2022 (5) TMI 403 - AAAR - GST

RUDSICO statutory corporation denied GST exemption as governmental authority despite providing public services

In Re: M/s. Consulting Engineers Groups,

The AAAR Rajasthan held that RUDSICO, a statutory corporation providing drinking water and sewerage services, does not qualify as a governmental or local ... Exemption from GST - Pure Service - Providing Project Management Consultancy services - local authority / Governmental Authority or not - services provided to Rajasthan Urban Drinking Water Sewerage and Infrastructure Corporation (RUDSICO) - HELD THAT:- a statutory body, corporation or an authority created by the Parliament or a State Legislature is neither 'Government' nor a 'local authority'. Such statutory bodies, corporations or authorities are normally created by the Parliament or a State Legislature in exercise of the powers conferred under article 53 (3) (b) and article 154 (2) (b) of the Constitution respectively. Hon'ble supreme court in the case Agarwal Vs. Hindustan Steel AIR 1970 Supreme Court 1150 has held that, “the corporation which is Hindustan Steel Limited in this case is not a department of the Government nor are the servants of it holding posts under the State. It has its independent existence and by law relating to Corporations, it is distinct even from its members.” Such a statutory body, corporation or an authority as a judicial entity is separate from the State and cannot be regarded as the Central or a State Government and also does not fall in the definition of 'local authority'. Thus, regulatory bodies and other autonomous entities would not be regarded as the “government” for the purposes of the GST Acts. Holding of equity control of RUDSICO by Jaipur Development Authority and Rajasthan Housing Board cannot be treated as holding of equity control by government. Accordingly, we hold that RUDSICO is not a Governmental Authority. Issues Involved:1. Whether Project Management Consultancy services provided to RUDSICO qualify as 'Pure Services' under Entry No. 3 of Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017.2. Whether RUDSICO qualifies as a 'Governmental Authority' under the same notification.Issue-wise Detailed Analysis:1. Qualification of Project Management Consultancy Services as 'Pure Services':The appellant, a company providing Project Management Consultancy (PMC) services, argued that these services should be classified as 'Pure Services' under Entry No. 3 of Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017. The Rajasthan Authority for Advance Ruling (AAR) confirmed that the PMC services provided by the appellant have no component of supply of goods, thus qualifying as 'Pure Services'. The services are related to functions of Town Planning and Water Supply, which are functions entrusted to a Municipality under Article 243W of the Constitution.2. Eligibility for Exemption Based on RUDSICO's Status as a 'Governmental Authority':The AAR held that RUDSICO does not qualify as a 'Governmental Authority' because less than 90% of its paid-up capital is held by the Government of Rajasthan. The appellant contested this, arguing that more than 90% of RUDSICO's equity control is held by the Government of Rajasthan through various entities, including Rajasthan Housing Board (RHB) and Jaipur Development Authority (JDA), both of which are government entities.Appellant's Arguments:- The appellant provided a detailed breakdown of RUDSICO's shareholding, showing that the Government of Rajasthan holds 99.99% of the equity through various entities.- They argued that RHB and JDA are government entities established by Acts of Parliament/State Legislature, thus qualifying RUDSICO as a 'Governmental Authority' under the notification.Appellate Authority's Analysis and Findings:- The relevant portion of Notification No. 12/2017 - Central Tax (Rate) was examined, which exempts 'Pure Services' provided to the Central Government, State Government, Union territory, local authority, or a Governmental authority.- The definition of 'Governmental Authority' requires more than 90% participation by way of equity or control by the Government.- The authority noted that while the Government of Rajasthan directly holds only 40.99 crore of the total 48.67 crore paid-up capital, the remaining equity is held by entities like RHB and JDA.- The authority emphasized that for an entity to qualify as a 'Governmental Authority,' more than 90% of equity should be directly held by the Government, not through other entities established by the Government.Legal Precedents and Interpretations:- The authority referred to the General Clauses Act, 1897, and various constitutional articles to interpret the term 'Government.'- It was concluded that statutory bodies or corporations created by the Parliament or State Legislature are distinct entities and do not qualify as 'Government' for GST purposes.- The Supreme Court's ruling in Agarwal Vs. Hindustan Steel was cited, which held that corporations are distinct from the Government.Conclusion:- The authority concluded that RUDSICO does not qualify as a 'Governmental Authority' since the equity control by RHB and JDA cannot be considered as direct control by the Government of Rajasthan.- Consequently, the PMC services provided by the appellant to RUDSICO are not eligible for exemption under Notification No. 12/2017 - Central Tax (Rate) dated 28/06/2017.Disposition:The appeal filed by the appellant was disposed of, affirming the AAR's ruling that the services provided do not qualify for the GST exemption.