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2022 (12) TMI 1288 - AAR - GSTComposite works contract services - Local authority or not - Governmental Authority or not - services supplied to Uttar Pradesh Jal Nigam involving construction design of prestressed concrete cylinder pipelines (PCCP) and pumping plant for the purpose of supplying water to the Khurja Sewerage Treatment Plant Project from the Mundakhera Reservoir to the pond of Khurja STPP - ancillary works such as development of roads/paths, drain septic Tanks, sewer line, water supply system, external electrification, service connection to building, etc - Entry 3(iii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. HELD THAT - The definition of local authority in the CGST Act includes within its ambit 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. 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 that the authority should be elected by the inhabitants of the area. As per Section 4 of the UPWSS Act, the UPJN shall consist of Chairman and members appointed by the state government. As such, the UPJN is not elected by the inhabitants of the area but the same is established by the state. Therefore, the said is not satisfied in the case of UPJN - Apex court in the RC Jain case has held that that the authority 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. Perusal of the UPWSS Act reveals that the UPJN is not enjoying appreciable nature of autonomy. Whether the UPJN is Governmental Authority? - HELD THAT - The UPJN is a body corporate formed by the State legislature under UPWSS Act enacted by the UP State Legislature. As such, the first requirement of a governmental authority stands fulfilled in the present case. Further, as per Section 3 of the UPWSS Act, UPJN is a body corporate established by the Government of U.P., as such, the second requirement of governmental authority has also been fulfilled in the present case. Moreover, the UPJN is constituted for the development and regulation of water supply and sewerage services in the State of U.P. Under the Section 14 of UPWSS Act, UPJN is inter alia entrusted with the function to operate, run, and maintain any waterworks and sewerage system. As per Article 243W read with Twelfth Schedule of the Constitution of India, water supply for domestic, industrial and commercial purposes and public health, sanitation conservancy and solid waste management is a function of municipality. In view of the above, the requirement that the authority must be established to carry out any function entrusted to a Municipality under article 243 W of the Constitution has also been fulfilled in the present case. Thus, the UPJN is a governmental authority. By way of Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, the lower rate of tax of 12% provided by Entry 3(iii) of Notification No.11/2017- Central Tax (Rate) dated June 28, 2017, was restricted to works contract supplied to Central Government, State Government, Union territory and a local authority only. As the UPJN does not qualify as a local authority and it qualifies as a governmental authority, tax rate of 18% is applicable on the works contract services provided to UPJN by way of Entry 3(xii) of Notification No. 11/2017- Central Tax (Rate) dated June 28, 2017.
Issues Involved:
1. Whether Uttar Pradesh Jal Nigam (UPJN) qualifies as a 'local authority' under the CGST Act, 2017. 2. Applicability of Entry 3(iii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 to the composite works contract services supplied to UPJN. Issue-wise Detailed Analysis: 1. Whether Uttar Pradesh Jal Nigam (UPJN) qualifies as a 'local authority' under the CGST Act, 2017: The applicant argued that UPJN qualifies as a 'local authority' based on Section 2(69) of the CGST Act, which includes any authority legally entitled to or entrusted by the government with the control or management of a municipal or local fund. The applicant cited the UP Water Supply and Sewerage Act, 1975 (UPWSS Act), which states that UPJN is a local authority and has its own fund deemed to be a local fund. However, the ruling analyzed the definition of 'local authority' as per Section 2(69) of the CGST Act and the General Clauses Act, 1897, along with the Supreme Court's interpretation in Union of India vs. R.C. Jain. The ruling found that UPJN does not satisfy all the criteria, such as being elected by inhabitants, enjoying autonomy, and having control over a municipal or local fund. The ruling also referenced the Allahabad High Court's decision, which held that UPJN is not a 'local authority' for the purposes of the Income Tax Act, 1961. 2. Applicability of Entry 3(iii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 to the composite works contract services supplied to UPJN: The applicant sought clarification on whether their composite works contract services supplied to UPJN would fall under Entry 3(iii) of Notification No. 11/2017-CT (Rate), attracting a GST rate of 12%. This entry pertains to works contract services supplied to the Central Government, State Government, Union territory, or a local authority. The ruling concluded that since UPJN does not qualify as a 'local authority,' the composite works contract services supplied to UPJN do not fall under Entry 3(iii) of the Notification. Instead, UPJN qualifies as a 'governmental authority' as per Notification No. 31/2017-Central Tax (Rate), which defines 'governmental authority.' However, the amended Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, restricts the lower GST rate of 12% to works contract services supplied to the Central Government, State Government, Union territory, or a local authority only. Therefore, the applicable GST rate for the services provided to UPJN is 18%, as per Entry 3(xii) of Notification No. 11/2017-Central Tax (Rate), which covers construction services not specified in other entries. Ruling: The composite works contract services supplied to Uttar Pradesh Jal Nigam involving construction and design of prestressed concrete cylinder pipelines (PCCP) and pumping plant, along with ancillary works, do not fall under Entry 3(iii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The applicable GST rate is 18% as per Entry 3(xii) of the same notification.
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