2022 (12) TMI 1324 - AAR - GST

UPJN not local authority for GST purposes despite registration, works contracts attract 18% GST under Entry 3(xii) Notification 11/2017

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

AAR UP held that UPJN is not a local authority as it lacks control over municipal/local funds and is not elected by inhabitants, despite being registered ... Classification of supply of services - supply of Services by the Applicant to M/s. UTTAR PRADESH JAL NIGAM - local authority or not - Governmental authority or not - scope of N/N. 15/2021 Central Tax (Rate), dated 18th November, 2021 r/w. N/N. 22/2021- Central Tax (Rate), dated 31st December, 2021 - applicable rate of Tax under the Goods and Services Tax Act. 2017 on such Supplies made w.e.f. 01-01-2022 - applicable rate of tax on such supplies under the Good's and Services Tax Act, made w.e.f. 01-01-2022. Whether the Uttar Pradesh Jal Nigam (UPJN) is local authority or not? - HELD THAT:- The applicant have arrived at conclusion that UPJN is local authority on the basis of 4th character of PAN of UPJN being 'L' and the registration certificate of UPJN bearing constitution as local authority. Constitution of UPJN - HELD THAT:- UPJN was created by the Government of Uttar Pradesh by enacting the U.P. Water Supply and Sewerage Act, 1975 (hereinafter referred to as the UPWSS Act). It is a body corporate having perpetual succession and a common seal and capable of suing and being sued in its name. It has power to acquire, hold and dispose of the property - the definition of local authority in the CGST' Act includes within its ambit any other authority legally entitled to or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund. Thus, for the purpose of the GST Laws, any authority legally entitled to or entrusted by the Government with the control or management of a municipal or local fund qualifies as a local authority. The Apex court in the RC Jain case [1981 (2) TMI 200 - SUPREME COURT] has held that that the authority should be elected by the inhabitants of the area. As per Section 4 of the UPWSS Act, the UPJN shall consist of Chairman and members appointed by the state government. As such, the UPJN is not elected by the inhabitants of the area but the same is established by the state. Therefore, the said is not satisfied in the case of UPJN - In case of UPJN, there is no local fund entrusted by the Government with UPJN. A perusal of the UPWSS Act would reveal that no municipal or local fund has been entrusted by the Government. The fund of UPJN is its own fund and cannot be equated with a fund entrusted by the Government. Thus, the important requirement in order to qualify as a local authority, viz. control and management of a municipal/local fund is absent in the present case - the UPJN is not a 'local authority'. Whether the UPJN is Governmental Authority? - HELD THAT:- To qualify as a governmental authority, such authority must be set up by an act of Parliament/State Legislature, should have 90% or more stake of government, and should carry out any function entrusted to a Municipality under article 243 W of the Constitution of India - the UPJN is a body corporate formed by the State legislature under UPWSS Act enacted by the UP State Legislature. As such, the first requirement of a governmental authority stands fulfilled in the present case. Further, as per Section 3 of the UPWSS Act, UPJN is a body corporate established by the Government of U.P., as such, the second requirement of governmental authority has also been fulfilled in the present case. Moreover, the UPJN is constituted for the development and regulation of water supply and sewerage services in the State of U.P. Under the Section 14 of UPWSS Act, UPJN is inter alia entrusted with the function to operate, run, and maintain any waterworks and sewerage system. As per Article 243 W read with Twelfth Schedule of the Constitution of India, water supply for domestic, industrial and commercial purposes and public health, sanitation conservancy and solid waste management is a function of municipality. The requirement that the authority must be established to carry out any function entrusted to a Municipality under article 243 W of the Constitution has also been fulfilled in the present case. Thus, the UPJN is a governmental authority - by way of Notification No. 22/2021-Central Tax (Rate) dated 31.12.2021, the lower rate of tax of 12% provided by Entry 3(iii) of Notification No.11/2017- Central Tax (Rate) dated June 28, 2017, was restricted to works contract supplied to Central Government, State Government, Union territory and a local authority only with effect from 01.01.2022. As the UPJN does not qualify as a 'local authority' and it qualifies as a governmental authority, tax rate of 18% is applicable on the works contract services provided to UPJN by way of Entry 3(xii) of Notification No. 11/2017- Central Tax (Rate) dated June 28, 2017. Issues Involved:1. Applicability of Notification No. 15/2021-Central Tax (Rate) dated 18th November 2021 and Notification No. 22/2021-Central Tax (Rate) dated 31st December 2021 to the supply of services by the Applicant to Uttar Pradesh Jal Nigam (UPJN).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. Interpretation of whether UPJN qualifies as a 'local authority' under the GST Act.4. Examination of whether UPJN qualifies as a 'Governmental Authority.'5. Validity of additional question raised by the applicant regarding the constitution of business under different acts.Issue-Wise Detailed Analysis:1. Applicability of Notification No. 15/2021-Central Tax (Rate) dated 18th November 2021 and Notification No. 22/2021-Central Tax (Rate) dated 31st December 2021:The Applicant sought to determine if their supply of services to UPJN is covered by the mentioned notifications. The notifications amended the parent Notification No. 11/2017-Central Tax (Rate) by modifying the tax rates applicable to certain services. The key change was the exclusion of 'Governmental Authority or a Government Entity' from the lower tax rate category.2. Determination of the Applicable Rate of Tax:If the supplies are covered by the notifications, the applicable tax rate would be 12%. If not, the applicable tax rate would be 18%. The Assistant Commissioner, CGST & Central Excise Division Jhansi, and the Joint Commissioner (Corporate Circle), State Tax, Jhansi Zone, provided conflicting views on whether UPJN qualifies as a 'local authority.'3. Interpretation of Whether UPJN Qualifies as a 'Local Authority':The term 'local authority' is defined under Section 2(69) of the CGST Act and Section 3(31) of the General Clauses Act. The Supreme Court in Union of India Vs. R.C. Jain laid down criteria for an entity to qualify as a 'local authority,' including separate legal existence, functioning in a defined area, a certain degree of autonomy, and control over municipal or local funds. The judgment concluded that UPJN does not meet these criteria as it is not elected by the inhabitants, lacks autonomy, and does not control a municipal or local fund.4. Examination of Whether UPJN Qualifies as a 'Governmental Authority':The term 'Governmental Authority' is defined in Notification No. 31/2017-Central Tax (Rate) as an entity set up by an Act of Parliament or State Legislature, with 90% or more government participation, to carry out functions entrusted to a Municipality under Article 243W of the Constitution. UPJN meets these criteria as it was established by the UPWSS Act, has significant government control, and performs functions related to water supply and sewerage services, which are municipal functions under Article 243W.5. Validity of Additional Question Raised by the Applicant:The applicant raised an additional question regarding whether a 'Person' can have different constitutions of business under different acts. The Authority did not admit this question as it is not covered under Section 97(2) of the CGST Act.Conclusion:The Authority ruled that UPJN does not qualify as a 'local authority' but qualifies as a 'Governmental Authority.' Therefore, the supply of services by the Applicant to UPJN is not covered by the lower tax rate specified in Notification No. 15/2021 and Notification No. 22/2021. The applicable tax rate is 18% (CGST 9% + SGST 9%).Ruling:- Question a: Answered in negative.- Question b: Not answered as per reply of question a.- Question c: CGST 9% and 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.