2023 (5) TMI 1067 - AAAR - GST

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

In Re: M/s The Indian Hume Pipes Company Ltd.

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, ... Classification of supply - works contracts - supply of services by the Appellant to M/s Uttar Pradesh Jal Nigam - M/s Uttar Pradesh Jal Nigam are covered under Local Authority or not - applicability of N/N. 15/2021-Central Tax (Rate) dated 18th November, 2021 read with N/N. 22/2021-Central Tax (Rate), dated 31.12.2021 - Rate of tax - HELD THAT:- As per the scope of work submitted by the Appellant they are engaged in contracts 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. They are mainly supplying these services to Government Authorities/Government entities, mainly to M/s Uttar Pradesh Jal Nigam. On going through the constitution of Uttar Pradesh Jal Nigam (hereinafter referred to as the UPJN). It is found that it was created by 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. Whether M/s Uttar Pradesh Jal Nigam is a 'Local Authority'? - HELD THAT:- The term local authority is defined in S. 2(69) of CGST Act. 2017. 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 - M/s UPJN is not satisfying some of the conditions for qualifying as local authority. The Apex court in the UNION OF INDIA & ORS. VERSUS RC. JAIN & ORS. [1981 (2) TMI 200 - SUPREME COURT] has held 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 - The Apex court in the RC Jain case has held that the authority must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of the dependence may vary considerably and an appreciable measure of autonomy there must be. Perusal of the UPWSS Act reveals that the UPJN is not enjoying appreciable nature of autonomy. 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:- In order 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 functions entrusted to a municipality under article 243W 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 Section 14 of UPWSS Act, UPJN is inter alia entrusted with the function to operate, run, and maintain any water works and sewerage system - 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 been fulfilled in the present case. Thus M/s UPJN is a 'Governmental Authority'. By way of Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, the lower rate of tax of 12% provided by Entry 3(iii) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017 was restricted to works contract supplied to Central Government, State Government, Union territory and a local authority only. 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 28.06.2017. 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.