2024 (6) TMI 826 - AAR - GST

Water supply corporation not local authority under GST Act Section 2(69), lacks municipal fund control, classified as governmental authority instead

In Re: M/s Uttarakhand Peyjal Sansadhan Vikas Evam Nieman Nigam.

The Authority for Advance Rulings, Uttarakhand ruled that the water supply corporation does not qualify as a local authority under Section 2(69) of the ... Applicability of Reverse Charge Mechanism - Uttarakhand Peyjal Sansadhan Vikas Evam Nirman Nigam (UK Peyjal Nigam) - Local Authority or not - governmental authority or not - THDC or UK Peyjal is entitled to avail ITC on the GST deposited. Whether the Applicant i.e. Uttarakhand Peyjal Sansadhan Vikas Evam Nirman Nigam is covered under Local Authority as defined under Section 2 (69) of Goods and Services Tax Act, 2017? - HELD THAT:- The term local authority is defined in Section 2 (69) of CGST Act,2017. The definition of 'local authority' in the CGST, Act includes within its ambit 'any other authority' legally 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'. The Apex court in the UNION OF INDIA & ORS. VERSUS RC. JAIN & ORS. [1981 (2) TMI 200 - SUPREME COURT] has held that the main requirement to qualify as a 'local authority' is that the authority must be legally entitled to or entrusted by the Government with, the control and management of a Municipal or local fund. In case of UK Peyjal Nigam, there is no local fund entrusted by the Government with UK Peyjal Nigam, but the Act (supra) would reveal that no municipal or local fund has been entrusted by the Government. The fund of UK Peyjal Nigam 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 'UK Peyjal Nigam' is a body corporate formed by the State legislature under UPWSS Act enacted by the UP State Legislature. Further, as per section 3 of the Uttaranchal (The Uttar Pradesh Water Supply and Sewerages Act, 1975) Adaptation and Modification Order, 2002 read with UPWSS Act, 'UK Peyjal Nigam' is a body corporate established by the Government of Uttarakhand, as such, the requirement of governmental authority has been fulfilled in the present case - the Applicant i.e. M/s Uttarakhand Peyjal Sansadhan Vikas Evam Nirman Nigam 'UK Peyjal Nigam' is not a 'local authority', within the meaning and ambit of the provisions of the CGST/SGST Act, 2017, but is a 'governmental authority'. It is found that at SI. No. 5 of the N/N. 13/2017-Central Tax (Rate) dated 28.06.2017 issued under Section 9 (3) of the CGST Act, 2017, it has been mandated that if the services have been supplied by the Central Government, State Government, Union territory or local authority to a business entity, then central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services. In the instant case, as has been held above that the applicant does not qualify to be a 'LOCAL AUTHORITY' - the applicability of the provisions of the Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017, does not arise in the instant case. Thus, the applicant is not a 'local authority' but falls under the category of a 'Governmental Authority' and in view of the provisions of the Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017, as amended, the construction of an overhead water tank at Rishikesh in the THDC colony is a construction service and pertains to supply of water which is an activity in relation to a function entrusted to a Municipality & Panchayat under article 243W & 243G respectively of the Constitution of India and is exempted from payment of tax and hence the question of claiming of ITC does not arise. Issues Involved:1. Applicability of Reverse Charge Mechanism (RCM) and tax payment responsibility.2. Entitlement to Input Tax Credit (ITC) on GST deposited.Issue-Wise Detailed Analysis:1. Applicability of Reverse Charge Mechanism (RCM) and Tax Payment Responsibility:The applicant, Uttarakhand Peyjal Sansadhan Vikas Evam Nirman Nigam (UK Peyjal Nigam), sought an advance ruling on whether the tax should be paid by THDC on a reverse charge basis or on a forward charge basis. The applicant claimed that they are a Local Authority and hence, the supply of services should not fall under RCM. However, upon examination, it was found that UK Peyjal Nigam does not qualify as a 'Local Authority' under Section 2(69) of the CGST Act, 2017. The definition of 'Local Authority' includes entities like Panchayats, Municipalities, and other authorities legally entitled to control or manage a local fund, which UK Peyjal Nigam does not satisfy. The applicant lacks autonomy and does not manage a municipal or local fund as required by the definition.The judgment referenced the Supreme Court decision in Union of India Vs. R.C. Jain (1981) 2 SCC 308, which outlined the attributes required for an entity to be considered a local authority. UK Peyjal Nigam did not meet these criteria, particularly in terms of autonomy and control over local funds. Consequently, the applicant does not qualify as a 'Local Authority,' and the services provided do not fall under the provisions of RCM as per Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.Ruling:M/s Uttarakhand Peyjal Sansadhan Vikas Evam Nirman Nigam does not qualify to be a 'Local Authority,' and hence, there is no applicability of the RCM as per the provisions of the Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.2. Entitlement to Input Tax Credit (ITC) on GST Deposited:The applicant also sought a ruling on whether THDC or UK Peyjal Nigam is entitled to avail ITC on the GST deposited. The judgment clarified that since UK Peyjal Nigam is not a 'Local Authority' but a 'Governmental Authority,' the services provided are exempt from payment of GST under Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017, as amended. The construction of an overhead water tank at Rishikesh in the THDC colony pertains to the supply of water, which is an activity in relation to a function entrusted to a Municipality and Panchayat under articles 243W and 243G of the Constitution of India. Therefore, the service is exempt from GST, and the question of claiming ITC does not arise.Ruling:The service provided is exempt from payment of GST, and hence, the question of claiming ITC does not arise.Conclusion:The judgment concluded that UK Peyjal Nigam is not a 'Local Authority' but a 'Governmental Authority.' Therefore, the provisions of RCM do not apply, and the services provided are exempt from GST, negating the possibility of claiming ITC.