2022 (5) TMI 1135 - AAAR - GST

Corporation liable to pay GST on plot holder charges despite government control under Section 7 CGST Act 2017

In Re: M/s. Gujarat Industrial Development Corporation,

The AAAR Gujarat ruled that the appellant, a corporation established under the GIDC Act 1962, is liable to pay GST on charges collected from plot holders. ... Benefit of exemption from GST - Supply or not - definition of business u/s 2(17) - activities carried out by the appellant to the plot holders in terms of provisions of GIDC Act, 1962 - charges collected for the same as may be notified from time to time amounts to supply under Section 7 of the CGST Act, 2017 or not - Government entity - Sr.No.4 of N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended) - HELD THAT:- From the definition u/s 2(17), it is seen that as per provision (a), activities mentioned therein would fall in category of business even if they are not for a pecuniary benefit. A transaction which is incidental or ancillary to sub-clause (a) falls under the scope of sub-clause (b) of Section 2(17) of CGST Act, 2017. Further, provision (i) which states any activity or transaction undertaken by Central Government, State Government or local authorities in which they are engaged as public authorities. The appellant has been established by the Legislature of Gujarat under the act and performs its functions in accordance with provisions contained in the Act. The appellant fulfills the first condition mentioned above. Further, Section 4 of GID Act defines the constitution of the appellant wherein it has been stated that the appellant consists of 12(twelve) directors out of which 3(three) shall be nominated by the State Government. Further, 6(six) directors would be nominated by State Government from amongst persons appearing to it. As per Section 4(2) of GID Act, the State Government shall appoint one director as Chairman and one as Vice-Chairman - the appellant is wholly owned corporation of the State Government and the State Government controls the function of appellant directly or indirectly. Thus, the second condition which is “90% or more participation of Government, by way of equity or control” is fulfilled by the appellant. The activities viz. upliftment of oppressed people by providing them proper shelters, easy loans for business, encouraging their children for study by providing them scholarships etc are covered in “planning for economic and social development”. We are of view that the activity of appellant i.e. establishment, organization and development of industries and industrial areas and estates is not at all related to entry at Sr.No.3 of XII schedule of the Constitution of India. The appellant is not eligible to claim exemption under Sr.No.4 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended) as they are not a governmental authority carrying out function entrusted to a municipality under article 243 W of the Constitution - the appellant does not fall under the category of ‘State Government’ and also their functions are not covered under Twelfth Schedule of Article 243W of the Constitution. They are therefore not eligible for exemption benefit under Notification No.14/2017-Central Tax (Rate) dated 28.06.2017. The appellant does not fall under the category of ‘State Government’ but is covered under the category ‘Government Entity’. Issues Involved:1. Whether the activities carried out by the appellant amount to 'supply' under Section 7 of the CGST Act, 2017.2. Whether the appellant's activities are exempt from GST under Sr.No. 04 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.3. Whether the appellant qualifies as a 'Governmental Authority' or 'Government Entity.'Detailed Analysis:1. Whether the activities carried out by the appellant amount to 'supply' under Section 7 of the CGST Act, 2017:The appellant argued that their activities do not constitute 'supply' under Section 7 of the CGST Act, 2017, as they do not fall under the definition of 'business' under Section 2(17) of the CGST Act, 2017. They cited various sections of the Gujarat Industrial Development Act (GID Act) and relevant case laws to support their claim. However, the GAAR ruled that the appellant's activities fall under clause (i) of Section 2(17), which includes any activity or transaction undertaken by the Central Government, a State Government, or any local authority in which they are engaged as public authorities. Consequently, the GAAR concluded that the appellant's activities amount to 'supply' under Section 7 of the CGST Act, 2017.2. Whether the appellant's activities are exempt from GST under Sr.No. 04 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:The appellant claimed exemption under Sr.No. 04 of Notification No. 12/2017-Central Tax (Rate), arguing that their activities are in relation to functions entrusted to a municipality under Article 243W of the Constitution. However, the GAAR observed that the appellant is not a 'Governmental Authority' as defined in the notification and that their activities do not relate to functions entrusted to municipalities under Article 243W. The GAAR's ruling was upheld, with the modification that the appellant is classified as a 'Government Entity' rather than a 'State Government.'3. Whether the appellant qualifies as a 'Governmental Authority' or 'Government Entity':The appellant argued that they qualify as a 'Governmental Authority' under Notification No. 02/2014-ST dated 30.01.2014. The GAAR, however, ruled that the appellant falls under the category of 'State Government.' Upon review, the appellate authority concluded that the appellant is a 'Government Entity' as defined under clause (zfa) of Para 2 of Notification 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended). The appellant fulfills the conditions of being set up by a State Legislature and having 90% or more participation by way of equity or control by the government.Findings:The appellate authority upheld the GAAR's ruling that the activities carried out by the appellant amount to 'supply' under Section 7 of the CGST Act, 2017, and are liable to GST. The appellant's claim for exemption under Sr.No. 04 of Notification No. 12/2017-Central Tax (Rate) was rejected, as they do not qualify as a 'Governmental Authority' carrying out functions entrusted to a municipality under Article 243W of the Constitution. However, the appellate authority modified the GAAR's finding to classify the appellant as a 'Government Entity' instead of a 'State Government.'Conclusion:The appeal filed by the appellant was rejected, and the Advance Ruling No. GUJ/GAAR/R/88/2020 dated 17.09.2020 was upheld with the modification that the appellant is classified as a 'Government Entity.'