Recent clarifications by the CBIC on disputable GST hold the key

The issue of applicability of GST on the serving of food in schools, under mid-day meals scheme if such supplies are funded by government grants and or corporate donations, was a matter of discord. The GST Council in its 43rd meeting examined the matter. It was observed that entry 66 clause (b)(ii) of notification number 12/2017-Central Tax (Rate) dated June 28, 2017, exempts services provided to an educational institution, by way of catering, including any mid-day meals scheme sponsored by the central government, state government or union territory and that this entry applies to pre-school and schools. As per aforesaid entry 66, any catering service provided to an educational institution is exempt from payment of GST. Further, an Anganwadi inter-alia, provides pre-school non-formal education and therefore, Anganwadi is covered by the definition of the educational institution (as pre-school). Accordingly, as per the recommendation of the GST Council, the CBIC has clarified that the services, provided to an educational institution by way of serving of food (catering including mid-day meals), are exempt from levy of GST irrespective of its funding from government grants or corporate donations.

The matter of applicability of GST on annuities (deferred payments) paid for the construction of road where a certain portion of the consideration is received upfront while the remaining payment is made through deferred payment (annuity) spread over years, was under dispute. The issue was examined by the GST Council in its 43rd Meeting. It was observed that the services by way of access to a road or a bridge on payment of toll or annuity falling under heading number 9967 are exempt from payment of GST under Entries 23 & 23A of the Notification number 12/2017-Central Tax (Rate) dated 28th June, 2017. The services by way of construction of highways, streets, road railways, airfield runways, bridges, and tunnels fall under the Heading number 9954. Consideration for construction of road service may be paid partially upfront and partially in deferred annual payments (and may be called annuities). Entry 23A does not apply to services falling under heading 9954 as it specifically covers heading number 9967 only. Therefore, the plain reading of entry 23A makes it clear that it does not cover the construction of road services (falling under heading 9954), even if deferred payment is made by way of installments (annuities). Accordingly, as recommended by the GST Council, the CBIC, has clarified that entry 23A of the aforesaid notification, does not exempt GST on the annuity (deferred payments) paid for the construction of roads.

Representations were received by the CBIC on the taxability of various services rendered by the Central or State Boards such as National Board of Examinations (NBE). NBE provides services of conducting entrance examinations for admission to courses including Diplomat of National Board (DNB) and Fellow of National Board (FNB), prescribes courses and curricula for PG medical studies, holds examinations and grants degrees, diplomas and other academic distinctions. The GST Council in its 43rd meeting examined the taxability of such services. Based on the recommendation of GST Council, the CBIC has clarified that (i) GST is exempt on services provided by Central or State Boards (including the boards such as NBE) by way of conduct of examination for the students, including conduct of entrance examination for admission to educational institution and therefore, GST shall not apply to any fee or any amount charged by such Boards for conduct of such examinations including entrance examinations. (ii) GST is also exempt on input services relating to admission to, or conduct of examination, such as online testing service, result publication, printing of notification for examination, admit card and questions papers etc., when provided to such Boards (iii) GST at the rate of 18 per cent applies to other services provided by such Boards, namely of providing accreditation to an institution or to a professional ( accreditation fee or registration fee such as fee for FMGE screening test ) so as to authorize them to provide their respective services.

References were received by the CBIC on the applicability of concessional rate of 12 per cent GST under entry 3 (vi) of notification number 11/2017-CTR dated 28.06.2017 in respect of the services supplied to a government entity by way of construction such as of "a ropeway". The matter was examined by the GST Council in its 43rd Meeting. According to entry number 3(vi) of notification number 11/2017-CT (R) dated 28.06.2017, GST rate of 12 per cent is applicable, inter alia, on composite supply of works contract provided to the central government, State government, Union Territory, a local authority a Governmental Authority or a Government Entity, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. Thus, said entry number 3 (vi) does not apply to any works contract that is meant for the purposes of commerce, industry, business of profession, even if such service is provided to the Central Government, State Government, Union Territory, a local authority a Governmental Authority or a Government Entity. Further, civil constructions, such as rope way for tourism development shall not be covered by said entry 3(vi) not being a structure that is meant predominantly for purposes other than business. In light of above, the CBIC has clarified that the works contract service provided by way of construction such as of rope way shall fall under Entry at sl. No. 3(xii) of Notification 11/2017-(CTR) and attract GST at the rate of 18 per cent.

There were differences of opinion on the applicability of the rate of GST on the composite supply of service by way of milling of wheat into wheat flour, along with fortification, by any person to a State Government for distribution of such wheat flour under Public Distribution System. The issue has been examined by GST Council in its 43rd meeting. Based on the recommendation of GST Council, the CBIC has clarified that the Composite supply of milling of wheat and fortification thereof by miller, or of paddy into rice, where the value of goods supplied in such composite supply such as the goods used for fortification, packing material etc. does not exceed 25 per cent of the value of composite supply, would be exempt from GST. In case the supply of service by way of milling of wheat into flour or of paddy into rice, is not eligible for the exemption due to the reason that value of goods supply in such a composite supply exceeds 25 per cent, then the applicable GST rate would be 5 per cent, if such a composite supply is provided to a registered person. A person registered only for the purpose of the deduction of tax under Section 51 of the CGST Act 2017, will also be eligible for 5 per cent rate of GST. This clarification will put an end to the disputes relating to applicable rate of GST on milling of wheat into flour or paddy into rice.

Representations were received by the CBIC on the applicability of GST on supply of service by state governments to their undertakings or PSUs by way of guaranteeing loans. The matter was examined by the GST Council in its 43rd Meeting. Entry No. 34A of Notification number 12/2017-Central Tax (Rate) dated 28.06.2017, exempts services supplied by Central Government, State Government, and Union Territory to their undertakings or Public Sector Undertakings (PSUs) by way of guaranteeing the loans taken by such Undertakings or PSUs from the banking companies and financial institutions. Based on the recommendation of the GST Council, the CBIC has clarified that the guaranteeing of loans by Central or State government for their Undertaking or PSU is specifically exempt under the Entry No 34A of the Notification No 12/2017-Central Tax (Rate) dated 28/06/2017. In other words, no GST is chargeable on guaranteeing of loans by Central Government or State Government for their Undertakings or PSUs.

Representations were received by the CBIC in respect of the applicability of rate of GST on parts of sprinklers or drip irrigation systems when such parts are supplied separately (i.e. not supplied along with entire sprinklers or drip irrigation systems). This issue has been examined by the GST Council in its 43rd Meeting. Based on the recommendation of the GST Council, the CBIC has clarified that the laterals/parts to be used solely or principally with sprinklers or drip irrigation system, which are classifiable under heading 8424, would attract a GST at the rate of 12 per cent, even if supplied separately. It is also clarified that any part of general use, which gets classified in a heading other than 8424, in terms of Section Note and Chapter Notes to HSN, shall attract GST as applicable to the respective heading. This clarification has brought much sought after relief to the suppliers of the parts/laterals of the sprinklers and drip irrigation systems.

(The author is the former Principal Chief Commissioner CGST Mumbai. Views expressed by the author are his personal.)