SREE SUBHA SALES

1.Ms. Vaishnavi, Administration Employee and Duly Authorised Representative appeared for personal hearing proceedings held on 22.06.2022 and reiterated the facts narrated in their application.

FINDINGS & DISCUSSION

2.At the outset we would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.

3.We have considered the submissions made by the applicant in their application for advance ruling. We have also considered the issues involved on which advance ruling is sought by the applicant and the relevant facts and the submissions made by their authorized representative during the time of hearing.

4.The Applicant states that they execute government projects on tender basis and their main area of expertise is water supply and underground drainage works. The  Applicant has been awarded contract for establishment of 1 x 12.5 MVA, 66/ 11kV Sub-station at B.V. Halli in Channapatna taluk, from Karnataka Power Transmission Corporation Limited (KPPCL for brevity). The Applicant wants to know the applicability of GST for reimbursement of tree cut compensation and land compensation amount paid to farmers and land owners during the course of execution of the work.

5.The Applicant states that reimbursement bills are raised to KPPCI., by them for the compensation amount paid to farmers /land owners during execution of the project. The Applicant states that this compensation amount is not included in the contract amount (work order amount) and cheques are issued to beneficiary based on calculation and rates set forth by KPTCL in consultation with respective departments. On issue of these cheques and on realization of the amount in the beneficiary’s account, the applicant raises a bill to KyrCL with necessary proofs and documents for reimbursement of the same.

6.The Applicant has also submitted brief note on the various compensations paid on behalf of KPPCL by them to the beneficiaries and the same is as below.

(A).Land Compensation- There are two types of land compensation being paid for which reimbursement is claimed.

a) Towerfoot/ Towerfoundation compensation.

b) Regular land compensation. rates for these compensations are set by DDLR (Deputy Director Land ds) based on the order passed by the district magistrate. Regular ompensation is paid to any land owner on top Of whose land, the express feeder line passes and any land within 9 meter vicinity on either side from the feeder line. For laying of the Express feeder, the place for casting a pole is decided by KPTCL based on various technical parameters. In such location, they have to cast 4 tower foots for erection of the pole. These land owners qualify for the tower foundation / tower foot land compensation which has higher rates set by DDLR when compared to regular land compensation

(B).Crop Compensation- There is compensation paid to farmers, where it is inevitable to cut down crops during the course of execution of the project.

(C).Tree Cut Compensation- While laying the express feeder line, as per the norms there should not be any structures in the 9 meter vicinity on either side of the line including trees. Hence any tree cut down in due course qualifies the land owner to receive compensation from government. The rates for the compensation are decided by the horticulture or forest department, depending on the tree which is cut. Hence Tree Cut compensation reimbursement bills are raised.

7.The Applicant states that as per section V — Special conditions of contract, tree cutting, tree cut compensation, crop compensation would be paid by the contractor and then the same is reimbursed by the owner as per actuals.

8.The Applicant states that as per section V — Special conditions of contract, tree cutting, tree cut compensation, crop compensation would be paid by the contractor and then the same is reimbursed by the owner as per actuals.

9.Now we proceed to examine whether the applicant qualifies to be a pure agent. In this regard we invite reference to rule 33 of CGST Rules 2017, which is reproduced below:

Rule 33. Value of supply of services in case ofpure agent.-

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i).the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii).the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii).the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account

10.It could be seen from the above that a pure agent would be a person (supplier i.e. applicant in this case) who enters into a contractual agreement with the recipient of supply (KPTCL in this case) to act as recipient’s pure agent to incur expenditure or costs, in the course of supply of goods or services or both. It is an admitted fact that the applicant herein is raising reimbursement bill for the compensation (tree cut compensation/ crop compensation) paid to farmers once the cheques issued by the applicant to the farmers are realized in the bank. Now we proceed to examine whether  the applicant falls into the category of ‘Pure Agent’ as per the explanation given under Rule 33 of CGST Rules 2017 mentioned supra.

11.The Applicant has emailed word document which states ‘Special Conditions of Contract’, but the same is not signed by any. However in the main contract agreement, in para 2.0 which lists the contract documents, includes this ‘special conditions of contract’ under contract documents. The Applicant in their email dated 12.10.2022, has stated that Special conditions of Contract is not signed at the time of concluding the agreement but, these documents along with drawings and other sections are uploaded in the e-procurement portal at the time when tender is called for and these documents and drawings even though are not signed at the time of agreement are binding on them. Para 1.4 of the ‘Special Conditions of Contract’ is reproduced below:

12.The Applicant states that land compensation is paid to the land owner on whose land the express feeder line passes and to any land within 9 meter vicinity on either side of the express feeder line since there should not be any trees, plants or structures within the 9 meter vicinity of the express feeder line as per norms. Where it is inevitable to cut the crops and trees during the course of execution of project, crop compensation and tree cut compensation is paid to the farmers. Thus the farmers or land owners are paid compensation either for cutting the trees or crops grown in their land or for not growing any trees or crops or to build any structures below the express feeder line. This is the service supplied by the farmers or land owners to the KPPCL and the same is covered under schedule Il of CGST Act 2017 which is reproduced below:

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SREE SUBHA SALES

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Karnataka AAR

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