TaxTMI 
TaxTMI 
2024 (5) TMI 265
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....7th February 2021 in the proceedings before the Advance Ruling Authority in Appeal No. GUJ/GAAR/Appeal/2021/05 only to the extent to the limited findings of the respondent No. 2 - Appellate Authority for Advance Ruling Gujarat, whereby it is held that the Notified Area Authority, Vapi is neither a "local authority" nor "governmental authority" and therefore, the petitioners are not entitled to exemption under the Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 and the Notification No. 12/2017-State Tax (Rate) dated 30th June 2017. [4] The petitioner No. 1 is engaged in the business of Solid Waste Management and recycling services. The Notified Area Authority, Vapi floated a Tender inviting applications for a Request for Proposal for providing services of collection, sorting and recovery of waste and set up material recovery facility and in accordance with the Rules, Norms and Regulations of Standard of Weights and Measures Rules, 2016, Plastic Waste Management Rules, 2016, the Ministry of Environment, Forest and Climate Change, Central Pollution Control Board, Gujarat Pollution Control Board, etc. at the notified area, GIDC, Vapi. [5] The Notified Area Author....
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.... services is 18%. It is the case of the petitioner that the services provided by the petitioner No. 1 to the Notified Area Authority, Vapi are exempted from payment of GST under Serial No. 3 of the Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 and the Notification No. 12/2017-State Tax (Rate) dated 30th June 2017 issued for the service taxes as well as State taxes as the services provided by the petitioner No. 1 would squarely fall within the purview of Serial No. 3 of the said Notification. [9] According to the petitioners, the petitioner No. 1 is fulfilling the following conditions prescribed in the said Serial No. 3 of the said Notifications, which are as under: "(i) The petitioners must provide Pure Services (excluding words contract service or other composite supplies involving supply of any goods); (ii) Such pure services must be provided to Central Government, State Government or Union Territory, or local authority or a Governmental Authority; (iii) It must be an activity in relation to any function entrusted to a Municipality under Article 243G of the Constitution or in relation to any function entrusted to a Municipality und....
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....thority in favour of the petitioners. It was further submitted that the respondent No. 2 has also come to the conclusion that the petitioners are providing services by way of an activity in relation to functions entrusted to the municipality under Article 243W of the Constitution and therefore, the condition No. 3 for claiming exemption under Serial No. 3 of Notification No. 12/2017 is also fulfilled. However, the respondent No. 2 has held that as the Notified Area Authority is not a 'local authority' and/or 'governmental authority', the petitioners are not entitled to the exemption under Serial No. 3 of Notification No. 12/2017. [14] It was submitted that as the Notified Area Authority, Vapi is established under the GIDA vide Notification dated 6th May 1975, it would be a "deemed to be municipality" under Section 264C of the Gujarat Municipality Act, 1963 and therefore, it is required to be considered as a 'local authority'. [15] It was submitted that Section 16 of the GIDA starts with non-obstante clause and goes on to state that the provisions of the Gujarat Municipality Act, 1963 shall extend to and be brought into force in any area that is deemed to be notified area. It ....
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....to or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund' and therefore, would be covered by the definition of "local authority" to which Serial No. 3 of Notification No. 12/2017 would apply and accordingly, the petitioners would be exempted from payment of GST. [17] It was also submitted that Clause (zf) of paragraph No. 2 of Notification No. 12/2017 defining "governmental authority" would also be applicable to the Notified Area Authority, Vapi. It was submitted that as per Clause (zf), "governmental authority" means an authority or a Board or any other body and set up by an Act of Parliament or a State Legislature or established by any Government, with 90% or more participation by way of equity or control, to carry out any function entrusted to a Municipality under Article 243W of the Constitution. It was submitted that even if the Notified Area Authority, Vapi cannot be considered to be as "local authority" under Section 2(69) (c) of the GST Act, then, in that case, the Notified Area Authority, Vapi would be a "governmental authority", as defined in Clause (zf) of paragraph No. 2 of Notification No. 12/2017 ....
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.... the petitioners. It was further held in the facts of the case that the statute has provided no further appeal against the decision of the Appellate Authority and therefore, the validity of the order passed by the Appellate Authority has to be examined by applying the principles of judicial review. It was submitted that the Appellate Authority, while rejecting the appeal of the petitioner totally on a new ground, which was not even considered by the Advance Ruling Authority and therefore, the impugned order passed by the Appellate Authority is without jurisdiction. [21] On the other hand, learned A.G.P. Mr. Raj Tanna for the respondents submitted that the challenge to the order of the Appellate Authority of Advance Ruling has a very limited scope, as held by the Hon'ble Bombay High Court in the case of Jotun India Private Limited vs. The Union of India [Writ Petition No. 12691 of 2019 decided on 22nd December 2022], wherein it is held that the view taken by the Advance Ruling Authority and the Appellate Authority is based on the material placed before it and the petitioner cannot seek to convert the limited inquiry in respect of Advance Ruling into an appellate inquiry, which is....
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..... [25] Therefore, it would be germane to refer to Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 and the Notification No. 12/2017-State Tax (Rate) dated 30th June 2017 which reads as under: (1) (2) (3) (4) (5) Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent) Condition 3 Chapter 99 Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the/Central Government, State Government or Union Territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution. Nil Nil [26] On bare perusal of above entry at Serial No. 3 granting exemption for providing services, the petitioner has to fulfill the three conditions: (i) the petitioners must provide Pure Services (excluding words contract service or other composite supplies involving supply of any goods), (ii) Such pure services....
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....itution; (c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund; (d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006; (e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution; (f) a Development Board constituted under article 371 [and article 371J] [Inserted by Act No. 31 of 2018, dated 29.8.2018.] of the Constitution; or (g) a Regional Council constituted under article 371A of the Constitution;" [30] Part - IX of the Constitution refers to "panchayat" and Part IXA refers to "Municipality". Whether the Notified Area Authority, Vapi would fall in any of the clauses of Article 243 or Article 243P, which defines "panchayat" and it gives definition of "panchayat" and "municipality" respectively it would be necessary to refer to Article 243 of the Constitution of India which reads as under: "243. Definitions- In this Part, unless the context otherwise requires,-- (a) 'district&....
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....olitan area for the purposes of this Part; (d) 'Municipal area' means the territorial area of a Municipality as is notified by the Governor; (e) 'Municipality' means an institution of self-government constituted under 243Q ; (f) 'Panchayat' means a Panchayat constituted under 243B; (g) 'population' means the population as ascertained at the last preceding census of which the relevant figures have been published." [33] Article 243Q of the Constitution reads as under: "243Q. Constitution of Municipalities-(1) There shall be constituted in every State,-- (a) a Nagar Panchayat (by whatever name called) for a transitional area, that is to say, an area in transition from a rural area to an urban area. (b) a Municipal Council for a smaller urban area; and (c) a Municipal Corporation for a larger urban area, in accordance with the provisions of this Part: Provided that a Municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, having regard to the size of the area and the municipal services being provided or proposed to be ....
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.... of Section 2(69) of the GST Act. [36] The contention raised on behalf of the petitioner that the Notified Area Authority, Vapi is 'any other authority' legally entitled to or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund as per Clause (c) of Section 2(69) of the GST Act as the Notified Area Authority, Vapi is constituted under the provisions of Section 16 of the Gujarat Industrial Development Act, 1962 vide Notification dated 6th May 1975 and, that the Appellate Authority has considered the Notification dated 1st April 2008 available in public domain, but the Notification under which the Notified Area Authority, Vapi constituted is issued by the State Government on 6th May 1975, which is not considered by the Appellate Authority to hold that the Notified Area Authority, Vapi is not a "local authority" as per provisions of Section 2(69) of the Act, it would be necessary to revisit the Serial No. 3 of the Notification No. 12/2017 reproduced herein above wherein "any other authority" is not included, hence the petitioners cannot get the benefit of exemption as per the said Notification. [37] Learned advoc....
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....s to whether the appellant is a local authority within the meaning of Section 10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003. Section 10(20) prior to amendment by the Finance Act, 2002 Section 10(20) after amendment by the Finance Act, 2002 "10. (20) the income of a local authority which is chargeable under the head, "Income from house property", "Capital gains", or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area ow from the supply of water or electricity within or outside its own jurisdictional areas; "10.(20) the income of a local authority which is chargeable under the had, "Income from house property", "Capital gains", or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area; Explanation.- For the purposes of this clause, the expression "local authority" means....
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....cultural activities, the economic importance or such other factors as he may deem fit, specify by public notification for the purposes of this Part." 18. Article 243R pertains to Composition of Municipalities which is to the following effect: "243R. Composition of Municipalities.-(1) Save as provided in clause (2), all the seats in a Municipality shall be filled by persons chosen by direct election from the territorial constituencies in the Municipal area and for this purpose each Municipal area shall be divided into territorial constituencies to be known as wards. (2) The Legislature of a State may, by law, provide- (a) for the representation in a Municipality of- (i) persons having special knowledge or experience in Municipal administration; (ii) the members of the House of the People and the members of the Legislative Assembly of the State representing constituencies which comprise wholly or partly the Municipal area; (iii) the members of the Council of States and the members of the Legislative Council of the State registered electors within tile Municipal area; (iv) the Chairpersons of the Committees consti....
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....the Government, Uttar Pradesh, Member Industries Department or his Nominee not below Chairman the rank of Joint Secretary-ex-official. Member Chairman (b) The Secretary to the Government, Uttar Pradesh, Member Public works Department or his nominee not below the rank of Joint Secretary ex-official. Member (c) The Secretary to the Government, Uttar Pradesh, Local Member Self-Government or his nominee not below the rank of joint Secretary-ex official. Member (d) The Secretary to the Government, Uttar Pradesh, Finance Member Department or his nominee not below the rank of Joint Secretary-ex official. (e) The Managing Director, U.P. State Industrial Development Member Corporation-ex official. (f) Five members to be nominated by the State Government Member by notification. Member (g) Chief Executive Officer. Member Secretary (4) The headquarters of the Authority shall be at such place as may be notified by the State Government. (5) The procedure for the conduct of the meetings for the Authority shall be such as may be prescribed. (6) No act or proceedings of the Authority shall be invalid by reason of the e....
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.... the New Okhla Industrial Development Authority in that area, is pleased to specify the said New Okhla Industrial Development Area to be an "industrial township" with effect from the date of publication of this notification in the official gazette. By order, Sd/- (Anoop Mishra) Secretary." 25. The submissions made by the parties can be dealt with in the following two heads: A. The status of the Authority by virtue of notification dated 24.12.2001 issued under Clause (1) of Article 243Q. B. Whether the appellant is a local authority "within the meaning of Section 10 sub-section (20) as explained in Explanation added by Finance Act, 2002. (A) Part IXA of the Constitution: 26. The Statement of Objects and Reasons of the Constitution 74th Amendment Act, 1992, briefly outlined the object and purpose for which Constitution Amendment was brought in. It is useful to refer to the Statement of Objects and Reasons of the Constitution Amendment which is to the following effect: "STATEMENT OF OBJECTS AND REASONS 1. In many States local bodies have become weak and ineffective on account of....
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....of Municipalities, powers of Authorities and responsibilities of the Municipalities. The Municipalities are created as vibrant democratic units of self-government. The duration of Municipality was provided for five years contemplating regular election for electing representatives to represent the Municipality. The special features of the Municipality as was contemplated by the constitutional provisions contained in Part IXA cannot be said to be present in Authority as delineated by statutory scheme of Act, 1976. It is true that various municipal functions are also being performed by the Authority as per Act, 1976 but the mere facts that certain municipal functions were also performed by the authority it cannot acquire the essential features of the Municipality which are contemplated by Part IXA of the Constitution. The main thrust of the argument of the learned counsel for the appellant that the High Court having not adverted to the notification dated 24.12.2001 issued under proviso to Article 243Q(1) the judgments relied on by the High Court for dismissing the writ petition is not sustainable. We thus have to focus on proviso to Article 243Q(1). For the purpose and object of the i....
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....l principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part." 39. In the case of STO, Circle-I, Jabalpur v. Hanuman Prasad, AIR 1967 SC 565, Bhargava, J. observed thus: "5....It is well-recognised that a proviso is added to a principal clause primarily with the object of taking out of the scope of that principal clause what is included in it and what the legislature desires should be excluded." 40. In Commissioner of Commercial Taxes v. R.S. Jhaver, AIR 1968 SC 59, this Court made the following observations: "8. ...Generally speaking, it is true that the proviso is an exception to the main part of the section; but it is recognised that in exceptional cases a proviso may be a substantive provision itself." 41. In Dwarka Prasad v. Dwarka Das Saraf, AIR 1975 SC 1758 Krishna Iyer, J. speaking for the Court observed thus: (SCC pp. 136-37, paras 16, 18)" "16. There is some validity in this submission but if, on a fair construction, the principal provis....
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....t there shall be constituted in every State a Nagar Panchayat, a Municipal Council and a Municipal Corporation. Exception is covered by proviso that where an industrial township is providing municipal services the Governor having regard to the size of the area and the municipal services either being provided or proposed to be provided by an industrial establishment specify it to be an industrial township. The words 'industrial township' have been used in contradiction of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. The object of issuance of notification is to relieve the mandatory requirement of constitution of a Municipality in a State in the circumstances as mentioned in proviso but exemption from constituting Municipality does not lead to mean that the industrial establishment which is providing municipal services to an industrial township is same as Municipality as defined in Article 243P(e). We have already noticed that Article 243P(e) defines Municipality as an institution of self-government constituted under Article 243Q, the word constituted used under Article 243P(e) read with Article 243Q clearly refers to the constitution in every State a Nagar Pan....
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....grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the Authority under the Act, all moneys received by the Authority from disposal of its movable or immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government directs otherwise, all moneys received by the Authority shall be credited to its funds which shall be kept with State Bank of India and/or one or more of the nationalised banks and drawn as and when required by the Authority." 33. On the question as to whether the Adityapur Industrial Area Development Authority was covered within the meaning of local authority as per Section 10(20) as amended by the Finance Act, 2002, the High Court held that the appellant authority could not have claimed benefit under the provisions after 01.04.2003. In paragraphs 6 and 7 following was held: "6. It would thus be seen that the income of a local authority chargeable under the head "Income from house property", "Capital gains" or "Income fro....
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....relevant to the present case since, the Court has also dwelled upon Section 10(20) as amended w.e.f. 01.04.2003. We, thus, do not accept the submission of the appellant that the above case was not relevant for the present case and was wrongly relied on by the High Court. 36. The second judgment which is relied on by the High court is Agricultural Produce Market Committee, Narela (supra). The Agricultural Produce Market Committee was constituted under the Delhi Agricultural Produce Marketing (Regulation) Act, 1998. The question arose as to whether Agricultural Market Committee is a "local authority" under the Explanation to Section 10(20) of the Income Tax Act, 1961. In the above context it was noticed that all Agricultural Market Committees at different places were enjoying exemption from income tax under Section 10(20) prior to its amendment by the Finance Act, 2002 w.e.f. 01.04.2003. The definition of 'local authority' under Section 3(31) of General Clauses Act, 1897 is as follows: "3.(31) "local authority" shall mean a municipal committee, district board, body or port Commissioners or other authority legally entitled to, or entrusted by the Government with, the....
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....d or Body of Port Commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authority? First, the authorities must have separate legal existence as corporate bodies. They must not be mere governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next, they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of the dependence may vary considerably but, an appreciable measure of autonomy there must be. Next, they must be entrusted by s....
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....ous High Courts on the status and character of AMC(s) is no more applicable to the provisions of Section 10(20) after the insertion of the Explanation/definition clause to that sub-section vide the Finance Act, 2002." 39. This Court held that Agricultural Marketing Committee is also not covered by the words "Municipal Committee, District Board, Body of Port Commissioners" as used in Explanation of Section 10(20). 40. In this context, we also refer to the judgment of this Court in Saij Gram Panchayat vs. State of Gujarat an others, 1999 (2) SCC 366. This Court had occasion to consider in the above case Gujarat Industrial Development Act, 1962, the provisions of Article 243Q and Gujarat Municipalities Act, 1963. 41. This Court held that Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IXA of the Constitution and the Gujarat Panchayats Act, 1961. In paragraph 16 of the judgment following was held: "16.... The Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IX-A of the Constitution as well as the Gujarat Panchayats Act, 1961 and the Gujarat Municipalities Act, 1962....
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.... as suffering from fundamental error or absurd or perverse, assuming that such a test can be applied and, therefore, we are not inclined to interfere with the orders passed by both the Authorities." [42] The Hon'ble Bombay High Court in the case of JSW Energy Ltd (supra), while dealing with the contention of the assessee with regard to ground of failure of principles of natural justice and consequently, the entire decision making process is vitiated, held as under: "25. In Reckitt & Colman of India Ltd. vs. Collector of Central Excise - 1996 (88) ELT-641 (SC), the Supreme Court was concerned with adjudicatory proceedings, which, to a great extent, are adversarial in nature. It is in that context that the Supreme Court observed that an Appellate Tribunal is not competent to make out in favour of the Revenue, a case which the Revenue never canvassed or which the assessee was never required to meet. Such observations therefore, will have to be read in the context of adjudicatory proceedings, the scope of which is not quite the same as the scope of proceedings where an assessee or a potential assessee seeks advance ruling. 26. Therefore, we are unable to accept Mr.....
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....ppellate Authority has observed thus: "52. In the matter before us, the appellant have not submitted the following: (i) The agreement or proposed agreement between M/s. JSL and M/s. JEL for the process of job work to understand about the quantity and value of the inputs being supplied by the principal and the amount and quantity of the inputs/material being used by the job worker to the inputs supplied by the principal to carry out the job work process. (ii) The detail manufacturing process of M/s JEL for production of Electricity mentioning the name, quantity and value of the inputs. (iii) The procedure/process for accounting for the inputs received from M/s. JSL by M/s. JEL and co-relation thereof with the goods supplied after job work. Though it is not possible to ascertain the quantity and value of the material being utilized by the job worker in the conversion of coal provided by the principal into electricity accurately in absence of data before us, it can nevertheless be seen from the details provided by the appellant that coal is not the only input used for the production of electricity. There is large quantity of water and air being util....
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....n terms of the CGST Act. Since goods supplied by M/s. JSL will be utilized by M/s. JEL in manufacture of new commodity i.e. electricity (though attracting NIL rate of duty), the process is manufacture and the same will be considered as supply of goods and not service." 32. Again, from the aforesaid it is apparent that the petitioner has been faulted for not providing documentary evidences during the appeal proceedings, on the aspects set out in clauses (i),(ii) and (iii) above. There is again, no dispute, that the petitioner was never called upon to produce such documentary evidences in the course of appeal proceedings. In effect, this means that an order adverse to the interests of the petitioner has been made by the Appellate Authority, even after agreeing the petitioner that the primary reasoning of the Advance Ruling Authority was not proper, without affording the petitioner opportunity to meet with or to clarify or to produce materials or documentary evidences which might have had a bearing on the 'new grounds' ultimately relied upon by the Appellate Authority. This, according to us, involves failure of natural justice, thereby vitiating the decision making pr....
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.... High Court was improper and the High Court was duty bound to give a reasonable opportunity of hearing the parties on the new question of law formulated in the second appeal. The Supreme Court held that the High Court was duty bound to put the parties to notice that the new question of law was proposed to be considered and grant time to the parties to respond such question of law so formulated. The Supreme Court held that failure to do so would constitute failure of natural justice and therefore, remand to the second Appellate Court, was in order. 36. Applying the aforesaid principles to the facts and circumstances of the present case, we are satisfied that the Appellate Authority should have at least indicated to the petitioner that it proposed to take into consideration the 'new grounds' and further, afford an opportunity to the petitioner to place on record agreements or other documentary evidences referred to in paragraphs 52 and 56 of the impugned order dated 2nd July 2018, in order to meet these 'new grounds'. The failure to do so has not only resulted in violation of principles of natural justice, but also occasioned serious prejudice to the petition....