GST on Consultancy Services: Recent AAR Ruling

Consultancy services being a supply of services is subject to GST. For determining rate of GST applicable thereon we need to peruse the rate notification for supply of services viz Notification No. 11/2017 Central Tax (Rate) Dated 28/06/2017.

However consultancy services are also exempted in some cases for which we need to refer to the service exemption Notification viz Notification No. 12/2017-Central Tax (Rate) Dated 28.06.2017.

In regard to GST on consultancy services we may refer to the recent ruling of Karnataka Authority of Advance Ruling (AAR) in the case of Vimos Technocrats Pvt Ltd. In this case the AAR has ruled that the pure consultancy services provided to Municipalities and Corporations are exempted but consultancy services provided to private individuals is subject to GST @ 18%.

Facts of the case:

• The Applicant, Vimos Technocrats Pvt Ltd is a private limited company rendering pure consultancy services like project management consultancy services including construction, supervision, quality control, rejuvenation, and development of lakes.

• Further applicant is also involved in the preparation of detailed project reports for pumping treated water, scientific landfills at Bengaluru quarries, construction of Raja Nala and Other development civil works etc.

• The Applicant is providing these services mainly to the Municipalities, Corporations, and also to Government Departments and only in a few cases, a pure consultancy service is being provided to private parties.

Issues on which ruling was sought:

The applicant sought advance ruling on following issues:

1. Whether pure consultancy services provided to the Municipalities and Corporations are exempt from GST as per the serial number 3 of the notification 12/2017-Central tax (Rate) dated 28.06.2017.

2. Whether pure consultancy services provided to the private individuals are taxable. If yes, what is the rate of tax and relevant notification.

3. Whether the input tax paid on the purchase of capital goods like furniture, computer, lab equipments, drone cameras, total station, auto level instruments, etc., and on certain services can be claimed to the extent of taxable supply of services.

Ruling of Karnataka AAR

The two-member bench of Dr. M.P. Ravi Prasad and Mashood ur Rehman Faruqooi ruled as under in regard to all the three issues as raised before them:

1. Pure consultancy services without supply of goods provided by the applicant to the Municipalities and Corporations (local bodies) and State Government Departments, as enumerated in the application are in relation to function entrusted to a Municipality under article 243W of the Constitution and thus are exempt from GST as per the serial number 3 of the Notification No. 12/2017-Central Tax (Rate) Dated 28.06.2017.

2. Pure consultancy services provided to the private individuals are taxable 9% under CGST and 9% under GST as per the entry No.21 of the Notification No. 11/2017 Central Tax (Rate) Dated 28/06/2017.

3. Input tax paid on the purchase of capital goods like furniture, computer, lab equipment’s, drone camera, total station, auto level instruments, etc., and on certain inputs services shall be restricted to so much of the input tax as is attributable to the taxable supplies made by the applicant as per subsection 2 of section 17 of the CGST Act 2017.

Entries related to GST rate on Consultancy Services:

a) Entry No.3 of Notification No. 12/2017-Central Tax (Rate) Dated 28.06.2017.

As per said entry the following supply of services is exempt from payment of GST.

Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

b) Entry No.21 of the Notification No. 11/2017 Central Tax (Rate) Dated 28/06/2017.

Heading 9983: (Other professional, technical and business services)

c) Entry No.38 of the Notification No. 11/2017 Central Tax (Rate) Dated 28/06/2017.

Heading 9954 or 9983 or 9987

Apart from above Legal and accounting services are covered under Entry No.20 of the Notification No. 11/2017 Central Tax (Rate) Dated 28/06/2017 (Heading 9982) and GST rate applicable is 18%.

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Frah Saeed

Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.