2022 (8) TMI 810 - AAR - GST

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

In Re: M/s. The Indian Hume Pipe Company Limited,

The AAR Karnataka ruled on GST classification for water supply and sewerage construction services. The applicant sought clarification on GST rates for ... Classification of supply - Rate of GST - supply of services - Government Entity or not - contract for construction of Head Works, Sumps, Pump Rooms, laying, jointing of pipe line and commissioning and maintenance of the entire work for Water Supply Projects / Sewerage Projects / Facilities - applicability of N/N. 15/ 2021-Central Tax (Rate), dated 18th November, 2021 r/w Notification No.22/ 2021-Central Tax (Rate), dated 31st December, 2021 - HELD THAT:- The Applicant has been awarded a contract by BWSSB to execute the work of Rehabilitation/Remodeling/Replacement of 400-1000 mm dia sewer line in V-Valley and wants to know the applicable rate of GST on the same - Bangalore Water Supply and Sewerage Board was set up by The Bangalore Water Supply and Sewerage Act 1964 to supply water in Bangalore Metropolitan area and to make adequate provision for the sewerage and disposal of sewage in the Bangalore Metropolitan area. Whether BWSSB is a State Government or local authority or Governmental Authority or Government Entity - HELD THAT:- If the Applicant is any one of these then only the Entry No.3(iii) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 will be applicable to the applicant - Since the BWSSB is a Board set up by The Bangalore Water Supply and Sewerage Act, 1964, the same cannot be considered as State Government. As per Clause (e) of Article 243 and Article 243Q of Indian Constitution, we can say that Municipality is an institution of self-government at transitional area, smaller and larger urban areas - From the definitions of Panchayat and Municipalities we can see that both are institutions of self-government in defined areas. Self-Government is the management of local affairs by local Authorities, members of which have been elected by the local people. One of the distinctive attributes and characteristics of Local Authority is that, their members are elected through direct elections by the inhabitants of the defined area. But as per the section 3 of BWSSB Act 1964, all the members of BWSSB are appointed by the State Government - BWSSB is also not a Municipal Committee or a Zilla Parishad or a District Board, since it is not vested with the control or management of a municipal or local fund. In view of the above, we can conclude that BWSSB is not Local Authority. Whether BWSSB is a Governmental Authority or Government Entity? - HELD THAT:- BWSSB was set up by The Bangalore Water Supply and Sewerage Act 1964, to supply water in Bangalore Metropolitan area and to make adequate provision for the sewerage and disposal of sewage in the Bangalore Metropolitan area. These duties performed by BWSSB are covered under the functions entrusted to a Municipality under article 243W of the Constitution that is 5th and 6th entry of 12th schedule of the constitution - Since the BWSSB is set up by the Act of State Legislature to carry out function entrusted to a Municipality under article 243W of the Constitution, the same may be considered as Governmental Authority. Since BWSSB is considered as Governmental Authority, the services provided by the Applicant to the BWSSB are covered under the entry 3 (iii)(c)(iii) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 as discussed in para. 12 supra and hence the same is exigible to GST at 12% till 31.12.2021 - the services mentioned in entry 3(iii) of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 are subjected to GST at 12% only if those services are supplied to Central Government, State Government, Union territory or a local authority and not when supplied to Governmental Authority or a Government Entity. Since BWSSB is considered as Governmental Authority, this entry is not applicable to the services supplied by the applicant to the BWSSB with effect from 01.01.2022. The applicable rate of tax under the Goods and Services Tax Act, 2017 on the supplies made by the Applicant to the BWSSB as per the instant application is 18% w.e.f 01.01.2022 as per entry 3 (xii) of No.11/ 2017-Central Tax (Rate) dated 28.06.2017. 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.