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2022 (9) TMI 603 - AAR - GSTExemption from GST - services provided to Uttar Pradesh Jal Nigam - service provided to a governmental authority under GST Laws or not - applicable GST rate on supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1 st Jan 2022 - 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 bythe 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 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. In case of UPJN, there is no local fund entrusted by the Government with UPJN. A perusal of the UPWSS Act would reveal that no municipal or local fund has been entrusted by the Government. The fund of UPJN 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. Whether the UPJN is 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 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 the services provided to Uttar Pradesh Jal Nigam (UPJN) would be considered as a service provided to a governmental authority under GST Laws? 2. What is the applicable GST rate on supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1st Jan 2022? Issue-wise Detailed Analysis: 1. Whether the services provided to Uttar Pradesh Jal Nigam (UPJN) would be considered as a service provided to a governmental authority under GST Laws? The applicant, M/s Suez India Private Limited, sought an advance ruling to determine if services provided to UPJN qualify as services to a governmental authority under GST laws. UPJN is a body corporate formed under the Uttar Pradesh Water Supply and Sewerage Act, 1975 (UPWSS Act). The applicant argued that UPJN qualifies as a governmental authority based on the definition provided in Notification No. 31/2017-Central Tax (Rate) dated October 13, 2017, which defines a governmental authority as an entity set up by an Act of Parliament or State Legislature with 90% or more participation by way of equity or control, to carry out functions entrusted to a Municipality under Article 243W of the Constitution. The ruling examined whether UPJN meets the criteria of a local authority or 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. However, the ruling found that UPJN does not meet all conditions laid down by the Supreme Court in Union of India v. R.C. Jain for being classified as a local authority, such as being elected by inhabitants and having autonomy in its functions. The Hon'ble High Court of Allahabad also held that UPJN is not a local authority. The ruling concluded that UPJN qualifies as a governmental authority since it is a body corporate formed by the State Legislature, with 90% or more government control, and carries out functions entrusted to a Municipality under Article 243W of the Constitution. 2. What is the applicable GST rate on supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1st Jan 2022? The applicant also sought clarity on the applicable GST rate for works contract services provided to UPJN. The ruling referred to Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017, and its amendment by Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021. The amendment restricted the lower tax rate of 12% to works contracts supplied to the Central Government, State Government, Union territory, or local authority only, excluding governmental authorities and government entities. Since UPJN qualifies as a governmental authority and not as a local authority, the ruling determined that the applicable GST rate for works contract services provided to UPJN is 18% (CGST 9%, SGST 9%) as per Entry 3(xii) of Notification No. 11/2017-Central Tax (Rate) dated June 28, 2017. Ruling: 1. The services provided to Uttar Pradesh Jal Nigam are considered as services provided to a governmental authority under GST Laws. 2. The applicable GST rate on the supply of works contracts services in relation to sewage treatment plant made by the Applicant to Uttar Pradesh Jal Nigam, on or after 1st Jan 2022, is 18% (CGST 9%, SGST 9%). This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.
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