GST is not applicable on services of design engineering and contraction of water tanks by the Government Authority

[CA Bimal Jain]

The Uttarakhand AAR, in the case of IN RE: M/S THDC INDIA LIMITED [2024 (6) TMI 740 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND] held that there is no applicability of the RCM as per the provisions of the Notification No. 13/2017-Central Tax (Rate) dated June 28, 2017, as the supplier of services is not a "Local Authority". Also, the services provided under the referred MOU i.e. design engineering and contraction of the water tank by the Government Authority are exempt in view of the provisions of the Notification No. 12/2017-Central Tax (Rate), dated June 28, 2017, as amended, as the supplier of services falls under the category of a "Governmental Authority". In the instant case, the applicant being a receiver of services, there was no applicability of GST under Forward Charge.

Facts:

M/s. THDC India Limited (“the Applicant”) was a Public Sector Enterprise and was registered as a Public Limited Company under the Companies Act, 1956.

The Applicant inked a Memorandum of Understanding (“MOU”) with Uttarakhand M/s Peyjal Sansadhan Vikas Evam Nirman Nigam (“Service Provider”) on September 11, 2023.

The Scope of the work as per MOU was that the Service Provider will be responsible for design, engineering and construction of 500 KL RCC Over Head Tank at the Petitioner’s Campus, Rishikesh on "Deposit / Cost plus basis" and that the scope excluded GST and Labour Cess.  

Further, the Applicant was liable to reimburse the Service Provider with the applicable GST.

However, the Service Provider stated that the status of their department is of Local Authority but for the instant work, they did not fall under the Local Authority. Therefore, they raised the E-invoice wherein they charged GST under Forward charge.

Issue:

Whether GST is applicable on services of design engineering and contraction of water tank by the Government Authority?

Held:

The Uttarakhand, AAR in IN RE: M/S THDC INDIA LIMITED [2024 (6) TMI 740 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND] held as under:

• Noted that, the Service Provider do not qualify to be a "LOCAL AUTHORITY" and hence the supply of services in the instant case does not fall under the provisions of RCM in the hand of the service receiver i.e. the Applicant.
• Observed that, the origin and constitution of the Service Provider and the Uttar Pradesh Jal Nigam has been the same and hence the status of both organization with respect to "Local Authority" is the same.
• Relied on, the Apex Court in the case of UNION OF INDIA & ORS. VERSUS RC. JAIN & ORS. - 1981 (2) TMI 200 - SUPREME COURT has laid down the following ingredients, which are required to be fulfilled cumulatively before an authority can be said to be a 'local authority', in the light of the definition of 'local authority' as given under Section 3 (31) of the General Clauses Act

“i. The authorities must have separate legal existence as corporate bodies. It must be legally independent entities.

ii. The authority must junction in a defined area and ordinarily, wholly or partly, directly or indirectly be elected by the inhabitants of the area.

iii. The authority must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them.

iv. The authority must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal bodies.

v. The authority must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges, or fees.

vi. Essentially, control or management of the funds must vest in such authority.”

The Apex court also held 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 and an appreciable measure of autonomy there must be. On perusal of the Uttaranchal (The Uttar Pradesh Water Supply And Sewerages Act, 1975) Adaptation and Modification Order, 2002 read with UPWSS Act, reveals that the Service Provider is not enjoying appreciable nature of autonomy. The Court also held that the main requirement to qualify as a local authority is that the authority must be legally entitled to or entrusted by the Government with, the control and management of a Municipal or local fund.

• Observed that, the Service Provider is not satisfying some of the above conditions for qualifying as a "local authority". Further, there is no local fund entrusted by the Government with the Service Provider, but no municipal or local fund has been entrusted by the Government. The fund of the Service Provider is its own fund and cannot be equated with a fund entrusted by the Government. Thus, the important requirement in order to qualify as a local authority viz. control and management of a municipal/local fund is absent in the present case.
• Relied on, the Hon'ble High Court, Allahabad (Lucknow Bench), while deciding the COMMISSIONER OF INCOME TAX-I VERSUS M/S UP. JAL NIGAM - 2011 (9) TMI 174 - ALLAHABAD, HIGH COURT has held that the Service Provider is not a "LOCAL AUTHORITY". Further, similar view was taken by the IN RE: M/S THE INDIAN HUME PIPES COMPANY LTD. - 2023 (5) TMI 1067 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH, while deciding the appeal of IN RE: M/S. INDIAN HUME PIPE COMPANY LTD. - 2022 (12) TMI 1324 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH and also by the Authority for Advance Ruling, Tamil Nadu in the IN RE: M/S. THE INDIAN HUME PIPE COMPANY LIMITED - 2023 (8) TMI 1204 - AUTHORITY FOR ADVANCE RULING, TAMILNADU. In the IN RE: M/S. INDIAN HUME PIPE COMPANY LTD - 2022 (12) TMI 1324 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH , held that Uttar Pradesh Jal Nigam is body corporate and not local authority. Thus, from the above facts we are of the view that the UKPSVEN, the service provider in the instant case, is not a 'local authority', within the meaning of the provisions of the CGST/SGST Act.
• Observe that, Service Provider does not qualify as a 'local authority' as defined in Section 2(69) of the CGST Act. The similar view has been taken by the IN RE: M/S. THE INDIAN HUME PIPE COMPANY LTD. - 2023 (2) TMI 877 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA while deciding the appeal against IN RE: M/S. THE INDIAN HUME PIPE COMPANY LIMITED - 2022 (8) TMI 810 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA.
• Held that, the service provider in the instant case is not a 'local authority'. It is relevant to note that the term "Governmental Authority" is not defined in the CGST Act. However, Notification No. 31/2017-Central Tax (Rate), dated October 13, 2017, which amended the Notification No 11/2017-Central Tax (Rate), dated June 28, 2017, defined Governmental Authority. Thus, in order to qualify as a governmental authority, such authority must be set up by an act of Parliament/State Legislature or established by any Government and should have 90% or more stake of the Government, and should carry out any function entrusted to a Municipality & Panchayat under article 243W & 243G respectively of the Constitution of India. Hence, is a body corporate. Thus, from the facts and circumstances of the instant case, as discussed above, we hold that the service provider is not a 'local authority', within the meaning and ambit of the provisions of the CGST/SGST Act, but is a "governmental authority"
• Further, as per SI. No. 5 of Notification No. 13/2017-Central Tax (Rate) dated June 28, 2017, tax leviable, shall be paid on reverse charge basis by the recipient in case of "services supplied by the Central Government, State Government, union Territory or local authorities to a business entity" and it has been mandated that if the services have been supplied by the Central Government, State Government, Union territory or local authority to a business entity, then central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services. In the instant case, as has been held above that the applicant does not qualify to be a "LOCAL AUTHORITY".
• Held that, this Authority in an application filed by IN RE: M/S UTTARAKHAND PEYJAL SANSADHAN VIKAS EVAM NIEMAN NIGAM - 2024 (6) TMI 826 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND ruled that M/s Uttarakhand Peyjal Sansadhan Vikas Evam Nirman Nigam is not a 'local authority', vid thin the meaning and ambit of the provisions of the CGST/SGST Act but is a "governmental authority" and held that the applicability of the provisions of the Notification No. 13/2017-Central Tax (Rate) dated June 28, 2017, does not arise in the instant case. It was held that by virtue of provisions of SI. No. 4 & 5 of the Notification No. 12/2017-Central Tax (Rate), dated June 28, 2017, as amended, services by governmental authority under service code of Chapter 99 will be taxed as 'NIL' rate under the category of "Services by governmental authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution and Services by a Governmental Authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution and since the construction of an overhead water tank at Rishikesh in the M/s THDC colony is a construction service and pertains to supply of water which is an activity in relation to a function entrusted to a Municipality & Panchayat under Article 243W & 243G, respectively of the Constitution of India the said service is exempted from payment of tax.

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