Jaipur Smart City Limited deemed Governmental Authority under IGST Act with 50:50 government shareholding control

The AAAR Rajasthan held that M/s Jaipur Smart City Limited qualifies as a Governmental Authority under IGST Act, 2017, as the State Government and Jaipur Nagar Nigam hold 50:50 equity shareholding, constituting over 90% government control. Fire fighting system installation services to JSCL attracted GST at 12% until 31.12.2021, after which the governmental authority exemption was omitted. The appellant was liable to pay GST at 18% under reverse charge mechanism for road cutting charges paid to Jaipur Nagar Nigam, and also liable for 18% GST on recovery of such charges from JSCL, as the exemption under constitutional functions was not applicable.

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Issues Involved:
1. Whether M/s Jaipur Smart City Limited (JSCL) qualifies as a "Governmental Authority."
2. Applicability of Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017'Central Tax (Rate) dated 28.06.2017.
3. GST rate for the work undertaken by the appellant for M/s JSCL.
4. Liability to pay GST under RCM for road cutting charges paid to Jaipur Nagar Nigam (JNN).
5. GST liability on the recovery of road cutting charges from M/s JSCL.

Summary:

1. Governmental Authority Status of M/s JSCL:
The appellant contended that M/s JSCL should be considered a "Governmental Authority" as defined in the explanation to clause (16) of Section 2 of the IGST Act, 2017, due to the control exercised by the Government of Rajasthan through equity and management. The Authority for Advance Ruling (AAR) had earlier ruled that M/s JSCL does not qualify as a "Governmental Authority" because the Government of Rajasthan holds only 50% shareholding, with the remaining held by Jaipur Municipal Corporation, which is not a government entity. However, the appellate authority concluded that M/s JSCL is a "Governmental Authority" as it is controlled by the Government of Rajasthan and Jaipur Nagar Nigam, which is an extension of the government.

2. Applicability of Notification No. 11/2017:
The appellant argued that the services provided to M/s JSCL fall under Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017'Central Tax (Rate) dated 28.06.2017, as amended. The appellate authority agreed, stating that the work undertaken by the appellant, including the installation of a fire fighting system, qualifies as construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works predominantly for non-commercial use.

3. GST Rate for Work Undertaken:
The appellate authority ruled that the services provided by the appellant to M/s JSCL are subject to GST at 12% (6% CGST and 6% SGST) up to 31.12.2021. After this date, the applicable rate changes as the words "a Governmental Authority or a Government Entity" were omitted from the relevant notification.

4. GST Liability under RCM for Road Cutting Charges:
The AAR had ruled that the appellant is liable to pay GST at 18% under RCM for road cutting charges paid to JNN. The appellate authority upheld this decision, stating that the activity of granting permission for road cutting is not covered under the functions entrusted to a municipality under Article 243W of the Constitution.

5. GST on Recovery of Road Cutting Charges:
The AAR had ruled that the recovery of road cutting charges by the appellant from M/s JSCL is liable to GST at 18%. The appellate authority agreed, stating that the appellant does not qualify as a pure agent in this transaction, and thus, the recovery of road cutting charges is subject to GST.

Order:
1. M/s JSCL is a "Governmental Authority."
2. The supply related to the fire fighting system provided by the appellant to M/s JSCL is covered under Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017'Central Tax (Rate) dated 28.06.2017, as amended.
3. The said services attract GST at 12% up to 31.12.2021.
4. The appellant is liable to pay GST at 18% under RCM for road cutting charges paid to JNN.
5. The recovery of road cutting charges from M/s JSCL by the appellant is liable to GST at 18%.

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