Part I-Applicability of Tax under Reverse Charge on amount paid to Government- Payment of Charges by Business entity for approval of Building Map or change of land use
CA Arpit Haldia
Circular No. 121/2019 dated 11th October 2019 clarified in Para 5 as follows:
GST Council further decided in the 37th meeting held on 20.09.2019, to clarify that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States and has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.
The spotlight has again shifted on what are the various instances fees/tax paid to the government on which tax is payable on reverse charge basis. The series of article tries to cover the various payments payable to Government and applicability of tax under reverse charge thereof. Today’s article covers the payments made by business entity to Local Authority for the approval of Building Map or change of land use. For the above part lets analyse the relevant part of the law:
- Service Provider and Service recipient in case of Approval of Building Map/change of land use by the Local Authority
Say for E.g. a builder applies for approval of building map before the Municipal Corporation. In such cases, service provider would be Municipal Corporation and service recipient would be builder i.e. business entity.
- Notification No. 13/2017-Central Tax Rate-Applicability of Reverse Charge U/Sec 9(3) of CGST Act, 2017:
Entry No. 5 of the abovesaid notification provides that business entity located in taxable territory is liable to pay tax under reverse charge for services supplied to it by Central Government, State Government, Union territory or local authority.
- Taxability of Services provided by Local Authority
Notification No. 14/2017-Central Tax (Rate), Dated 28-6-2017, as amended by, Notification No. 16/2018-Central Tax (Rate), Dated 26-7-2018 provides that Services by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the Constitution or to a Municipality under article 243W of the Constitution shall be treated neither as a supply of goods nor a supply of service.
The activities entrusted to the Municipality under Article 243W of the Constitution of India and listed under Twelfth Schedule are enumerated as under;
- Urban planning including town planning.
- Regulation of land use and construction of buildings.
- Planning for economic and social development.
- Roads and bridges.
- Water supply for domestic, industrial and commercial purposes.
- Public health, sanitation conservancy and solid waste management.
- Fire services.
- Urban forestry, protection of the environment and promotion of ecological aspects.
- Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
- Slum improvement and up gradation.
- Urban poverty alleviation.
- Provision of urban amenities and facilities such as parks , gardens, playgrounds.
- Promotion of cultural, educational and aesthetic aspects.
- Burials and burial grounds; cremations, cremation grounds and electric crematoriums.
- Cattle ponds; prevention of cruelty to animals.
- Vital statistics including registration of births and deaths.
- Public amenities including street lighting, parking lots, bus-stops and public conveniences.
- Regulation of slaughter houses and tanneries.
Entry 2 of Article 243W provides that a “Regulation of land use and construction of buildings” falls under the activities entrusted to Municipality under Article 243W of the Constitution.Therefore, by virtue of Notification No. 14/2017-Central Tax (Rate), Dated 28-6-2017, as amended by, Notification No. 16/2018-Central Tax (Rate), Dated 26-7-2018, such services are outside the ambit of GST. Once the services are outside the ambit of GST, therefore no GST is payable on such services either under forward charge or under reverse charge.
FAQ released on Government Services provided by Governmental authority as covered entry no. 4 and 5 of Notification No. 12/2017-Central Tax (Rate) as follows:
Question 19: Whether services in the nature of change of land use, commercial building approval, utility services provided by a governmental authority are taxable?
Answer: Regulation of land-use, construction of buildings and other services listed in the Twelfth Schedule to the Constitution which have been entrusted to Municipalities under Article 243W of the Constitution, when provided by governmental authority are exempt from payment of tax.
Conclusion: Thus, Payment of amount towards approval of building map or change of land use is not leviable to reverse charge on account of Municipality being engaged as public authority in respect of activities entrusted under Article 243W of the Constitution of India and listed under Twelfth Schedule.