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, appreciable autonomy, and control over municipal/local funds. However, UPJN qualifies as a governmental authority being established by state legislature with 90% government stake and carrying functions under Article 243W. Consequently, works contract services supplied to UPJN attract 18% GST rate under Entry 3(xii) of Notification 11/2017, not the concessional 12% rate applicable to local authorities under Notification 15/2021.

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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 2021

The 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 Notification

Since 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 Notification

The 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.

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