In Advance Ruling No. 22 /ARA/2023 -AAR- State Industrial Development Corporation not a ‘Pure Agent’, hence Participatory Infrastructure Development Scheme charges will be subject to GST; No GST on supply of raw water from infiltration wells, bore wells, etc.: AAR (Tamil Nadu)
Members N. Usha (SGST) & R. Gopalsamy (CGST) [20-06-2023]

Read Order: In Re: M/s. State Industries Promotion Corporation of Tamil Nadu Limited

Chahat Varma

New Delhi, September 1, 2023: The Tamil Nadu bench of the Authority for Advance Rulings has ruled that M/s. State Industries Promotion Corporation of Tamil Nadu Limited (applicant) did not function as a ‘Pure Agent’ and the activities related to Participatory Infrastructure Development Scheme would fall under the definition of supply as per GST law and hence, these charges were subject to GST at a rate of 18%.

In the present case, the applicant, a State Industrial Development Corporation (SIDC) established by the Government of Tamil Nadu, was primarily engaged in the development of industrial complexes, parks, and growth centres by acquiring land throughout the state. They sought an advance ruling on several aspects of their operations under prevailing GST laws.

The two-member bench of N. Usha (SGST) and R. Gopalsamy (CGST) noted that the Entry no. 99 of exemption Notification No. 02/2017-CT(Rate) dt.28.06.2017 provides for exemption to water.  Therefore, exemption under the aforesaid entry was applicable in cases where raw water supplied by the applicant via pipelines to the Allottee(s) (Tenants) from the infiltration wells/bore wells/open wells/storage reservoir or from water supplies received from local body or water board, without any process.

Regarding the incidental charges collected from the allottees such as Interest for delay in payment obligations (Water Charges), the bench referred to a circular issued by the Department of Revenue (Circular No. 178/10/2022 — GST, dated 03.08.2022), and highlighted that when the principal supply of raw water was exempted from GST, the recovery of interest or penalty for delayed payment of water charges and reconnection charges would not be subject to tax.

Regarding the maintenance charges for the usage of common facilities, the bench observed that based on the provisions of Sections 7(1)(a) of the Central Goods and Services Tax Act (CGST Act), read with clause (b) of Section 2(17) of the CGST Act, it becomes evident that the appellant's activities would indeed fall under the definition of supply as per the GST law and these activities would be subject to GST at a rate of 18%.

In regard to the Participatory Infrastructure Development Scheme (PIDP) charges, the bench noted that the applicant did not function as a ‘Pure Agent’ who had entered into an agreement with the allottee(s) to act as a pure agent for incurring expenditure or costs during the course of supplying goods or services. As a result, the bench found that the provisions of Section 7(1)(a) of the CGST Act, read with clause (b) of Section 2(17) of the CGST Act, indicated that the activities of the appellant would indeed fall under the definition of supply and, therefore, would be subject to GST at a rate of 18%.

Further, the bench emphasized that in situations where the principal supply itself was exempted, the interest collected concerning delayed payments for Upfront lease premium and Differential lease premium would not be subject to taxation under the GST Act.