Appellate Authority Advance Ruling ORDER 01/ODlSHA-AAAR/Appeal/2018 DATED 14th November, 2018

THE ODISHA APPELLATE AUTHORITY FOR ADVANCE RULING FOR GOODS AND SERVICES TAX

(CONSTITUTED UNDER SECTION 99 OF THE ODISHA GOODS AND SERVICES TAX ACT, 2017)

BEFORE THE BENCH OF

(1) Shri Rakesh Kumar Sharma Member (Chief Commissioner GST, CX & Customs, Bhubaneswar Zone)

(2) Shri Saswat Mishra, Member (Commissioner, Commercial Taxes & GST, Odisha)

Present For the Appellant

1.Shri Kapil Kumar Sharma, Advocate, Partner, Lakshmikumaran & Sridharan Attorneys,

2.Smt. Saumya Dubey, Advocate, Associate, Lakshmikumaran & Sridharan Attorneys,

3.Shri Amitabh Dubey, CFO, IL&FS Education and

4.Shri Vineesh Khanna, Vice President, IL&FS Education.

1.1 M/s IL & FS Education and Technology Services Ltd. (hereinafter referred to the Applicant or the Appellant"), assigned with GSTIN 21AABCI2106H1ZC, having registered address at 51-KIIT, ITI Campus-14, Chandaka Industrial Estate, Khorda. Odisha-751024. had filed an application on 27 03.2018 under Section 100(1) of CGST Act, 2017 read with Rule 104 of CGST Rules 2017 & OGST Rules, 2017 in Form GST ARA-01 before the Authority for Advance Ruling, Odisha (hereinafter referred to as "AAR") seeking an Advance Ruling on the applicability of Entry No. 72 of Notification No. 12/2017-Central Tax(Rate), dated 28.06.2017, read with Entry No. 72 of Notification bearing SRO No. 306/2017-Finance Department. Government of Odisha to the services provided by them under the category of Information and Communication Technology (ICT) @ School Project.

1.2 The Appellant is a public limited company incorporated in India and registered under the Companies Act, 1956. The Appellant having GSTIN 21AABC12106HIZC is registered in Khordha, Odisha and falls within the jurisdiction of State of Odisha. The Appellant is the social infrastructure arm of IL&FS group and is engaged in the key areas of education, skill development, healthcare and cluster development for a long term and sustainable impact.

1.3. The present appeal concerns, one such ICT project being implemented by the Appellant in the State of Odisha. The Odisha Madhyamik Shiksha Mission (hereinafter referred to as "OMSM"), Government of Odisha, has mandated the Odisha Knowledge Corporation Limited (hereinafter referred to as "OKCL") to implement ICT project in 4000 government and government aided higher secondary schools across the State of Odisha. Accordingly, OKCL floated a tender (Tender Code No.3) on e-tendering portal of Secured e-Tendering System (SeTs).

1 4 The said tender was for Supply, Installation, Maintenance and Commissioning of Projection system, Interactive White Board, Computer Hardware, Connected Accessories, Installation of Software and other allied accessories, site prepafation (i.e. vinyl flooring, furniture and fixtures, electrical fittings, power backup facilities, LAN, etc ), maintenance of equipment and provisions of computer training services for 5 years, in 4000 schools, divided in 6 zones on the BOOT Model basis.

1.5 The Appellant was successful bidder and was awarded the tender vide letter of award No.OKCL/SME/47/04, dated 12th July, 2013to execute the contract in 5 zones. Accordingly, the Appellant entered into agreement with OKCL on 12th Septemebr, 2013.

1.6 This contract period was for five years and as per the agreement the entire infrastructure (supplied & installed) will be transferred to school and mass education department at zero transfer value. The total contract value of the project was Rs.617.18 Crore. The applicant filed an application on 27.03.2018 before the Authority for Advance Ruling of Odisha, under Section 97 of CGST Act, 2017 and OGST Act, 2017 read with Rule 104 of CGST Rules, 2017 & OGST Rules, 2017 in Form GST ARA-01 seeking an Advance Ruling on the applicability of Entry No. 72 of Notification No. 12/2017-Central Tax read with Entry No. 72 of Notification bearing SRO No. 306/2017-Finance Department, Government of Odisha to the services

provided by them under the ICT @ School Project.

Entry No. 72 of Notification No. 12/2017-Central Tax(Rate), dated 28.06.2017, which is relevant to this appeal, is reproduced below for ease of reference

(Entry No.72 of Notification No. 12/2017- Central Tax (Rate), is same as entry No.72 of Notification SRO No. 306/2017 dated 29.06.2017, issued by the Finance Department of Government of Odisha)

1.7. The AAR, Odisha, after examining the grounds filed in the Application filed by the Applicant, has observed that three pre-perquisites are to be satisfied for the supply of services to qualify for the notified exemption

(a) The supply has to be a supply of Service provided to the Central Government, State Government or Union Territory administration;

(b) Such Service must be 'under any training program';

(c) The total expenditure of such Service is borne by the Central Government, State Government or Union territory administration.

1.8 After thoroughly examining the contract details, the service details as said to be rendered, mode of payment details etc., the AAR, Odisha, vide its Ruling passed vide Order No- 01/ODISHA-AAR/18-19, dated 20.06.2018, held that the applicant is not entitled to the benefit of exemption under Entry No.72 of Notification No.12/2017-Central Tax(Rate), dated 28.06.2017, and has given Ruling as under

"RULING

(a) Recipient of the service OKCL is a body corporate which cannot be regarded as Government.

(b) The supply undertaken by the applicant is in the nature of composite supply. It includes supply of goods and services which are not naturally bundled. Each of the components of the composite supply are distinctly identifiable both in terms of quantity and value. The service provided or to be provided is not exclusively in the nature of training programme.

(c) Though the source of funding for the service is the State Government and Central Government, yet, as per the contract, the payment responsibility is vested on OKCL.

Therefore, the activities of the applicant by way of supply of goods and services under the ICT project are not covered under Entry 72 of the notification no. 12/2017 dated 28.06.2017, to be entitled to the benefit of exemption from GST."

1.9 While rendering the aforesaid Ruling, the AAR has also observed that as per para 1(c) of Schedule II of the OGST/CGST Act, any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods and not a service.

1.10 Aggrieved by the above mentioned Ruling, the Appellant i.e. M/s IL & FS Technology Services Ltd. have filed the subject appeal on 21.08.2018 before the Odisha Appellate Authority For Advance Ruling. The Appellant has paid the requisite fees of Rs.20,000/- (CGST-Rs. 10,000/- & SGST-Rs. 10.000/-) through e-payment in the State Bank of India, CPIN 18072100101561, dated 27.07.2018. After due verification of the Application and other aspects, the application is admitted. The Appellant in their Appeal have, interalia, prayed as follows:-

(i) To set aside the impugned ruling vide Order No. 01/ODISHA-AAR/18-19 dated 20.06.2018 and allow the appeal in full, with consequential reliefs to the Appellant;

(ii) To hold that Entry No.72 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, read with Entry No.72 of Notification SRO No.306/2017-Finance Department, is applicable to the services provided by the Appellant under the ICT Project.

1.11 The Appellant has also made a prayer for condonation of 5 days delay, under sub-section-2 of Section 100 of the CGST Act, 2017.

2. The grounds of appeal, as mentioned by the Appellant, in their Appeal, are summarised here-as-under;

2.1 First pre-requisite: The services are provided under the training programme:

The Appellant has contended that they are carrying out various activities viz. installation, commissioning, site maintenance, operation, etc. to implement the ICT Project in the government schools and government aided schools in the State of Odisha.

The Appellant relies on the following points with a view to establish that the provided by them are under training programme.

(i) All the activities undertaken under the ICT Project are naturally bundled, principal supply being that of provision of computer training;

(ii) The basic infrastructure is being developed to provide computer training to the students and teachers;

(iii) The ICT in Schools scheme has been introduced with an aim to promote computer literacy among the students and teachers;

(iv) BOOT Model achieves the object of imparting computer training and therefore, is preferred over outright purchase of assets;

(v) The Appellant is not providing operation or maintenance services;

(vi) There is no supply of goods during the period of contract.

The Appellant has stressed upon the facts mentioned under point Nos. (v) & (vi) above which are detailed below:

Point No.(v) The Appellant is not providing operation or maintenance services;

The Appellant has contended that in terms of the agreement, during the period of contract (i.e. 5 years), the operation and maintenance of the entire IT infrastructure equipment is to be carried out by the Appellant on its own cost. It is to be noted that during this period, the ownership of the equipment and infrastructure remains with the Appellant. This can be interred from the following terms of the contract:

(a) during the period of contract, the equipment, infrastructure, etc. are to be repaired by the Appellant at its own cost.

(b) it is the responsibility of the Appellant to obtain necessary insurance for the equipment, infrastructure, etc. Thus, for the entire contract period, the risk remains with the Appellant.

(c) the Appellant is also claiming the depreciation of the IT equipment, infrastructure, etc. Thus, the IT equipment, infrastructure appears as assets in the books of accounts of the Appellant.

Therefore, the above referred terms of the agreement clearly establish that during the period of contract, the ownership of the equipment and infrastructure lies with the Appellant.

As the entire infrastructure is owned by the Appellant, the activities of maintenance or operation of the infrastructure, hardware, software, etc. carried out by the Appellant are with regard to self-owned equipment. Thus, it cannot be said that the Appellant is engaged in the supply of operation or maintenance services in as much as operation or maintenance of self owned equipment. Thus, it cannot be said that the Appelant is engaged in the supply of operation or maintenance services in as much as operation or maintenance of self-owned equipment does not amount to supply of services to third party.

Thus, it is clear that the entire infrastructure is owned by the Appellant and the repair and maintenance activities undertaken by the Appellant are in regard to the self-owned equipment. Therefore, there is no supply of maintenance or operation services by the Appellant.

In fact, the repair and maintenance of the equipment and infrastructure is performed by the Appellant so that it may continue to provide computer training during the contract period in a smooth manner, without any obstruction.

Point No.(vi) There is no supply of goods during the period of contract:

As already submitted, the activities undertaken by the Appellant are under BOOT model basis and therefore, the ownership in the infrastructure developed by it would be transferred after the expiry of the contract period (i.e. 5 years). This is also clearly provided in the agreement that the ownership of the entire hardware, software, other equipment, etc. will be transferred at zero value at the end of the contract period.

In view of the above, it can be concluded that during the entire period of contract, the Appellant is not engaged in the supply of goods inasmuch as supply of goods is taking place only after the expiry of contract period of 5 years.

It is to be noted that the Appellant is claiming depreciation of the IT equipment in its books of accounts and as per the accounting policy, the normal life span of IT equipment is 5 years. Thus, after 5 years, the net realizable value of IT equipment in the books of account of the Appellant reduces to zero. As the IT equipment does not have any realizable value in the books of accounts of the Appellant, the same are being transferred to SMED at zero value.

Without prejudice to the above discussion regarding supply of goods, it is humbly submitted that even if some value is to be attributed towards supply of goods (equipment / infrastructure), the supply of goods here is ancillary to the principal supply of computer training service. As stated above, the basic idea of the ICT project implementation is provision of computer training to the students and teachers in the specific schools in the State of Odisha and not procurement of equipment/ mere creation of infrastructure.

In view of the above, it is submitted that the Appellant is responsible for provision of computer training for five years using the newly built infrastructure. Entry No. 72 of Notification No. 12/2017 requires that the services must be provided under a training programme. It is important to analyse if the services of provision of computer training by the Appellant can be considered to have been provided under a training programme.

It is pertinent to note that the term 'training' used in the above referred Entry No. 72 has not been defined in the Notification No. 12/2017. Further, this term is also not defined in the CGST/OGST Act as well as in CGST/OGST Rules.

2.2 Further, the Appellant has rebutted to the findings of the Advance Ruling Authority, as mentioned herein below:

(a) that under the CGST Act, the concept of composite supply is applicable only when two or more identifiable and taxable supplies of goods or services or both, which are naturally bundled, are rendered in conjunction with each other. To understand the same, attention is invited to the definition of composite supply under the CGST Act.

(b) As per Section 2(30) of the CGST Act, "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

(c) It is, therefore, evident that for any two or more supplies to constitute composite supply as per Section 2(30) of the CGST Act, it is necessary that they are naturally bundled. It is, thus, legally untenable for a supply to be ''composite" and "artificially bundled" at the same time. To this extent, the impugned ruling is legally incorrect and unsustainable.

(d) Assuming without admitting (for the sake of argument only} that Para 1 (c:) of Schedule TT is applicable to the present case, it is humbly submitted that there has never been any denial on part of the Appellant as regards the said transfer involving supply of goods. Conversely, in the application as well as in the additional submissions submitted by the Appellant before the Ld. AAR, the Appellant has emphasized on the fact that supply under the JCT Project involves supply of goods as well as supply of services, and whilst supply of services is the principal supply, supply of goods is merely an ancillary supply taking place at the end of the contract period, at zero value.

The Appellant would like to highlight here that as per the contract entered into between the Appellant and OKCL, title in the goods/infrastructure is transferred to SMED and not to OKCL. In such a case, even by applying Para l(c) of Schedule II, it cannot be said that the Appellant is supplying goods to OKCL.

(e) With respect to services provided to Government of State of Odisha, the Appellant submitted that OKCL is a corporation established under Companies Act, 1956, which has been mandated by OMSM, Government of Odisha to act as an implementing agency to implement the ICT Project, on its behalf.

Further, admittedly, the funds for implementation of this project are being provided by OMSM to OKCL, for further release to the Appellant, in accordance with the agreed terms. Moreover, in case, OKCL fails to discharge its obligations under the agreement entered into between OMSM and OKCL, OMSM would step into OKCL's shoes and would discharge all the responsibilities. All these terms of the agreement between OKCL and OMSM clearly provides that OKCL is merely acting as an implementing agency on behalf of OMSM.

Moreover, at the end of the project after 5 years, the assets are being transferred to OMSM and not to OKCL. Thus, as OKCL is merely an implementing agency on behalf of OMSM, the service recipient in the instant case would be the Government of Odisha (OMSM) through its instrumentality/ agency i.e. OKCL.

(f) On the issue of entire expenditure is borne by the Central Government and the State Government of Odisha, the Appellant submitted that in the instant matter, the tender document floated by the Government of Odisha specifically provides that the expenditure of implementing ICT Project in the State of Odisha would be borne by the Central and State Government in the ratio of 75:25.

The Appellant has further submitted that the expression used in Notification No. 12/2017 is 'borne' ("total expenditure is borne by the Central Government. ..") and not 'paid' by the government. There is no dispute as regards to the fact that it is the responsibility of OMSM (State Government) to ensure that appropriate funds are provided for implementation of the ICT Scheme. In fact, the said submission can be traced to Clause 5.2 of the agreement between OMSM and OKCL (Annexure-D). Therefore, even though the expenditure is 'paid' by OKCL under contract to the Appellant, the same is 'borne' by Centra! and State Government only (jointly).

3. A personal hearing in the matter was held on 26.10.2018. Shri Kapil Kumar Sharma, Advocate alongwith other representatives of the Appellant, appeared for P.H. on 26.10.2018 on behalf of the Appellant and reiterated the written submissions made in the Appeal. He also submitted additional written submissions and reiterated the submissions made therein.

4 1 we have carefully considered the submissions made by the Appellant in their appeal as well as oral submissions made by them during the course of hearing held on 26.10.2018. Before going into the merits of the case, we are taking up the prayer for condonation of 5 days delay in filing the Appeal by the Appellant.

4.2 The Appellant in support of condonation of delay has submitted that the Advance Ruling passed by AAR, Odisha was communicated to the Appellant on 17.07.2018. The Appellant has also submitted the proof of the receipt of the date of Speed Post. Accordingly, the time limit of 30 days for filing the appeal expired on 16.08.2018. Considering that the appeal was filed on 21 08.2018, the delay in filing of appeal is reckoned to be five days.

4.3 The Appellant has also submitted that the delay in filing the present appeal is not intentional and there were rational grounds preventing the Appellant from being able to file the appeal. It may be noted that due to the demise of former Late Prime Minister Atal Bihari Vajpayee, the State holiday was declared on 17.08.2018. Further, 18.08.2018 and 19.08.2018 were Saturday and Sunday. The Appellant also submitted that the Corporate Office of the Applicant is in Noida, U.P., and the appeal was drafted by the Applicant's Attorneys, whose office is situated in New Delhi. Hence, the entire appeal book was prepared in New Delhi and it was subsequently posted to another office of Applicant in Bhubaneswar, Odisha. The appeal book and filing documents were dispatched from Delhi on 17.08.2018 through Blue Dart Express courier. The courier was expected to reach within 2 days of dispatch, i.e., by 19.08.2018. However, due to delay in transit, the documents were received by Applicant's Odisha office on the evening of 20.08.2018. It is thus submitted that the delay in filing the appeal has been caused due to technical factors beyond the control of Applicant.

4.4 On records, it is found that the Appellant has received the copy of the Advance Ruling passed by AAR, Odisha, on 17.07.2018 and hence the appeal was required to be filed on or before 16.08.2018. The present appeal preferred before AAAR, Odisha was received in the Office of AAAR, Odisha on 21.08.2018. Accordingly, there is a delay of 5 days in filing of appeal. We have considered the reasons put forth by the Appellant for delay in filing the appeal, which are satisfactory and reasonable. Accordingly, the prayer for condonation of delay in filing appeal is allowed in terms of proviso to Sub-Section (2) of Section-100 of the CGST & SGST Act, 2017.

4 5 Now, coming to the merits of the case, we notice that the prime issue raised by the Appellant is, as to whether the services provided by them to M/s OKCL are eligible for exemption under Entry No.72 of the Notification No. 12/2017, Central Tax (Rate) dated 28.06.2017 and Entry No.72 of Notification SRO No.306/2017, dated 29 06.2017, issued by the Finance Department, Government of Odisha, which is reproduced below for ready reference.-

* Entry No. 72 of Notification SRO No. 306/2017-Finance Department is identical to the Entry No. 72 of Notification No.12/2017-Central Tax(Rate).

4.6 On going through the aforesaid notification, it is noticed that the following three conditions are required to be satisfied in order for the supply to qualify for the notified exemption, under Entry No.72 of Notification No. 12/2017-Central Tax(Rate).

(a) The supply has to be a supply of Service provided to the Central Government, State Government or Union territory Administration;

(b) Such service must be under any training programme;

(c) The total expenditure of such service is borne by the Central Government, State Government or Union territory Administration.

4.7 To examine the issue as to whether the supplies by the Appellant are made to Central Government, State Government or Union Territory Administration, we notice that in terms of Section 2(53) of the CGST Act, 2017 and in terms of Section 2(53) of the SGST Act, 2017, "Government" means the Central Government or Government of Odisha respectively.

4.8 There is no denying of the fact that the Appellant is providing services to Odisha Knowledge Corporation Limited (here-in-after referred to as "OKCL"), which is a body corporate. The Appellant has failed to produce any documentary evidence as to how the provision of service to OKCL qualifies to be a provision of sevice to the Central Government, state Government or Union Terittory Administration. The Argument put forth by the Appellant that they are the implementing agency on behalf of the Government is not tenable, as they are not providing services to Government.

4.9 On perusal of para 8 of the Agreement dated 12.09.2013 between OKCL and the Appellant it is noticed that the Appellant is required to supply and install the specified goods provide specified services in the ICT Labs of the Govt and Govt. Aided High Schools located in the specified zones. Therefore, it is evident that the Appelant has made supplies to OKCL. which is a body corporate and registered under the Companies Act 1956 as a Company.

4.10 We notice that the Authority for Advance Ruling. Odisha, in their findings (para 5 3 of the Order)has clearly observed that OKCL was promoted by the Higher Technical education department Govt of Odisha and was incorporated under the Compares Act 1956 as a public limited company to create new paradigm in education and development through universalization and integration of Information Technology in teaching learning and educational management processes in particular and socio economic transformative processes in general OKCL can sue and be sued in its own name and capacity distinct from its owners. The Government being the Union or State Government, on other hand, can also sue and be sued, but in the name of Union of India or the Government of a State as empowered under the Article 300 of the Constitution of India. Article 300 of the Constitution of India is applicable to Government and does not apply to OKCL OKCL being a registered entity under the Companies Act 1956. Can execute all contracts in its own name and capacity . The Union or State Government can also execute contracts made in the exercise of the executive power of the Union or of a State and shall be expressed to be made by the president or by the Governor of the State under Article 299 of the Constitution of India. Article 299 of the Constitution of India does not apply to OKCL. Article 300 of the Constitution of India provides that State can sue or be sued as juristic personality in the name of Union of India and Government of a State Therefore OKCL is neither the Sate Government nor a part of the State Government of Odisha or the Central Government and therefore the supplies by the applicant to OKCL should not be held to be a supply to Government.

4.11 No counter argument has been put forth by the Appellant to substatniate their claim that the supplies were made by them to the Government. Therefor we fully agree with the finding arrived at the Advance Ruling given by the Advance Ruling (AAR), Odisha, on this point and hold so Even if some percentage of shares are owned by Government of Odisha in the OKCL. the company cannot be construed as Government. Therefore, we hold that the Appellant does not meet the primary requirement of the conditions as laid down under Entry No. 72 of Notification No.12/2017-Central Tax(Rate), dated 28.06.2017, so as to be eligible for the said exemption, as the services provided by the Appellant to OKCL cannot be construed as services provided to the Central Government, State Government or Union Territory Administration.

4 12 The Appellant in para 12. 9.3 of their appeal have contended that as the entire infrastructure is owned by them and the activities of maintenance or operation of the infrastructure, hardware, software, etc. carried out by the Appellant are with regard to self-owned equipment. Thus, it cannot be said that the Appellant is engaged in the supply of operation or maintenance services in as much as operation or maintenance of self-owned equipment does not amount to supply of services to third party.

4.13 In this regard, we find that at para 12.10.1 of the said appeal , the Appellant themselves have contended that the activities undertaken by the Appellant are under BOOT model basis and therefore, the ownership in the infrastructure developed by them would be transferred after the expiry of the contract penod (i.e 5 years) This is also clearly provided in the agreement that the ownership of the entire hardware software, other equipment, etc. will be transferred at zero value at the end of the contract period Therefore, the stand taken by the Appellant is selfcontradictory in as much as on one hand, they claim that the provision of service as operation or maintenance of self-owned equipment does not amount to supply of services to third party. But on the other hand, they claim that the ownership in the infrastructure developed by it would be transferred after the expiry of the contract period (i e 5 years). The said transfer of ownership is also unconditional Therefore we hold that the consideration received by the Appellant is in respect of provision of supplies, taxability of which has been discussed in the foregoing paragraphs.

Moreover, under Schedule-ll (1)(c) of the CGST Act, 2017/SGST it is clearly defined that any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods.

4.14 It is also observed that the Appellant at para-13.3 of their Appeal, have clearly admitted that the funds for implementation of project are being provided by OMSM to OKCL, for further release to the Appellant. The Appellant has cited the agreement copy of OMSM and OKCL, where it is provided that if OKCL fails to discharge the obligation under the agreement, OMSM would discharge all the responsibilities. The agreement cited between OMSM and OKCL is not relevant to the present issue. The Appellant themselves have admitted that OKCL will release the money for the supplies made by the Appellant. The contention/pleading of the Appellant that they merely act as an implementing agency on behalf of OMSM, is factually not correct.

4.15 Having held that the Appellant have failed to meet the primary requirement of the conditions of the notification i.e., the supply has to be a supply of Service provided to the Central Government, State Government or Union Territory Administration; we refrain from discussing the other aspects of the notification and pass the following order:

ORDER

We uphold the Advance Ruling passed by the Authority for Advance Ruling, Odisha, made under Section 98 of the Goods and Services Act, 2017, vide their Order No.01/ODISHA-AAR/18-19, dated 20.06.2018. Consequently, the appeal No.01/2018 dated 21.08.2018, filed by the Appellant i.e. M/s. IL & FS Education and Technology Services Ltd., under the provisions of Section 101 of the CGST Act, 2017/Section 101 of SGST Act, 2017, is hereby rejected.