THDCIL loses GST exemption status as government stake drops below required 90% threshold

AAR Uttarakhand ruled that THDCIL does not qualify as a Government Entity for GST exemption purposes. The company's current equity structure shows NTPC Limited holding 74.496% and Government of UP holding 25.504%, totaling less than the required 90% government participation. Although the government initially held 100% equity when the company was incorporated in 1988, the reduced government stake of 25.504% disqualifies THDCIL from being categorized as a Government Entity under the relevant GST notifications, making legal services provided to it non-exempt from GST.

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Issues Involved:
1. Whether the Applicant (THDCIL) is a Government Entity or not.
2. If yes, whether Legal Services provided by advocates are exempt from GST for THDCIL under RCM.

Detailed Analysis:

Issue 1: Whether the Applicant (THDCIL) is a Government Entity or not
The applicant sought an advance ruling on whether THDCIL qualifies as a "Government Entity" under the Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 31/2017-Central Tax (Rate). The definition of "Government Entity" requires:
- An authority or a board or any other body including a society, trust, corporation,
- Established by any Government,
- With 90% or more participation by way of equity or control,
- To carry out a function entrusted by the Central Government, State Government, Union Territory, or a local authority.

The applicant argued that since THDCIL was initially established with more than 90% government participation, it should be considered a Government Entity. However, the authority noted that the current equity participation by the Government of Uttar Pradesh is only 25.504%, which is less than the stipulated 90%. The authority emphasized that the definition does not contemplate the continuous fulfillment of such requirements post-establishment. Therefore, the applicant does not meet the criteria of a Government Entity as per the current equity structure.

Issue 2: Whether Legal Services provided by advocates are exempt from GST for THDCIL under RCM
The applicant contended that if THDCIL is treated as a Government Entity, it would be exempt from paying GST under RCM on legal services provided by advocates, as per Entry No. 45 of Notification No. 12/2017-CT(R). However, since the applicant does not qualify as a Government Entity, the provisions of Entry No. 45 are not applicable. Consequently, THDCIL is not exempt from paying GST under RCM for legal services.

Conclusion:
1. THDCIL is not a Government Entity: The equity or control of the Government is less than the stipulated 90%, and hence THDCIL cannot be categorized and considered as a "Governmental Entity" in terms of Notification No. 11/2017-Central Tax (Rate) as amended by Notification No. 31/2017-Central Tax (Rate).
2. GST Exemption on Legal Services: Since THDCIL is not a "Governmental Entity," the provisions of Entry No. 45 of the Notification No. 12/2017-CT(R) are not applicable, and THDCIL is not exempt from paying GST under RCM for legal services provided by advocates.

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