Whether the amount collected towards Local Area Development Fund, which is kept separately and used for development of the affected area as per the guidelines of MNRE, can be treated as not a supply as per the provision of CGST Act 2017?

PJ/Case Law/2020-2021/3553

M/s. Karnataka Solar Power Development Corporation Limited-KAR ADGR 10/2020 Dated 18.03.2020
Issue:

Whether the amount collected towards Local Area Development Fund, which is kept separately and used for development of the affected area as per the guidelines of MNRE, can be treated as not a supply as per the provision of CGST Act 2017?
If it is treated as supply, what will be the HSN/SAC code under which it would be levied to tax?
Without prejudice to the above, if it is treated as Supply, will it be exempt as per Sl No.3 or 3A of Notification No. 12/2017-CE as the activities to be carried out are covered under Articles 243G and/or Articles 243 W of the constitution of India?

Brief Facts: The applicant claims to be a Government Company in terms of Section 2(45) of Companies Act 2013; acts as Solar Power Park Developer (SPPD) and Involved in creation of infrastructure to facilitate Solar Power Developers (SPDs) to establish solar power generating units 86 to enable supply of solar power generated for general public at reasonable cost; undertakes the said project under the approval of Ministry of New 86 Renewable Energy (MNRE) and functions as per the guidelines of the said MNRE.
The applicant, for the aforesaid project, obtained lands on lease from the farmers of five villages for a period of 28 years and sub-leased the said lands to the SPDs, as per their requirement on the basis of solar power generating capacity, for 28 years to install the solar panels for generation of solar power. The applicant collects rent along with the applicable GST from the said SPDs. The applicant also required to collect an amount of Rs.5,00,000/- per MW capacity, from each SPD after commissioning of solar project, in five yearly installments of Rs 1,00,000/-each, under the guidelines of MNRE, towards Local Area Development Fund, intended to rehabilitation of the affected area.
The LAD fund so collected by the applicant is kept in a separate account by the applicant and interest, if any, earned on such amounts also added to the said fund. The LAD fund is used for development works of the said villages, under village panchayats, by the Committee formed by the Government of Karnataka
Applicant’s Contention: There is no supply made by the applicant to the SPDs with reference to the LAD Fund; no benefit is derived by the Applicant in the said transaction; the amount is collected as per the guidelines of MNRE & is used for only village development works; the said amount is not against any supply of goods/services made by the applicant to the SPDs.

The transaction does not get covered by the definition of Supply, in terms of Section 7 of the CGST Act 2017; the activity is not in the course or furtherance of business. Therefore the activity can’t be subjected to GST as it is not in the nature of supply.
Respondent’s Contention and reasoning of Judgment:

It is admitted that, the applicant has given on rental basis to SPDs and collecting the annual lease rent, which amount to ”Supply” in terms of Section 7(1)(a) of CGST Act 2017 and is leviable to GST under section 9(1) of the said Act.
Valuation to be done as per section 15(2)(a) of the CGST Act 2017 that any amount of any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than the GST related Acts are includible in the value of supply. The amount is collected by applicant from the SPDs under guidelines, issued by Ministry of New & Renewable Energy, Government of India. There is not doubt that amount is collected by applicant for LAD fund are on account of supply made by the applicant and directly linked in the rent /lease payable and thus are includable in the value of rental/lease service, being provided by the applicant.
The amount collected by the applicant towards LAD fund form part of value of the rent/lease service and the said service is covered under SAC 997212.
The said amount towards LADS fund by applicant is not a separate transaction but linked to the supply of rental/lease service as discussed the above paras. The exemption is available to applicant in case of pure service provided to Central Government, State Government and Local authority under serial no. 3 or 3A of notification No. 12/2017-Central Tax Rate by way of any activity in relation to any function under article 243G or 243W of the Constitution of India. In the above case, the applicant is collecting the LAD Fund from SPDs by way rental/lease service including applicable GST Rate and are not provided to any service directly to Central Government, State Government and local authority.
In the instant case, the applicant has utilized the said fund for Local Area Dvelopment under Panchayats as direction given by Committee of Government, Karnataka. The said transaction is not covered under “Supply” under Section 7 of CGST Act because the government is not collect any considered against the above work and only give to instruction to applicant for utilize the said amount for Development of Local Area under Panchayats. Hence, the said activity is not covered under RCM.

Prepared by- VIJAY SINGH

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PJ/Case Law/2020-2021/3553

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