2025 (10) TMI 783 - AAR - GST

Applicant qualifies as governmental/local authority; environmental license, consent and registration fees fall under Article 243W municipal functions and are GST-exempt

AAR held that the applicant qualifies as a Governmental/Local Authority and its license/consent/registration fees for environmental regulation fall within ... Levy of GST - amount collected by the applicant in lieu of Grant of License/Consent/Registration/Consent to the various business entity - applicant is Government Authority or Local Authority - activity undertaken are in relation to a municipality under Article 243 W of the Constitution or not - Liability of CPCB (An autonomous body of the Ministry of Environment, Forest and Climate Change of Govt. of India) to charge GST on the amount collected by it in the Course of discharge of its sovereign and statutory functions/duties under Water (Prevention and Control of Pollution) Act, 1974), and the Air (Prevention and Control of Pollution) Act, 1981 and Environment (Protection) Act; 1986. Whether the amount collected by the applicant in lieu of Grant of License/Consent/Registration/Consent to the various business entity is liable to GST or not in terms of SI. No. 4 of N/N. 12/2017 dated 28.06.2017? - whether the applicant is fall under the definition of Government Authority or Local Authority and the activity undertaken by them are in relation to a municipality under Article 243 W of the Constitution or not? - HELD THAT:- As a result of the analysis of the constitution of the Central Pollution Control Board (CPCB), its legal status under GST laws qualifies it as a “Governmental Authority”/Local Authority in terms of the Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017 (amendment in N/N. 11/2017 dated 28.06.2017 and Section 2(69), of CGST Act, 2017. Further, it is clarified through Entry No. 4 of Notification No. 12/2017-Central Tax (Rate), dated 28th June 2017, with effect from 28th June, 2017 that services provided by a Governmental Authority/Local Authority in relation to any function entrusted to a municipality under Article 243W of the Constitution is exempt from payment of GST. The core functions of the Central Pollution Control Board (CPCB), while regulatory in form, are inherently statutory and sovereign in character, and closely align with several functional areas enumerated in the Twelfth Schedule to the Constitution, as contemplated under Article 243W. These include critical domains such as public health, sanitation, solid waste management, environmental protection, and urban forestry, which are also functions entrusted to municipalities. In view of the nature and scope of these responsibilities, and keeping in mind the framework laid down under N/N. 12/2017-Central Tax (Rate), it is understood that the services rendered by CPCB in furtherance of such functions shall be regarded as falling within the scope of the exemption envisaged therein, as may be, applicable from the date the said notification came into operation. The functions, under Article 243 @ of the Constitution, entrusted to Municipality specifically mention “Solid waste management and Protection of the environment and promotion of ecological aspects”. Thus, it is observed that providing protection to the environment and promotion of ecological aspects and Solid Waste Management are one of the functions entrusted to the Municipality under the said Article (Article 243W). It is evident that primary function of CPCB is also to safeguard the environment as well as general public from the negative impact of polluting generating plants. Thus, both the conditions viz. Service has to be provided by Local Authority/Government Authority and activity should falls under Article 243 W of the Constitution, has been fulfilled, hence, the said activity of the applicant is exempted in terms of SI. NO. 4 of the N/N. 12/2017-Central Tax (Rate) dated 28.06.2017. Therefore, there is no liability of GST arises on the amount collected by the applicant in respect of said activity as the same is exempted service. ISSUES PRESENTED AND CONSIDERED 1. Whether the Applicant qualifies as a 'Governmental Authority' and/or 'Local Authority' for the purposes of GST law (Notification No. 31/2017 amendment and Section 2(69) of the CGST Act) having been constituted under central environmental statutes. 2. Whether the activities for which the Applicant collects fees (licences/consents/registrations, sample testing, monitoring, EPR implementation etc.) constitute 'any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution' and therefore fall within Entry No. 4 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 3. Whether amounts/fees collected by the Applicant in discharge of its statutory, sovereign and regulatory functions are liable to GST or are exempt as non-taxable public/sovereign services under the said notification. 4. Ancillary: Whether the character of the receipts (statutory/regulatory vs. commercial) affects applicability of the exemption under Entry No. 4. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework for status as Governmental Authority/Local Authority Legal framework: The Authority examined the definitions and amendments introduced by Notification No. 31/2017 (amending Notification No. 11/2017) which inserted explanatory clauses defining 'Governmental Authority' and the statutory definition of 'local authority' under Section 2(69) of the CGST Act. Precedent treatment: The Authority referred to judicial and quasi-judicial interpretations generally accepting that bodies set up by statute and entrusted with functions akin to municipal functions may qualify as Governmental/Local Authorities; an AAR decision of a State Board was noted as interpretative guidance. Interpretation and reasoning: The Applicant was constituted by statute (Water Act, s.3) and subsequently entrusted with functions under other central environmental statutes. A conjoint reading of the statutory constitution and the CGST definitions led the Authority to conclude that the Applicant satisfied the criteria of being set up by an Act of Parliament and performing functions aligning with those enumerated in the Twelfth Schedule; accordingly it qualifies as a Governmental Authority/Local Authority for GST purposes. Ratio vs. Obiter: Ratio - statutory constitution by Parliament and exercise of non-commercial sovereign/regulatory functions satisfies the Notification/CGST definitions and is decisive for status determination. Obiter - references to external rulings were used as supportive guidance rather than foundational precedent. Conclusion: The Applicant is a Governmental Authority/Local Authority within the meaning of Notification No. 31/2017 and Section 2(69) of the CGST Act. Issue 2 - Whether the Applicant's activities fall within functions entrusted to municipalities under Article 243W (Twelfth Schedule) Legal framework: Article 243W and the Twelfth Schedule list municipal functions (including Entry 6: public health, sanitation, conservancy and solid waste management; Entry 8: urban forestry, protection of the environment and promotion of ecological aspects). Entry No. 4 of Notification No. 12/2017 exempts services by a Governmental Authority relating to any function entrusted to a municipality under Article 243W. Precedent treatment: The Authority considered general judicial and administrative interpretations that activities central to environmental protection and pollution control align with Twelfth Schedule entries; no specific case law was relied on to distinguish or overrule prior decisions. Interpretation and reasoning: The Applicant's core functions - monitoring and control of air and water pollution, grant of CTE/CTO consents, enforcement of environmental standards, waste management rule implementation, laboratory testing, advisory and training roles - were analysed against Twelfth Schedule items. The Authority found direct alignment with Entries 6 and 8 and observed that these activities are inherently public, statutory and non-commercial, performed pursuant to parliamentary enactments and governmental mandate. Ratio vs. Obiter: Ratio - where an entity's statutory functions correspond to Twelfth Schedule entries (public health/sanitation; environmental protection), services rendered by that entity are 'in relation to' municipal functions envisaged by Article 243W for purposes of Notification Entry 4. Obiter - policy observations regarding fiscal federalism and public interest underlying the exemption. Conclusion: The Applicant's activities for which fees are charged fall within the scope of functions entrusted to municipalities under Article 243W (notably Entries 6 and 8 of the Twelfth Schedule) and therefore qualify as activities 'in relation to' municipal functions for exemption analysis. Issue 3 - Applicability of Notification No. 12/2017 Entry No. 4: taxability of fees collected Legal framework: Entry No. 4 of Notification No. 12/2017 provides nil rate (exemption) for 'services by Central Government, State Government, Union territory, local authority or governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W.' Relevant GST definitions and statutory basis for notification (Section 11(1) CGST Act) were applied. Precedent treatment: The Authority relied on the statutory language of the notification and supportive judicial understanding that statutory/regulatory services of governmental bodies aligned with municipal functions are exempt; no precedent was expressly overruled or distinguished. Interpretation and reasoning: Having found (i) the Applicant to be a Governmental/Local Authority and (ii) its activities to be in relation to municipal functions under Article 243W, the Authority concluded that the exemption under Entry No. 4 applies. The Authority emphasised the non-commercial, sovereign/regulatory character of the receipts and the legislative policy to exclude taxation on governance-oriented public services so as to avoid taxing statutory obligations and cascading tax on essential public functions. Ratio vs. Obiter: Ratio - statutory fees/charges collected by an entity that (a) qualifies as a Governmental/Local Authority and (b) renders services in relation to functions entrusted to municipalities under Article 243W, are exempt from GST under Entry No. 4 of Notification No. 12/2017. Obiter - broader policy considerations concerning fiscal federalism and prevention of tax on governance. Conclusion: Fees collected by the Applicant for grant of licences/consents/registrations, statutory sample testing under arrangements with ministries, monitoring charges and like statutory levies in discharge of its environmental regulatory and sovereign functions are exempt from GST under Entry No. 4 of Notification No. 12/2017 and thus not taxable. Issue 4 - Character of receipts (statutory/regulatory vs commercial) and its effect on exemption Legal framework: Taxability under GST depends on whether the service is a taxable supply and whether it falls within an exemption. The nature and purpose of the receipt (statutory/sovereign/regulatory versus commercial supply) is relevant to determine applicability of the notified exemption. Precedent treatment: The Authority relied on accepted administrative practice distinguishing commercial receipts from statutory/regulatory fees for exemption purposes; no authority was overruled. Interpretation and reasoning: The Applicant's collections were held to arise under statutory mandate and to be incidental to its regulatory, supervisory and sovereign functions rather than arising from commercial activity. The Authority observed that such administrative/statutory charges support public functions (monitoring, enforcement, awareness, capacity building) and therefore are captured by the exemption when the other criteria (Authority status and relation to Article 243W functions) are satisfied. Ratio vs. Obiter: Ratio - statutory/regulatory character of receipts supports classification as exempt services under Entry No. 4 where other conditions are met. Obiter - statements about non-commercial nature of such charges as a policy rationale. Conclusion: The statutory and regulatory nature of the Applicant's receipts reinforces applicability of the Entry No. 4 exemption; such receipts are not taxable GST supplies in the facts presented. CROSS-REFERENCES AND FINAL DETERMINATIONS 1. The determination that the Applicant is a Governmental/Local Authority (Issue 1) is a precondition to the exemption analysis under Entry No. 4 (Issues 2-3); these findings are interdependent and were applied conjunctively. 2. The decision applies Notification No. 12/2017 Entry No. 4 as interpreted alongside the definitions in Notification No. 31/2017 and Section 2(69) of the CGST Act; judicial interpretations and past AAR guidance were treated as persuasive supportive material but not as binding precedents altering the statutory reading. 3. Conclusion adopted by The Authority: The fees/amounts collected by the Applicant in discharge of statutory functions under central environmental statutes (licensing/consents/registrations, sample testing and related regulatory activities) are exempt from GST under Entry No. 4 of Notification No. 12/2017 and therefore not liable to GST.