2023 (5) TMI 1067 - AAAR - GST

UPJN not local authority under GST lacks election autonomy municipal control attracts 18% rate not 12% concessional

The AAAR, UP ruled that Uttar Pradesh Jal Nigam (UPJN) does not qualify as a local authority under GST law as it lacks election by inhabitants, ... Composite supply of works contract - concessional tax rate for works contract supplied to Central Government, State Government, Union territory or a local authority - definition of Local Authority - Governmental Authority - control or management of a municipal or local fund - separate legal existence as corporate body - degree of autonomyDefinition of Local Authority - separate legal existence as corporate body - degree of autonomy - control or management of a municipal or local fund - M/s Uttar Pradesh Jal Nigam does not qualify as a 'Local Authority' under Section 2(69) of the CGST Act, 2017. - HELD THAT: - Applying the tests laid down in Union of India v. R.C. Jain, an authority must cumulatively possess attributes akin to municipal bodies: separate corporate existence, ordinary election by inhabitants (wholly or partly), appreciable autonomy in policy matters, statutory entrustment of municipal-type functions, and control or management of a municipal or local fund. Although UP Jal Nigam is a corporation created by State legislation and performs water and sewerage functions, the statutory scheme shows members and chief officers are appointed by the State (not elected), significant control and directions vest with the State Government, borrowing and financial matters require prior sanction of the State, accounts and audit are subject to State oversight, and no municipal/local fund has been shown to be entrusted by the Government such that control or management vests in the Nigam. Reliance on the Allahabad High Court decision in Income Tax Appeal No. 128/2008 and analogous authorities supports the view that mere creation by state law and possession of a fund do not suffice to make a body a 'local authority' where the statutory framework negates essential attributes such as electoral composition, autonomy and control over a municipal/local fund.UPJN is not a 'Local Authority' for the purposes of the CGST Act, 2017.Governmental Authority - concessional tax rate for works contract supplied to Central Government, State Government, Union territory or a local authority - M/s Uttar Pradesh Jal Nigam qualifies as a 'Governmental Authority' as defined in the Notifications amending the rate schedule. - HELD THAT: - The Notification definition of 'Governmental Authority' includes authorities set up by a State Legislature and bodies established by government to carry out functions entrusted to municipalities under Article 243W. UPJN was constituted by the U.P. Water Supply and Sewerage Act, 1975 (a State enactment) and is entrusted with water supply and sewerage functions which fall within the municipal domain under Article 243W and the Twelfth Schedule. Accordingly, UPJN satisfies the criteria in the Notification for being a 'Governmental Authority' even though it does not qualify as a 'Local Authority'.UPJN is a 'Governmental Authority' within the meaning used in the notifications governing concessional GST rates.Composite supply of works contract - concessional tax rate for works contract supplied to Central Government, State Government, Union territory or a local authority - In light of amendments to the rate Notification, works contract services supplied to UPJN are not entitled to the concessional 12% rate available to supplies made to Central/State/Union territory or a local authority and are taxable at the general rates applicable to government authorities. - HELD THAT: - Notification No. 15/2021 substituted the earlier wider wording in Entry 3(iii) so that the lower rate was restricted to supplies to Central Government, State Government, Union territory or a local authority. Because UPJN does not qualify as a 'local authority' but does qualify as a 'Governmental Authority', the supply of works contract services to UPJN cannot be taxed under the restricted concessional entry for 'local authority' and must be taxed under the appropriate entry covering government or other construction services. The Appellate Authority accordingly found that the applicable rate on the works contract services supplied to UPJN is the general rate (resulting in GST at the standard composition of CGST and SGST as applied to such services) and that the earlier Entry 3(iii) had been amended/omitted as relevant.Works contract services supplied to UPJN are not covered by the restricted concessional Entry for 'local authority' and are taxable at the rate applicable to supplies to governmental authorities (upholding the Authority for Advance Ruling).Final Conclusion: The Appellate Authority for Advance Ruling upheld the Authority for Advance Ruling: UP Jal Nigam is not a 'Local Authority' but is a 'Governmental Authority', and works contract services supplied to it do not attract the concessional rate reserved for supplies to a local authority; the impugned advance ruling is affirmed. Issues Involved:1. Whether the supply of services by the Appellant to M/s Uttar Pradesh Jal Nigam is covered by Notification No. 15/2021-Central Tax (Rate) dated 18th November 2021 read with Notification No. 22/2021-Central Tax (Rate) dated 31st December 2021.2. If covered by the above Notification, what is the applicable rate of tax under the Goods and Service Tax Act, 2017 on such supplies made with effect from 01.01.2022.3. If not covered by the above Notification, what is the applicable rate of tax on such supplies under the Goods and Service Tax Act, 2017 with effect from 01.01.2022.Summary:Issue 1: Coverage under Notification No. 15/2021-Central Tax (Rate) dated 18th November 2021The Authority for Advance Ruling (AAR) held that the supply of services by the Applicant to M/s Uttar Pradesh Jal Nigam is not covered by Notification No. 15/2021-Central Tax (Rate) dated 18th November 2021 read with Notification No. 22/2021-Central Tax (Rate) dated 31st December 2021. The Appellant contended that M/s Uttar Pradesh Jal Nigam should be considered a 'Local Authority' as defined under Section 2(69) of the CGST Act, 2017, and argued that the services supplied to them should be taxed at a concessional rate of 12% GST. However, the AAR ruled that M/s Uttar Pradesh Jal Nigam does not qualify as a 'Local Authority' but may be considered a 'Governmental Authority.'Issue 2: Applicable Rate of Tax if Covered by NotificationSince the AAR concluded that the supply of services to M/s Uttar Pradesh Jal Nigam is not covered by the aforementioned Notifications, this question was not directly answered. However, the applicable rate of tax was determined under the broader context of the ruling.Issue 3: Applicable Rate of Tax if Not Covered by NotificationThe AAR ruled that the applicable rate of tax on the services supplied by the Appellant to M/s Uttar Pradesh Jal Nigam shall be 18% (9% CGST and 9% SGST) effective from 01.01.2022. The ruling emphasized that the lower tax rate of 12% was restricted to works contract services supplied to the Central Government, State Government, Union Territory, or a local authority, and since M/s Uttar Pradesh Jal Nigam does not qualify as a 'Local Authority,' the higher rate of 18% applies.Findings and Conclusion:The Appellate Authority for Advance Ruling upheld the impugned ruling UP ADRG-12/2022 dated 23.11.2022 passed by the Authority for Advance Ruling. The detailed examination revealed that M/s Uttar Pradesh Jal Nigam does not fulfill the conditions to be classified as a 'Local Authority' under Section 2(69) of the CGST Act, 2017, but qualifies as a 'Governmental Authority.' Therefore, the supply of services to them is subject to an 18% GST rate as per the amended provisions of the GST Act.