Water supply sewerage construction services to governmental authorities attract 18% GST rate not concessional 12%

The AAR Karnataka ruled on GST classification for water supply and sewerage construction services. The applicant sought clarification on GST rates for rehabilitation work contracted by BWSSB. The authority determined BWSSB is not a state government or local authority but qualifies as a governmental authority under Article 243W of the Constitution, as it performs municipal functions through state legislative act. Consequently, services attracted 12% GST until December 31, 2021, and 18% GST from January 1, 2022, as the concessional rate applies only to services supplied to central/state governments and local authorities, not governmental authorities.

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Issues Involved:
1. Applicability of Notification No.15/2021-Central Tax (Rate) r/w Notification No.22/2021-Central Tax (Rate) on the supply of services by the Applicant to Bangalore Water Supply and Sewerage Board (BWSSB).
2. Determination of the applicable rate of tax under the Goods and Services Tax Act, 2017 on such supplies made w.e.f. 01-01-2022.
3. Determination of the applicable rate of tax if the supplies are not covered by the aforementioned notifications.

Issue-wise Detailed Analysis:

1. Applicability of Notification No.15/2021-Central Tax (Rate) r/w Notification No.22/2021-Central Tax (Rate):
The Applicant sought a ruling on whether their services to BWSSB fall under the purview of the specified notifications. The authority examined the nature of BWSSB, established under the Bangalore Water Supply and Sewerage Act 1964, and its functions related to water supply and sewerage disposal. The authority concluded that BWSSB qualifies as a "Governmental Authority" as it was set up by an Act of State Legislature to carry out functions entrusted to a Municipality under Article 243W of the Constitution.

2. Determination of the applicable rate of tax under the Goods and Services Tax Act, 2017 on such supplies made w.e.f. 01-01-2022:
The authority referred to Entry No. 3(iii) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, which was amended to include services provided to the Central Government, State Government, Union Territory, or a local authority. However, as per Notification No.22/2021-Central Tax (Rate) dated 31.12.2021, the words "Governmental Authority" and "Government Entity" were removed from the entry, effective from 01.01.2022. Consequently, the services provided by the Applicant to BWSSB, being a Governmental Authority, are not covered under the amended entry 3(iii) and thus are not eligible for the 12% GST rate from 01.01.2022.

3. Determination of the applicable rate of tax if the supplies are not covered by the aforementioned notifications:
Since the services to BWSSB do not fall under the amended Entry No. 3(iii) post-01.01.2022, they are instead covered under Entry No. 3(xii) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, which applies to construction services not specified elsewhere in the entry. The applicable GST rate for such services is 18%.

Ruling:
1. The supply of services by the Applicant to BWSSB is covered by Notification No.15/2021-Central Tax (Rate) dated 18th November 2021 r/w Notification No.22/2021-Central Tax (Rate) dated 31st December 2021.
2. The applicable rate of tax on these supplies is 18% w.e.f. 01.01.2022 as per Entry No. 3(xii) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017.
3. Given the ruling on the first question, the third question becomes redundant.

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