2023 (12) TMI 821 - AAAR - GST

Governmental Authority or not - payments related to work order for Fire Fighting System installation at contracted area between the appellant and M/s JSCL - Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017 - GST rate - rate of GST for service under RCM in respect of road cutting charges paid by them to JNN on behalf of M/s JSCL in relation to such contract - Recovery of such road cutting charges by the Appellant from M/S JSCL. Whether M/s JSCL are set up by an Act of Parliament or a State Legislature? - HELD THAT - M/s JSCL are not set up by an Act of Parliament or State Legislation. Whether is it established by any Government? - HELD THAT - M/s Jaipur Smart City Limited are a special purpose vehicle (SPV) formed on 12.03.2016 by the Rajasthan State Government (as approved by Order No. 64/2016 dated 01.04.2016 issued by the Cabinet of State of Rajasthan) to operate as a nodal agency to take up works proposed under the smart city proposal according to Smart City mission launched by the Government of India. Whether Government possesses ninety per cent or more participation in M/s JSCL by way of equity or control? - HELD THAT - M/s Jaipur Smart City Limited is a limited company incorporated under the Companies Act 2013 in which the Rajasthan State Government and the Jaipur Nagar Nigam (local Authority/ULB) are the promoters having 50 50 equity shareholding. We note that Jaipur Nagar Nigam being a local authority is also an extension of the Government as it is a Municipal Corporation incorporated by Rajasthan State Government under The Rajasthan Municipalities Act 2009 . The officers of Jaipur Nagar Nigam also officiate as one of the Directors in M/s JSCL. This substantiates more than 90% control of the Government by way of participation; Therefore it is held that M/s JSCL are covered under Governmental Authority as defined in the explanation to clause (16) of Section 2 of the IGST Act 2017. Whether or not Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017 is applicable in respect of all payments related to work order for Fire Fighting System installation at contracted area between applicant (now appellant) and M/s Jaipur Smart City Limited? - HELD THAT - When M/s JSCL qualify to be a Governmental Authority then the services provided to it by the appellant are considered as services provided to the Governmental Authority. Thus Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended by Notification No. 24/2017- Central Tax (Rate) dated 21.09.2017 is clearly applicable on the appellant in this case. GST rate for the work undertaken by applicant - HELD THAT - The services provided by the appellant are covered under Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended. The said services are then liable to attract GST @ 12% (i.e. 6% CGST 6% SGST) during the contracted period only up to 31.12.2021 as after that in column no. (3) of Serial No. 3 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 the words a Governmental Authority or a Government Entity has been omitted vide Notification No. 22/2021- Central Tax (Rate) dated 31.12.2021 w.e.f. 01.01.2022. Whether the applicant is liable to pay GST under RCM in respect of road cutting charges paid by them to Jaipur Nagar Nigam (JNN) on behalf of M/s Jaipur Smart City Limited in relation to such contract? - HELD THAT - The services of granting permission/NOC for road cutting were provided by the Local Authority i.e. Jaipur Nagar Nigam (municipality) for a consideration to the business entity i.e. M/s Lakhlan Qureshi Construction Company (appellant) and not to M/s JSCL. Hence the appellant being a recipient of the services are liable to pay GST for the charges paid to Jaipur Nagar Nigam under reverse charge mechanism. The activity of giving permission for road cutting is not mentioned in the list of works as provided under Article 243W of the Constitution entrusted to a Municipality - clause (b) of sub-section (2) of Section 7 of CGST Act 2017 read with Notification No. 14/2017-Central Tax ( Rate) dated 28.06.2017 as amended by Notification No. 16/2018 Central Tax (Rate) dated 26.07.2018 is not applicable in this case. Therefore the appellant are liable to pay GST @18%( i.e. 9% CGST 9% SGST) as a recipient under RCM. Whether Recovery of such road cutting charges by the Appellant from M/s. Jaipur Smart City Limited is liable to GST? If the answer is in affirmative what will be the GST rate? - HELD THAT - Three conditions are required to be satisfied for a service to be covered under Entry No. 3 of the Notification which are (1) It must be pure service not involving any supply of goods. (2) It must be provided to the Central Government or State Government or Union territory or local Authority or a Governmental Authority or a Government Entity. (3) It must be an activity in relation to any function entrusted to a (i) Panchayat under Article 243 G of the Constitution; or (ii) Municipality under Article 243 W of the Constitution. The appellant have fulfilled the condition No. 1 i.e reimbursement of road cutting charges by M/s JSCL to the appellant involves no supply of goods. Thus the activity is purely in nature of service. Further as it has already been decided that M/s Jaipur Smart City Limited are a Governmental Authority therefore the second condition is also satisfied - the recovery of road cutting charges is not covered under an activity in relation to any function entrusted to a (i) Panchayat under Article 243 G of the Constitution; or (ii) Municipality under Article 243 W of the Constitution. The exemption under Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 is not available to the appellant. Thus the appellant are liable to pay GST on recovery of such road cutting charges (from M/s JSCL) @18%.

Summary

Issues Involved:
1. Whether M/s Jaipur Smart City Limited (JSCL) qualifies as a "Governmental Authority."
2. Applicability of Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017'Central Tax (Rate) dated 28.06.2017.
3. GST rate for the work undertaken by the appellant for M/s JSCL.
4. Liability to pay GST under RCM for road cutting charges paid to Jaipur Nagar Nigam (JNN).
5. GST liability on the recovery of road cutting charges from M/s JSCL.

Summary:

1. Governmental Authority Status of M/s JSCL:
The appellant contended that M/s JSCL should be considered a "Governmental Authority" as defined in the explanation to clause (16) of Section 2 of the IGST Act, 2017, due to the control exercised by the Government of Rajasthan through equity and management. The Authority for Advance Ruling (AAR) had earlier ruled that M/s JSCL does not qualify as a "Governmental Authority" because the Government of Rajasthan holds only 50% shareholding, with the remaining held by Jaipur Municipal Corporation, which is not a government entity. However, the appellate authority concluded that M/s JSCL is a "Governmental Authority" as it is controlled by the Government of Rajasthan and Jaipur Nagar Nigam, which is an extension of the government.

2. Applicability of Notification No. 11/2017:
The appellant argued that the services provided to M/s JSCL fall under Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017'Central Tax (Rate) dated 28.06.2017, as amended. The appellate authority agreed, stating that the work undertaken by the appellant, including the installation of a fire fighting system, qualifies as construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works predominantly for non-commercial use.

3. GST Rate for Work Undertaken:
The appellate authority ruled that the services provided by the appellant to M/s JSCL are subject to GST at 12% (6% CGST and 6% SGST) up to 31.12.2021. After this date, the applicable rate changes as the words "a Governmental Authority or a Government Entity" were omitted from the relevant notification.

4. GST Liability under RCM for Road Cutting Charges:
The AAR had ruled that the appellant is liable to pay GST at 18% under RCM for road cutting charges paid to JNN. The appellate authority upheld this decision, stating that the activity of granting permission for road cutting is not covered under the functions entrusted to a municipality under Article 243W of the Constitution.

5. GST on Recovery of Road Cutting Charges:
The AAR had ruled that the recovery of road cutting charges by the appellant from M/s JSCL is liable to GST at 18%. The appellate authority agreed, stating that the appellant does not qualify as a pure agent in this transaction, and thus, the recovery of road cutting charges is subject to GST.

Order:
1. M/s JSCL is a "Governmental Authority."
2. The supply related to the fire fighting system provided by the appellant to M/s JSCL is covered under Item number (vi) in Column (3) of serial number 3 of Notification No. 11/2017'Central Tax (Rate) dated 28.06.2017, as amended.
3. The said services attract GST at 12% up to 31.12.2021.
4. The appellant is liable to pay GST at 18% under RCM for road cutting charges paid to JNN.
5. The recovery of road cutting charges from M/s JSCL by the appellant is liable to GST at 18%.