Taxability of solid waste management - Dr Sanjiv Agarwal - Article published in Business Advisor, dated February 10, 2015 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

1. Volume X Part 3 February 10, 2015 13 Business Advisor
Taxability of solid waste management
Dr Sanjiv Agarwal
Backdrop
Nowadays many municipal corporations/
municipalities are outsourcing the activities of solid
waste collection (both door-to-door from premises and
from streets), its transportation, treatment and
management. The reasons are obvious. The civic
amenities ought to be provided and our local bodies or
authorities entrusted with such tasks are not equipped
to handle and carryout such functions. The result is
that these activities are being outsourced to private specialised agencies or
some organisations working on a PPP model, of course against a
consideration.
Issue
The question arises as to whether such services, though listed as a
sovereign function to be carried out by the municipal corporations (say local
authorities) under the Constitution, if carried out by private players, are
liable to levy of service tax. This needs to be analysed in the light of scope of
service and exemptions provided under the service tax law.
The main activities in such arrangement are to undertake the activities
related to waste management which, inter alia, includes door-to-door
collection, segregation, transportation, processing, composting, recycling,
trading, treatment and disposal of all type of waste (whether solid or liquid)
including municipal solid waste (MSW), e-waste and commercial and
demolish waste (C&D).
Meaning of service
„Service‟ has been defined in clause (44) of the new section 65B as
applicable w.e.f. 1.7.2012 and means:
 any activity
 for consideration
 carried out by a person for another
 and includes a declared service.

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In such cases, there is an activity involved which comprises collection and
transportation of garbage (solid waste) for a consideration, which is payable
by municipality on the basis of per tonne of garbage collected and
transported at the contract price per tonne for the activity performed.
Meaning of local authority
“Local authority” means -
a) a panchayat as referred to in clause (d) of article 243 of the Constitution;
b) a municipality as referred to in clause (e) of article 243P of the
Constitution;
c) a municipal committee and a district board, legally entitled to, or
entrusted by the Government with, the control or management of a
municipal or local fund;
d) a cantonment board as defined in section 3 of the Cantonments Act,
2006;
e) a regional council or a district council constituted under the Sixth
Schedule to the Constitution;
f) a development board constituted under article 371 of the Constitution; or
g) a regional council constituted under article 371A of the Constitution.
According to Article 243P (e) of the Constitution of India 1949, „municipality‟
means an institution of self-government constituted under Article 243Q.
Exemption
Services provided to Government, a local authority or a governmental
authority by way of water supply, public health, sanitation conservancy,
solid waste management or slum improvement and upgradation or repair or
maintenance of vessel or an aircraft are exempted in Entry No. 25 under
Mega Notification No. 25/2012-ST dated 20.06.2012.
This entry covers the following activities carried out by way of-
(i) water supply
(ii) public health
(iii) sanitation conservancy, solid waste management
(iv) slum improvement/ up-gradation

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All the aforementioned services are of public interest and if rendered to
Government (whether Union or of States) or to any local authority or
governmental authority shall be exempt from service tax.
The exemption essentially entails two conditions -
a) services should be provided to Government/local authority/
Governmental authority
b) services should be relating to solid waste management.
While first test may be considered as satisfied as the services are carried out
for municipality (NMC or VMC) but not directly to municipality by the
contractor, second test is of course, satisfied unconditionally.
The essential requirement is that services should be provided „to‟ …..local
authority (NMC or VMC, in this case). The word or expression „to‟ is,
therefore, crucial to ascertain the allowability of the exemption under this
category.
Dictionary meaning of „to‟ is expressing motion in the direction of ;
expressing location; identifying the person or thing effected by or receiving
something; how something is related to something else; indicating that two
things are attached; expressing a cause etc.
Section 9(1) of General Clauses Act, 1897 implies that “in designating
boundaries, the word „to‟ without the word „inclusive‟ excludes the object to
which the line runs”
The word „to‟ would include any action towards the final goal of the action.
Hindustan Lever Ltd. v. Ashok v. Kate, AIR 1996 SC 285, 299 [Maharashtra
Recognition of Trade Unions and Prevention of Unfair Labour Practices Act
(1971), Sch. 4, Item 1]
This scope of this entry is clear and nowhere in the entry is it mentioned
that this exemption will be applicable even if the specified services are
provided indirectly to Government, Governmental authority, local authority.
The exemption essentially entails two conditions: (a) services
should be provided to Government/local authority/
Governmental authority; (b) services should be relating to
solid waste management.

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Thus only those persons who provide specified services to Government,
Governmental authority, local authority, shall get exempt from service tax.
As discussed in aforementioned paras and going by the legislative intention,
it appears that the activities of private players for door-to-door collection
and transportation of waste are the specifically entrusted functions of the
municipal corporations (local authorities) under Article 243W of the
Constitution of India and are ordinarily carried out by such local
authorities.
Thus, it can be concluded that the activities relating to collection,
transportation and management of waste, provided by service providers to
municipal corporations shall be eligible for exemption under Entry No. 25 of
Notification No. 25/2012-ST and shall not be liable to pay service tax.
(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur)