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2022 (9) TMI 416 - AAR - GSTExemption from GST - Government authority - works contract services provided by way of construction of non-commercial establishments by Elegant Infra Developers to the Construction Design Services Division of the Uttar Pradesh Jal Nigam - serial number 3 of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 - local authority or Governmental Authority - HELD THAT - In order to qualify as a governmental authority, such authority must be set up by an act of Parliament/State Legislature, should have 90% or more stake of government, and should carry out any function entrusted to a Municipality under article 243 W of the Constitution of India - 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. 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 N/N. 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. Classification of services provided by Elegant Infra Developers to the Construction & Design Services Division of Uttar Pradesh Jal Nigam. 2. Applicability of GST rates on the said services under the relevant notifications. Issue-wise Detailed Analysis: 1. Classification of Services: The primary issue is whether the works contract services provided by Elegant Infra Developers to the Construction & Design Services (C&DS) Division of Uttar Pradesh Jal Nigam (UPJN) should be classified under the GST rate applicable to services provided to a "Local Authority" or a "Governmental Authority." The applicant argued that UPJN qualifies as a "Local Authority" under sub-clause (c) of clause (69) of section 2 of the CGST Act, 2017, based on its establishment under the Uttar Pradesh Water Supply and Sewerage Act, 1975, and its PAN registration indicating it as a local authority. However, the applicant also acknowledged the ambiguity due to the commercial nature and financial independence of the C&DS division. The jurisdictional GST officer and the Assistant Commissioner provided conflicting views, with the former asserting that UPJN is not a local authority and the latter supporting the applicant's view based on the PAN registration. 2. Applicability of GST Rates: The applicant sought clarification on the applicable GST rate post-01.01.2022, following amendments to Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 by Notification No. 22/2021 - Central Tax (Rate) dated 31.12.2021. The amendment restricted the 12% GST rate to works contract services provided to the Central Government, State Government, Union territory, or a local authority, excluding "Governmental Authorities" and "Government Entities," which are now subject to an 18% GST rate. The applicant contended that the C&DS division of UPJN should be considered a "Local Authority" and thus eligible for the 12% GST rate. However, the ambiguity in classification necessitated a definitive ruling. Discussion and Findings: The Authority for Advance Ruling (AAR) examined the definitions and legal interpretations of "Local Authority" and "Governmental Authority." The term "Local Authority" under section 2(69) of the CGST Act includes entities legally entitled to or entrusted with the control or management of a municipal or local fund. The AAR referred to the Supreme Court's interpretation in the R.C. Jain case and the Allahabad High Court's ruling in Income Tax Appeal No. 128/2008, which denied UPJN the status of a local authority. The AAR found that UPJN does not satisfy the criteria for a local authority, such as being elected by inhabitants and having autonomy in policy decisions. Furthermore, UPJN manages its own fund rather than a municipal or local fund entrusted by the government, failing a crucial requirement for local authority status. Conversely, UPJN qualifies as a "Governmental Authority" under Notification No. 31/2017-Central Tax (Rate) dated October 13, 2017, as it is established by a State Legislature, controlled by the government, and carries out functions entrusted to a municipality under Article 243W of the Constitution. Ruling: The AAR concluded that the C&DS division of UPJN is a "Governmental Authority" and not a "Local Authority." Consequently, the works contract services provided by Elegant Infra Developers to the C&DS division of UPJN are subject to GST at the rate of 18% (9% CGST + 9% SGST) under item (xii) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017. Conclusion: The ruling clarifies that the applicable GST rate for the services in question is 18%, effective from 01.01.2022, considering the C&DS division of UPJN as a "Governmental Authority." This decision is binding within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh.
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