2023 (5) TMI 1067 - AAAR - GST

Classification of supply - works contracts - supply of services by the Appellant to M/s Uttar Pradesh Jal Nigam - M/s Uttar Pradesh Jal Nigam are covered under Local Authority or not - applicability of N/N. 15/2021-Central Tax (Rate) dated 18th November, 2021 read with N/N. 22/2021-Central Tax (Rate), dated 31.12.2021 - Rate of tax - HELD THAT:- As per the scope of work submitted by the Appellant they are engaged in contracts for construction of head works sumps, pump rooms, laying jointing of pipe line and commissioning and maintenance of the entire work for water supply projects/sewerage projects/facilities. They are mainly supplying these services to Government Authorities/Government entities, mainly to M/s Uttar Pradesh Jal Nigam.

On going through the constitution of Uttar Pradesh Jal Nigam (hereinafter referred to as the UPJN). It is found that it was created by 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.

Whether M/s Uttar Pradesh Jal Nigam is a 'Local Authority'? - HELD THAT:- The term local authority is defined in S. 2(69) of CGST Act. 2017. 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 by the Government with the control or management of a municipal or local fund qualifies as a Local Authority - M/s UPJN is not satisfying some of the conditions for qualifying as 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 authority should be elected by the inhabitants of the area. As per Section 4 of the UPWSS Act, the UPJN shall consist of Chairman and members appointed by the State Government. As such, the UPJN is not elected by the inhabitants of the area but the same is established by the state - The Apex court in the RC Jain case has 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. Perusal of the UPWSS Act reveals that the UPJN is not enjoying appreciable nature of autonomy.

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 - the UPJN is not a 'local authority'.

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 functions entrusted to a municipality under article 243W 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 Section 14 of UPWSS Act, UPJN is inter alia entrusted with the function to operate, run, and maintain any water works 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 been fulfilled in the present case. Thus M/s 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 28.06.2017 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 28.06.2017.