UPJN qualifies as governmental authority not local authority under GST attracting 18% rate on works contracts

The AAR, UP ruled that Uttar Pradesh Jal Nigam (UPJN) does not qualify as a local authority under GST laws since it lacks control or management of a municipal or local fund entrusted by the government. However, UPJN qualifies as a governmental authority as it is established by state legislature, has government stake, and performs functions under Article 243W of the Constitution. Consequently, works contract services for sewage treatment plant supplied to UPJN attract 18% GST rate applicable to governmental authorities, not the reduced 12% rate available for local authorities under the relevant notifications.

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Issues Involved:
1. Whether the services provided to Uttar Pradesh Jal Nigam (UPJN) would be considered as a service provided to a governmental authority under GST LawsRs.
2. What is the applicable GST rate on supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1st Jan 2022Rs.

Issue-wise Detailed Analysis:

1. Whether the services provided to Uttar Pradesh Jal Nigam (UPJN) would be considered as a service provided to a governmental authority under GST LawsRs.

The applicant, M/s Suez India Private Limited, sought an advance ruling to determine if services provided to UPJN qualify as services to a governmental authority under GST laws. UPJN is a body corporate formed under the Uttar Pradesh Water Supply and Sewerage Act, 1975 (UPWSS Act). The applicant argued that UPJN qualifies as a governmental authority based on the definition provided in Notification No. 31/2017-Central Tax (Rate) dated October 13, 2017, which defines a governmental authority as an entity set up by an Act of Parliament or State Legislature with 90% or more participation by way of equity or control, to carry out functions entrusted to a Municipality under Article 243W of the Constitution.

The ruling examined whether UPJN meets the criteria of a local authority or governmental authority. The term "local authority" under Section 2(69) of the CGST Act includes entities legally entitled to or entrusted with the control or management of a municipal or local fund. However, the ruling found that UPJN does not meet all conditions laid down by the Supreme Court in Union of India v. R.C. Jain for being classified as a local authority, such as being elected by inhabitants and having autonomy in its functions. The Hon'ble High Court of Allahabad also held that UPJN is not a local authority.

The ruling concluded that UPJN qualifies as a governmental authority since it is a body corporate formed by the State Legislature, with 90% or more government control, and carries out functions entrusted to a Municipality under Article 243W of the Constitution.

2. What is the applicable GST rate on supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1st Jan 2022Rs.

The applicant also sought clarity on the applicable GST rate for works contract services provided to UPJN. The ruling referred to Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, and its amendment by Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021. The amendment restricted the lower tax rate of 12% to works contracts supplied to the Central Government, State Government, Union territory, or local authority only, excluding governmental authorities and government entities.

Since UPJN qualifies as a governmental authority and not as a local authority, the ruling determined that the applicable GST rate for works contract services provided to UPJN is 18% (CGST 9%, SGST 9%) as per Entry 3(xii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017.

Ruling:

1. The services provided to Uttar Pradesh Jal Nigam are considered as services provided to a governmental authority under GST Laws.
2. The applicable GST rate on the supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1st Jan 2022, is 18% (CGST 9%, SGST 9%).

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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