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

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 as such. However, UPJN qualifies as governmental authority being established by state legislature, having government stake, and performing municipal functions under Article 243W. Consequently, works contract services to UPJN attract 18% GST rate under Entry 3(xii) of Notification 11/2017, not the reduced 12% rate applicable to local authorities under Entry 3(iii) effective from January 1, 2022.

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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.

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