18% GST applicable to works contract services provided to UP Jal Nigam

[CA Bimal Jain]

The AAAR, Uttar Pradesh in the case of  IN RE: M/S THE INDIAN HUME PIPES COMPANY LTD. - 2023 (5) TMI 1067 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH has held that, the assessee providing works contract services to Uttar Pradesh Jal Nigam (“UP Jal Nigam”), a government authority, would be liable to pay GST @ 18%.

Facts:

M/s. Indian Hume Pipe company Ltd. (“the Appellant”) undertakes contracts for construction of head works sumps, pump rooms, laying jointing of pipeline and commissioning and maintenance of the entire work for water supply projects/ sewerage projects/ facilities.

The Appellant provides services to Government bodies/ entities/ authorities mainly, to UP Jal Nigam. The Appellant was of the view that the UP Jal Nigam is a local authority and thus, the services provided would be taxed @12% as per S No. 3(iii) of the Notification 11/2017 Central Tax (Rate) dated June 28, 2017 (“the Services Rate Notification”).

This appeal has been filed against the IN RE: M/S. INDIAN HUME PIPE COMPANY LTD., - 2022 (12) TMI 1324 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH ("the Impugned Ruling”) passed by the AAR Uttar Pradesh, wherein, it was ruled that the UP Jal Nigam is a governmental authority and the Appellant would be liable to pay GST @ 18% on services provided to UP Jal Nigam.

Issue:

Whether UP Jal Nigam is a governmental authority or a local authority?

Held:

The AAAR, Uttar Pradesh in  IN RE: M/S THE INDIAN HUME PIPES COMPANY LTD. - 2023 (5) TMI 1067 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH held as under:

• Observed that, UP Jal Nigam is a body corporate having perpetual succession, common seal and is capable of suing or being sued in its name. Moreover, it has a power to acquire and to dispose of the property.
• Relied upon the judgment of the Hon’ble Supreme Court in UNION OF INDIA & ORS. VERSUS RC. JAIN & ORS. - 1981 (2) TMI 200 - SUPREME COURT wherein, the Court laid down conditions that must be met cumulatively for an entity to be considered a 'local authority'.
• Opined that, the fund of UP Jal Nigam 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. Therefore, UP Jal Nigam is not a local authority.
• Further, relied upon the judgment of Hon’ble Allahabad High Court in COMMISSIONER OF INCOME TAX-I VERSUS M/S UP. JAL NIGAM - 2011 (9) TMI 174 - ALLAHABAD, HIGH COURT, wherein, it was held that the UP Jal Nigam is not ‘local Authority’.
• Stated 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. Further, stated that, the requirements of being a governmental authority stands fulfilled.
• Held that, UP Jal Nigam does not qualify as a 'local authority' and it qualifies as a governmental authority. Thus, GST @ 18% is applicable on the works contract services provided to UP Jal Nigam as per SI No. 3(xii) of the Services Rate Notification.
• Upheld the Impugned Ruling.

Relevant provision:

SI No. 3(xii) of the Services Rate Notification:

S. No.	Chapter, Section or  Heading	Description of Service	Rate (per cent.)
“3	Heading 9954 (Construction services)	(xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (vii), (viii), (x) and (xi) above.  Explanation - For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract central tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry	9

……………………….

Explanation -

(ix) “Governmental Authority” means an authority or a board or any other body, -

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with 90per cent. or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243W of the Constitution or to a Panchayat under article 243W of the Constitution.”

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