. 12/2017 dated 28.06.2017, Pure Services (excluding works contract services) or other composite supplies involving supply of other goods provided to the local authority by way of any activity in relation to any function entrusted to municipality under article 243 W of the constitution of India are nil rated. Whereas the applicant is a Private Limited Company registered under the companies Act, 2013 and not entitled for the said exemption.

Observation of the court

Section 9 Levy and collection.-

(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

In common parlance, a water distribution system is a part of water supply network with components that carry potable water from a centralized treatment plant or wells to consumers to cater the demand of the residential societies. It also includes the water supply for commercial, industrial and fire fighting requirements.

From the perusal of the above mentioned legal provisions with reference to the issue at hand, the activity of water distribution system by the applicant to the residents of the Complex is covered under definition of business as enumerated above and it is a taxable supply. The scope of the supply under the GST Act is quite vast and encompasses all the supplies of goods and services which are not explicitly exempted by the government. The water distribution system is an independent business enterprise and here in the present case it is part of business activities of the applicant. It can also be said that it is a supply which is being done by the applicant for the furtherance of business.

The relevant entry no. 3 of Pure Services in the exemption Notification No. 12-CT(R) dated 28.06.2017which got amended on 18.11.2021 w.e.f 01.01.2022 is as: Pure Services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority by way of any activity 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.

From this, it can be construed that for any supply to be covered under the Pure Services that there should be no supply of goods, the recipient should be Central government/State government/Union territory/ Local Authority and services should be by way of any activity in relation to any function entrusted to a panchayat under article 243G of the constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution. Exclusion in this entry is already mentioned.