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TMI Blog2022 (9) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - UP ADRG 04/2022 - - - Dated:- 20-6-2022 - SHRI ABHISHEK CHAUHAN AND SHRI VIVEK ARYA, MEMBE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U.P. Jal Nigam under the Income Tax Act, 1961 is AAALU0256C. All the divisions of U.P. Jal Nigam, including the C DS division, are housed within this PAN. The fourth letter of PAN denotes the constitution of an assessee. Therefore, the fourth letter of the PAN of U.P. Jal Nigam is L which denotes that U.P. Jal Nigam is a Local Authority . (4) Section 40 of the said Act provides that U.P. Jal Nigam shall have its own fund to be called the Nigam Fund, which shall be deemed to be a local fund and to which shall be credited all moneys received otherwise than by way of loans by or on behalf of U.P. Jal Nigam. Further, the said section provides that U.P. Jal Nigam shall also have another fund to be called the Local Fund, which shall also be deemed to be a local fund and to which shall be credited all moneys received by or on behalf of the Nigam by way of loans. (5) U.P. Jal Nigam houses three divisions - Jal Nigam wing, Nalkoop wing and the Construction Design Services wing. The Jal Nigam wing carries out the primary objectives of the said Act and is principally engaged in effecting supply of water and to provide sewerage facilities to public and maintenance thereof. The Nalk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services of the nature specified in items (iii), (vi), (vii), (ix) and (x) of serial number 3 of Notification 11/2017 - Central Tax (Rate) dated 28.06.2017 provided to a Governmental Authority or Government Entity shall no longer be governed by the said items with effect from 01.01.2022 and shall, thenceforth, be governed by the residuary entry which is item (xii) of serial number 3 of the said Notification levying GST at the rate of 18%. Therefore, the rate of GST has been increased with effect from 01.01.2022 from 12% to 18% on the works contract services provided to a Governmental Authority or a Government Entity only. The said services will, however, continue to be eligible to GST at the rate of 12% if the same are provided to a local authority. (10) Upon the request of several contractors engaged by the U.P. Jal Nigam to clarify the ambiguity regarding the amendment made by the above Notification, U.P. Jal Nigam had obtained a legal opinion from its GST consultant as to whether works contract services provided to U.P. Jal Nigam would attract GST rate of 18% with effect from 01.01.2022. In the said legal opinion, the learned consultant has emphatically stated that all the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er reinforces its outgrown stature. The C DS wing is now self-supported and effectively caters to the needs of its clients. The work of the C DS wing also has the element of making it self-reliant by generating independent resources. It competes with the other contractors engaged in the similar line of business as a commercial independent contractor for undertaking construction for which it charges its clients at competitive rates. The C DS wing is engaged not merely by the Government of Uttar Pradesh but also by the various departments of Central Government (such as Ministry of Human Resource Development for Jawahar Navodaya Vidyalaya) and has workplaces in other States. (14) Considering the facts set forth above and the legal position explicated in the section Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) , the C DS division of the U.P. Jal Nigam appears to qualify both as a Local Authority as well as a Governmental Authority. In view of the aforesaid amendment, it has become imperative to distinguish between a Local Authority and a Governmental Authority so that the C DS division o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter alia, in item (vi) of serial number 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017. Pursuant to the above amendment, the works contract services provided to a Local Authority shall continue to be governed by item (vi) of serial number 3 of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended if the nature of works contract services carried out falls within the scope of description specified therein. However, the works contract services of the same nature provided to a Governmental Authority or a Government Entity shall henceforth be governed by the residual entry in item (xii) of serial number 3 of the said Notification. (5) Clause (69) of section 2 of the CGST Act, defines the term local authority as under. (69) local authority means- (a) a Panchayat as defined in clause (d) of article 243 of the Constitution; (b) a Municipality as defined in clause (e) of article 243P of the Constitution,. (c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned supra. Ensuing paragraphs elucidate the manner in which C DS division of U.P. Jal Nigam qualifies the definition of Governmental Authority . Criteria - 1 :Governmental Authority - Set up by an Act of Parliament or State Legislature U.P. Jal Nigam commenced its operations as Public Health Engineering Department in 1927 to provide drinking water supply and sewerage facilities in Uttar Pradesh. In year 1946, it was rechristened as Local Self Government Engineering Department (LSGED). In 1975, it was converted to Uttar Pradesh Jal Nigam through Uttar Pradesh Water Supply and Sewerage Act, 1975 (43 of 1975). The C DS division of the U.P. Jal Nigam is governed by clause (xiv) of section 14 of the Uttar Pradesh Water Supply and Sewerage Act, 1975. Criteria - 2 : Governmental Authority - 90% or more participation of Government by way of equity or control Chairman and members of U.P. Jal Nigam are nominated by the State Government. All the members shall hold office on the terms and conditions specified by the State Government. Accordingly, U.P. Jal Nigam is wholly (100%) controlled by the Government of Uttar Pradesh. Criteria - 3 : Governmental Authority - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 issued in exercise of powers conferred by clause (xiv) of section 14 of the Uttar Pradesh Water Supply and Water Supply Act, 1975, the C DS division of the U.P. Jal Nigam has been vested with the authority to undertake any activity in addition to water supply and sewerage treatment as a construction agency of the Government of Uttar Pradesh. Accordingly, the activities envisaged to be carried out by the C DS division of the U.P. Jal Nigam are encompassed by clauses 1, 2, 3, 4, 5, 6, 10, 12, 13 and 17 of the Twelfth Schedule to the Constitution of India. (10) Since the question of advance ruling under consideration on which a legal opinion was sought by U.P. Jal Nigam is founded on the status of U.P. Jal Nigam (including all its divisions) as a Local Authority under the provisions of the Income Tax Act, 1961, it would not be out of context to do a cursory examination of the status of the C DS division of the U.P. Jal Nigam from the standpoint of Income Tax Act, 1961 more so when the definition of Local Authority in the CGST Act is pari materia to the definition of Local Authority in the Income Tax Act, 1961. Section 10 of the Income Tax Act, 1961 dealing with Incomes wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter C.No. V(30)Tech./Elegant/CGST/Div.-VI/GZB/40/2022/202 dated 26.04.2022 submitted his comments that the applicant provided service to UP Jal Nigam (C DS Division) and UP Jal Nigam registered under Income Tax Act, 1961 as a local authority. He further submitted that as per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended, the GST rate applicable on works contract to a Central Government, State Government, Union territory, a local authority is 12%. 8.1 The applicant vide their e-mail dated 25.05.2022 submitted as under- This has reference to the Advance Ruling Application of M/s Elegant Infra Developers (GSTIN 09AAEFE8717A1ZM) ( the applicant ) filed vide ARN AD090322018130R dated 16.03.2022. We would like to submit that the hard copy of the advance ruling application of the applicant submitted with the Registrar Advance Ruling Authority on 24.03.2022 contains all the submissions which we would like your goodself to consider. We do not have any more submissions to make. Accordingly, we humbly request your goodself to omit the requirement of personal hearing in our case and pass an appropriate ruling on the question mentioned in the Advance R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction Design Services Division of the Uttar Pradesh Jal Nigam as a Governmental Authority ? 12. The Uttar Pradesh Jal Nigam (hereinafter referred to as the UPJN) was created by the Government of Uttar Pradesh by enacting the U.P. Water Supply and Sewerage Act, 1975 (hereinafter referred to as the UPWSS Act). It is a body corporate having perpetual succession and a common seal and capable of suing and being sued in its name. It has power to acquire, hold and dispose of the property. The relevant provisions of the UPWSS Act is as under- (i) The preamble of the UPWSS Act indicates that U.P. Jal Nigam was brought into existence to provide for the establishment of a corporation, authorities and organization for the development and regulation of water supply and sewerage services and for matters connected therewith. (ii) The Section 3(3) of the UPWSS Act provides that the assessee corporation shall for all purposes be deemed to be a local authority and Section 4 of the UPWSS Act relates to its constitution, according to which it shall consist of a Chairman, to be appointed by the State Government. It also provides that the Members other than the Chairman shall be a M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government with the control or management of a municipal or local fund qualifies as a local authority . 16. The definition of the 'local authority' is contained in Section 3 (31) of the General Clauses Act, 1897 which is as under- local authority shall mean a municipal committee, district board, body of port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund; 17. Thus, it is seen that the term 'local authority' has been similarly worded in CGST Act, 2017 as well as General Clauses Act, 1897. The Apex Court in the landmark decision of Union of India Vs. R.C. Jain (1981) 2 SCC 308 while deciding whether the Delhi Development Authority is a 'local authority' or not, explained the scope of the term local authority under the General Clauses Act as follows- Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'Local Authority' in Sec.3(3) of the General Clauses Act. A proper and careful scrutiny of the language of Sec. 3(31) suggests that an authority in order to be a local Authority, must be of like natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority' as given under Section 3(31) of the General Clauses Act. (1) The authorities must have separate legal existence as corporate bodies. It must be legally independent entities. (2) The authority must function in a defined area and ordinarily, wholly or partly, directly or indirectly be elected by the inhabitants of the area. (3) The authority must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. (4) The authority must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal bodies. (5) 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. (6) Essentially, control or management of the funds must vest in such authority. 19. The UPJN is not satisfying some of the above conditions for qualifying as 'local authority' as discussed below- 19.1 The Apex court in the RC Jain case (supra) has held that that the authority should be elected by the inhabitants of the area. As per Section 4 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a local authority, viz. control and management of a municipal/local fund is absent in the present case. 20. Further, the Hon'ble High Court, Allahabad (Lucknow Bench) in the Income Tax Appeal No. 128/2008 has held that UP Jal Nigam is not a 'local authority. While passing the order, the Hon'ble High Court has discussed various case laws including RC Jain case (supra). The relevant portion of the order is reproduced below- Order dated 22.09.2011 delivered by Hon'ble Justice Devi Prasad Singh 43. Thus, to hold statutory body as an authority , it shall be necessary that the authority must have 'local fund' which shall be spent for providing civic amenities and also shall have right to generate fund by imposing taxes within the statutory jurisdiction, managed by elected body. Merely because a corporation has local fund, does not mean that it shall be the local authority as contemplated under Section 3 (31) of the General Clauses Act. . 75. The 1975 Act, does empower the State Government or the Jal Nigam to claim exemption from taxes only because the word, 'local authority' has been used in sub-section (3) of Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unicipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services etc. Broadly, it may say that they may be entrusted with the performance of civic duties and functions which would otherwise be governmental duties and function. Finally, they 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. This may be in addition to money provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority. 21. Although, the aforesaid order in Income Tax Appeal No. 128/2008 denying UP Jal Nigam the status of local authority is in respect of dispute of Income Tax, the same is applicable to instant case as the order of the Hon'ble High Court has been passed after analyzing the definition of 'local authority' contained in General Clauses Act. It has already been discussed that the term 'local authority' has been simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement 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 in our view. 27. The Notification No.11/2017- Central Tax (Rate) dated June 28, 2017 was amended vide Notification No. 15/2021-Central Tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -commercial establishments by Elegant Infra Developers to the Construction Design Services Division of the Uttar Pradesh Jal Nigam be subject to GST at the rate of 12% (6% CGST + 6% SGST) by virtue of item (vi) of serial number 3 of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 by considering the Construction Design Services Division of the Uttar Pradesh Jal Nigam as a Local Authority or the same will be subject to GST at the rate of 18% (9% CGST + 9% SGST) under item (xii) of serial number 3 of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 by considering the Construction Design Services Division of the Uttar Pradesh Jal Nigam as a Governmental Authority ? Answer - The works contract services provided by way of construction of non-commercial establishments by applicant to the Construction Design Services Division of the Uttar Pradesh Jal Nigam will be subject to GST at the rate of 18% (9% CGST + 9% SGST) under item (xii) of serial number 3 of the Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 by considering the Construction Design Services Division of the Uttar Pradesh Jal Nigam as a Governmental Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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