JSCL not governmental authority due to 50% state shareholding, fire fighting services attract 18% GST not concessional rate

AAR Rajasthan ruled that Jaipur Smart City Limited (JSCL) does not qualify as a governmental authority under GST notifications since state government shareholding is only 50% and Municipal Corporation Jaipur is a local authority, not government. Consequently, fire fighting system installation services to JSCL attract 18% GST under general rate, not concessional rate for government services. Road cutting charges paid to Jaipur Nagar Nigam are subject to reverse charge mechanism as services from local authority to business entity. Recovery of these charges from JSCL is taxable at 18% GST as it forms part of supply value, with applicant not qualifying as pure agent.

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Issues Involved:
1. Whether Jaipur Smart City Limited (JSCL) qualifies as a "Governmental Authority."
2. Applicability of Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017.
3. GST rate for the work undertaken by the applicant for JSCL.
4. Liability of the applicant to pay GST under RCM for road cutting charges paid to Jaipur Nagar Nigam (JNN).
5. GST applicability on the recovery of road cutting charges by the applicant from JSCL.

Detailed Analysis:

Issue 1: Whether JSCL qualifies as a "Governmental Authority"
The applicant contended that JSCL should be considered a "Governmental Authority" as it is a Special Purpose Vehicle (SPV) formed by the Government of Rajasthan for the development of Jaipur as a smart city. The shareholding pattern indicates that the Government of Rajasthan and the Jaipur Municipal Corporation each hold 50% of the shares. However, the definition of "Governmental Authority" requires 90% or more participation by way of equity or control by the Government. Since the Government of Rajasthan does not meet this threshold, JSCL does not qualify as a "Governmental Authority."

Conclusion: JSCL is not a "Governmental Authority."

Issue 2: Applicability of Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017
The applicant argued that the services provided to JSCL should attract a GST rate of 6% under Item number (vi) of serial number 3 of Notification No. 11/2017. Since JSCL does not qualify as a "Governmental Authority," the services provided to it do not fall under this item.

Conclusion: Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 is not applicable.

Issue 3: GST rate for the work undertaken by the applicant for JSCL
Given that JSCL is not a "Governmental Authority," the services provided by the applicant fall under Item number (xii) of serial number 3 of Notification No. 11/2017, which attracts a GST rate of 18% (9% CGST + 9% SGST).

Conclusion: The applicable GST rate is 18% (9% CGST + 9% SGST).

Issue 4: Liability of the applicant to pay GST under RCM for road cutting charges paid to JNN
The applicant paid road cutting charges to JNN on behalf of JSCL. As per Notification No. 13/2017-CT(R) and Notification No. 12/2017-CT(R), services provided by a local authority to a business entity are subject to GST under the reverse charge mechanism (RCM) if the consideration exceeds Rs. 5,000. The road cutting charges paid by the applicant exceed this threshold, making the applicant liable to pay GST under RCM at 18% (9% CGST + 9% SGST).

Conclusion: The applicant is liable to pay GST under RCM at 18% (9% CGST + 9% SGST).

Issue 5: GST applicability on the recovery of road cutting charges by the applicant from JSCL
The applicant sought to recover the road cutting charges from JSCL. According to Section 15(2)(c) of the CGST Act, 2017, any incidental expenses charged by the supplier to the recipient are included in the value of supply and are subject to GST. The applicant does not qualify as a "pure agent" under Rule 33 of the CGST Rules, 2017, as they hold the title to the services procured. Therefore, the recovery of road cutting charges is subject to GST at 18% (9% CGST + 9% SGST).

Conclusion: The recovery of road cutting charges by the applicant from JSCL is subject to GST at 18% (9% CGST + 9% SGST).

Ruling:
1. JSCL is not a "Governmental Authority."
2. Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 is not applicable.
3. The GST rate for the work undertaken by the applicant for JSCL is 18% (9% CGST + 9% SGST).
4. The applicant is liable to pay GST under RCM at 18% (9% CGST + 9% SGST) for road cutting charges paid to JNN.
5. The recovery of road cutting charges by the applicant from JSCL is subject to GST at 18% (9% CGST + 9% SGST).

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