Company incorporated under Companies Act cannot claim local authority status to avoid GST registration despite Central funding

The AAAR Gujarat rejected the appeal of a company incorporated under the Companies Act claiming to be a local authority. The appellant, formed as a Special Purpose Vehicle and funded through Central funds via AMC, argued for local authority status to avoid GST registration as a deductor. The AAAR held that despite receiving Central funding, the appellant was not in control/management of municipal/local funds and lacked statutory authority under the GPMC Act unlike AMTS. The appellant was neither a Municipal Committee, Zilla Parishad, District Board, nor other legally entitled authority for municipal fund management, therefore not qualifying as a local authority and not required to register as GST deductor.

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Issues Involved:
1. Whether Ahmedabad Janmarg Limited (AJL) qualifies as a 'Local Authority' under the Central Goods and Services Tax Act, 2017.
2. Liability of AJL to pay GST on procurement of security services under reverse charge mechanism (RCM).
3. Liability of AJL to pay GST on advertisement services.
4. Requirement for AJL to register as a deductor under GST.
5. If AJL does not qualify as a local authority, whether it can be construed as a government entity or governmental authority.

Summary:

Issue 1: Qualification as a Local Authority
The primary issue was whether AJL is a 'local authority' under the CGST Act, 2017. The appellant argued that since it receives funds from the Ahmedabad Municipal Corporation (AMC) and manages these funds, it should be considered a local authority. However, the court held that AJL is not a Municipal Committee, Zilla Parishad, District Board, or any other authority legally entitled to control or manage a municipal or local fund. AJL is a Special Purpose Vehicle incorporated under the Companies Act and does not meet the criteria of a local authority as per Section 2(69) of the CGST Act, 2017.

Issue 2: Liability to Pay GST on Security Services
AJL contended that as a local authority, it should be exempt from paying GST on security services under RCM. Since the court determined that AJL is not a local authority, it ruled that AJL is liable to pay GST on security services under the relevant notification.

Issue 3: Liability to Pay GST on Advertisement Services
AJL argued that it should not be liable to pay GST on advertisement services, and the recipient should pay under RCM. The court upheld the GAAR ruling that AJL is liable to pay GST on advertisement services supplied by it.

Issue 4: Requirement to Register as a Deductor under GST
AJL claimed it should be registered as a deductor under GST as per Section 24 of the CGST Act, 2017. The court found that AJL does not fall under the categories required to deduct tax, such as a department or establishment of the Central/State Government, a local authority, or persons notified under Notification No. 50/2018-CT. Therefore, AJL is not required to be registered as a deductor under GST.

Issue 5: Qualification as Government Entity or Governmental Authority
AJL argued that if not a local authority, it should be considered a government entity or governmental authority. The court examined the definitions and found that AJL, being a Public Limited Company incorporated under the Companies Act, was not set up by an Act of Parliament or State Legislature, nor established by any Government. Hence, AJL does not qualify as a governmental authority or government entity.

Conclusion:
The court rejected the appeal filed by AJL against the Advance Ruling No. GUJ/GAAR/R/27/2021 dated 19.07.2021, upholding that AJL is not a local authority, is liable to pay GST on security and advertisement services, is not required to register as a deductor, and does not qualify as a governmental authority or government entity.

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