43rd GST Council Meeting: Sectoral Analysis

Taxmann’s ‘Indirect Tax Research & Advisory’ Team May, 2021

MAINTENANCE REPAIR & OVERHAUL (‘MRO’) SECTOR

• GST rate on MRO services in respect of ships/vessels recommended to be reduced from 18% to 5%

• Place of Supply (‘POS’) of B2B MRO services recommended to be changed to location of the service recipient

TAXMANN’s Comments

Foreign ships /vessels arriving in India go for MRO services during the intervening period (i.e. between arrival and departure). The place of supply of the impugned services is[1] the place where the MRO services are performed (i.e. India). Therefore, currently, these services provided by MRO units to foreign shipping companies are exigible to GST.

Recommendation to change POS would make the impugned services as export of services[2]. The change in POS would enable the Indian MRO units to compete better with the foreign MROs.

We may note that the change in POS would also impact the Indian shipping companies those receiving services from Foreign MROs outside India. In such cases, reverse charge liability would arise.

Last year similar changes were implemented[3] for MRO services in respect of Aircraft, Aircrafts engines, etc.

• Clarification/ Clarificatory amendments is recommended in relation to levy of IGST on the repair value of the goods that are re-imported after repairs

TAXMANN’s Comments:

The Division bench of Hon’ble Delhi Tribunal last year in case of Interglobe Aviation Ltd[4] held that the expression ‘Duties of Customs’ would not include ‘IGST’ within its scope. Given this, it was held that IGST under the Customs Tarrif Act would not be levied on aircrafts re-imported after repairs.

The clarification/clarificatory amendment ‘may be’ to settle the issues like the highlighted one.

Retrospective applicability of the clarification/clarificatory amendment would need to be analysed once the fine print of the clarification/amendment is released/notified.

EDUCATION SECTOR

• Clarification would be issued to provide that services provided by way of examination including entrance examination, where the fee is charged for such examinations, by National Board of Examination (NBE), or similar Central or State Educational Boards, and input services relating thereto are exempt from GST

TAXMANN’s Comments:

Services of an Educational Institution for conducting entrance exams is exempt[5] from GST. Further, input services procured by the Education institution relating to admission and conduct of examination are also exempt from GST.

Vide Notification No. 14/2018-Central Tax (Rate), dated 26-7-2018, an Explanation was inserted in the above Exemption Notification to provide that ‘Central and State Educational Boards’ shall be treated as Educational Institution for the limited purpose of providing services by way of conduct of examination to the students.

Therefore, it can be said that entrance fees charged by the Central/State Educational Boards for conducting exams is exempt from GST.

However, it was observed recently that National Board of Examination started charging GST on fees for medical entrance exams (such as NEET -PG, DNB courses, etc.).

It seems that Govt. would issue clarification to provide that no GST would be applicable on such entrance fees.

REAL ESTATE SECTOR

• Amendment is recommended to provide that landowner could utilize the input tax credit of GST charged to them by the developer in respect of such apartments that are subsequently sold by the land promotor and on which GST is paid
• Developer promotor shall be allowed to pay GST relating to such apartments any time before or at the time of issuance of the completion certificate

TAXMANN’s Comments

Under the Joint Development arrangements the developer is liable to pay GST on the units given by him to the landowner in lieu of TDR/FSI on the date of issuance of completion certificate/first occupation (‘the specified date’)[6].

However, in respect of further sale of the said units by the landowner, GST is paid as per the normal time of supply provisions (i.e. which is much before the specified date).

The timing gap of GST liability on the developer and landowner has created credit blockage issues for the landowner as GST is charged by the developer on the specified date but the landowner is liable to pay GST much before the specified date.

In the above backdrop, in order to remove this anomaly in the law, amendment has been recommended to provide that developer may pay GST before the specified date.

Further, to avoid any ambiguity on the utilization of ITC by the developer, explicit provision would be made in the relevant notifications in this regard.

ROAD & HIGHWAYS SECTOR

• Clarification would be issued to provide that GST is payable on annuity payments received as deferred payments for the construction of the road. The benefit of the exemption is for such annuities which are paid for the service by way of access to a road or a bridge.

TAXMANN’s Comments

The GST Council in its 22nd meeting recommended exemption on annuity paid by NHAI and State authorities/State owned corporations to the Concessionaires for construction of public roads. However, the Notification[7] which was issued in this regard notified that ‘services by way of access to a road or a bridge on payment of annuity’ shall be exempt from GST.

One can see that what was proposed by the GST Council is different than what was actually notified by the Government. This created confusion amongst the contractors in the Industry on the applicability of above exemption on the deferred annuity (i.e. annuity received for construction of roads during O&M period) from NHAI/ PWDs etc.

Notably, the Rajasthan AAAR held[8] that where annuity payment for construction received during the O&M period, the same would be exempt from GST in view of the GST Council decision.

The clarification would impact all Contractors/Concessionaires who are claiming exemption of deferred Annuity for construction services. It would be a clarification, thus would have a retrospective effect.

OTHER INDSUTRIES / SECTORS / SUPPLIERS/ RECPIENTS

IRRIGATION PRODUCTS INDUSTRY

• GST rate of 12% to apply on parts of sprinklers/ drip irrigation systems falling under tariff heading 8424 (nozzle/laterals) to apply even if these goods are sold separately

TAXMANN’s Comments

Initially, all goods falling under HSN 8424, namely, Mechanical appliances (whether or not hand-operated) for projecting, dispersing or spraying liquids or powders etc., were placed under 18% slab.

Subsequently, the items namely, ‘Nozzles for drip irrigation equipment or nozzles for sprinkler was placed[9] under 12% GST slab.

Further, later on, the GST Council recommended 12% GST rate on micro irrigation system, namely, sprinklers, drip irrigation system, including laterals. Accordingly, entry 195B covering ‘Sprinklers; drip irrigation system including laterals’ on which GST rate is 12%[10] was notified.

The drafting of entry created confusions on the field level on the question that whether the sprinklers should be read as complete sprinklers irrigation system or will it only exempt sprinklers which is the part of sprinklers irrigation system. In this regard, clarification was issued that it would be read as ‘sprinklers irrigation system’. Accordingly, sprinkler system consisting of nozzles, lateral and other components would attract 12% GST rate.

The another point which is not clear and creating confusions on the field level is that whether the above entry be applied in the cases where the complete system is not sold but separate parts of sprinklers irrigation system is sold.

In this regard, Rajasthan AAR held[11] that if individual rubber parts of Sprinkler irrigation system/drip irrigation system are supplied separately, viz., Rubber Ring/Gasket/Seal, Rubber Foot Batten Washer and Fubber Gromment, they will not be covered under Entry No. 195B.

It is recommended to provide clarification/clarificatory amendment that GST rate of 12% shall be applicable on the parts of Sprinklers/drip irrigation system even if these goods are sold separately. Clarification would avoid confusions between the taxpayer and the department, and thus a welcome step.

CATERERS SERVING EDUCATIONAL INSTITUTION

• Supply by way of serving of food, including mid-day meals under any midday meals scheme sponsored by the Government, to an educational institution including Anganwadi, is exempt from the GST irrespective of the fact that such supplies are made from the funds received as government grants or corporate donations.

ROPE-WAY CONTRACTORS

• Clarification would be issued to provide that services supplied to a Government Entity by way of construction of a rope-way attract GST at the rate of 18%.

GOVERNMENT UNDERTAKINGS/PSUS

• Clarification would be issued to provide that services supplied by the Government to its undertaking/PSU by way of guaranteeing loans taken by such entity from banks and financial institution is exempt from GST.

MILLING SECTOR

• Clarification would be issued to provide that supply of service by way of milling of wheat/paddy into flour (fortified with minerals etc. by millers or otherwise )/rice to Government/ local authority etc. for distribution of such flour or rice under PDS is exempt from GST where the value of goods in such composite supply does not exceed 25% of the total value of supply.

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[1] Section 13(3)(a) of the IGST Act, 2017

[2] Provided other conditions of Export of Services are satisfied

[3] Notification No 02/2020 Integrated Tax Dated 26 March 2020

[4] Interglobe Aviation Ltd. vs Commissioner of Customs [2020] 121 taxmann.com 70 (New Delhi – CESTAT)

[5] Sl. No. 66 of Notification No 12/2017 Central Tax (Rate) dated 28-06-2017

[6] Notification No. 6/2019-Integrated Tax (Rate) Dated 29 March 2019 (similar notification exists in CGST & respective SGST laws)

[7] Notification No. 32/2017-Central Tax (Rate), dated 13-10-2017

[8] Nagaur Mukundgarh Highways (P.) Ltd., In re [2019] 103 taxmann.com 212 (AAAR-RAJASTHAN)

[9] Entry No. ‘ 195A’ with effect from 22.09.2017

[10] Entry No 195B of Notification No 01/2017 dated 28.06.2017

[11] Laxmi Rubber Industries, In re [2019] 105 taxmann.com 293 (AAR- RAJASTHAN)