Applicant constructing metro stations not a "Government Authority" under Notification 12/2017-CT (Rate) para 2(zf); GST exemption denied

The AAR, Karnataka held that the applicant, a commercial entity constructing metro stations, does not qualify as a "Government Authority" under Para 2(zf) of Notification 12/2017-CT (Rate) since it is not entrusted with municipal functions by the local government (BBMP). The applicant owns the metro stations exclusively and does not perform functions such as urban planning or provision of public amenities on behalf of the municipality. Consequently, the activity of granting concession under the MOU is not exempt from GST under the relevant exemption notification, as the applicant fails to meet the primary criterion of being a Government Authority.

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ISSUES:

Whether the applicant qualifies as a "Governmental Authority" under Paragraph 2(zf) of Notification No. 12/2017-CT (Rate) dated 28.06.2017, as amended.Whether the activity of grant of concession under the MOU dated 04.06.2018 is exempt from GST under Sl. No. 4 of Notification No. 12/2017-CT (Rate) dated 28.06.2017.Whether the functions performed by the applicant fall within the functions entrusted to a Municipality under Article 243W of the Constitution of India.

RULINGS / HOLDINGS:

The applicant does not qualify as a "Government Authority" as defined in Paragraph 2(zf) of Notification No. 12/2017-CT (Rate) dated 28.06.2017, since it is not established to carry out any function entrusted to a Municipality under Article 243W of the Constitution.Consequently, the activity of granting concession under the MOU dated 04.06.2018 is not eligible for exemption from GST under Sl. No. 4 of the said exemption notification.The applicant, being a commercial entity that owns and operates metro stations exclusively for business purposes and without any agreement with the Municipal Corporation (BBMP), does not perform functions entrusted to a Municipality under Article 243W of the Constitution.

RATIONALE:

The legal framework applied includes Section 97 and 98 of the CGST Act, 2017 and KGST Act, 2017, and Notification No. 12/2017-CT (Rate) dated 28.06.2017, which exempts services by a "Governmental Authority" related to functions entrusted to Municipalities under Article 243W of the Constitution."Governmental Authority" is defined in Paragraph 2(zf) of the exemption notification as an authority or body with 90% or more government participation established to carry out functions entrusted to a Municipality or Panchayat under Articles 243W or 243G respectively.The functions entrusted to Municipalities under Article 243W and the Twelfth Schedule include urban planning, regulation of land-use, provision of urban amenities, and public amenities.The applicant's ownership and operation of metro stations as a joint venture company without delegation or entrustment of municipal functions by the local Municipal Corporation (BBMP) means it does not perform any function "entrusted to a Municipality" under Article 243W.The exemption notification's scope requires that the services be rendered by a "Governmental Authority" performing functions entrusted to a Municipality; mere ownership or operation of urban infrastructure does not suffice.The ruling distinguishes prior AAR decisions where entities were fully government-owned and established specifically to perform municipal functions, noting the applicant is a commercial entity jointly owned 50% by central and state governments but not established to perform municipal functions.Therefore, the exemption under Sl. No. 4 of Notification No. 12/2017-CT (Rate) does not apply to the applicant's grant of concession activity.

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