TMI Blog2020 (8) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the above companies was to carry out the business of distribution of electricity. The distribution of electricity by the incorporated companies is a commercial activity. Electricity is a concurrent list subject at Entry 38 in List III of the seventh Schedule of the Constitution of India. In India s federal governance structure, this means that both the central government and India s state governments are involved in establishing policy and laws for the electricity sector. This requires the central government and individual state governments to enter into memoranda of understanding to help expedite projects in the individual states. While these incorporated companies are set up with major funding from the State Government and are considered as Government Entities, they are not the Government per se since they do not have the sovereign power which resides with the State Government - the Appellant s argument is rejected on this count and it is held that the electricity distribution companies like BESCOM, MESCOM and HESCOM though being Government Entities, do not qualify as State within the meaning given in Article 12 of the Constitution. For availing the benefit of Sl.No 3(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal Energy Infratech Ltd, Udayavani Building, Udayvani Road, Manipal 576104 (herein after referred to as Appellant) against the advance Ruling No. KAR/ADRG 111/2019 dated 30th Sept 2019 = 2019 (10) TMI 800 - AUTHORITY FOR ADVANCE RULING, KARNATAKA . Brief Facts of the case: 3. The Appellant (MEIL) is engaged in civil construction, mechanical structural work, erection of equipment, electrical infrastructure including substations etc. The Appellant regularly bids for the tenders floated by various electricity companies. In the instant case, the Appellant participated in the tenders floated by some of the electricity distribution companies based in Karnataka i.e., Hubli Electricity Supply Company Limited (hereinafter referred to as HESCOM ), Mangalore Electricity Supply company Limited (hereinafter referred to as MESCOM ) and Bangalore Electricity supply company Limited (hereinafter referred to as BESCOM ). 4. The Appellant, upon participating in the tender, has been awarded the following contracts by MESCOM: a. Contracts for Strengthening of Distribution Networks in Udupi Circle of MESCOM, Karnataka under Integrated Power Development Scheme (IPDS) on tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioning, installation, completion, etc. are not covered under entry 3 (vi)(a) of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 or under entry 3(vi)(a) of the Notification No.8/2017-Integrated Tax (Rate) dated 28.06.2017 as amended from time to time and consequentially are not eligible to be taxed at a lower rate of 12% GST and hence are liable to be taxed at 18% GST. 8. Aggrieved by the above ruling, the Appellant filed this appeal on the following grounds: 8.1. The Appellant submitted that the services provided by them are covered under heading 9954 and this classification of the services has not been questioned by the lower Authority and hence the tax for supply of services by the Appellant to the electricity distribution companies must be determined based on the tax applicable for supplies under such heading; that the services provided by them to the electricity distribution companies are composite supply of works contract as defined under clause (119) of Section 2 of the CGST Act; that the electricity distribution companies HESCOM, MESCOM and BESCOM are established by the Government of Karnataka with shareholding of more than 90 percent and have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the State Government and accordingly covered under the definition of State . 8.3. They placed reliance on the decision of the Constitution Bench of the Supreme Court in the case of Ajay Hasia and Ors vs Khalid Mujib Sehravardi and Ors [MANU/SC/0498/1980] = 1980 (11) TMI 150 - SUPREME COURT wherein the Court summarised the following tests to adjudge whether a body is an instrumentality of the government or not: i. If the entire share capital of the body is held by the government, it goes a long way towards indicating that the body is an instrumentality of the government; ii. Where the financial assistance given by the government is so large as to meet almost entire expenditure of the body, it may indicate that the body is impregnated with governmental character; iii. It is relevant factor if the body enjoys monopoly status which is conferred or protected by the State; iv. Existence of deep and pervasive state control may afford an indication that the body is a state instrumentality. v. If the functions performed by the body are of public importance and closely related to governmental functions, it is relevant factor to treat the body as an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity to different regions of Karnataka State. This satisfies the sixth test laid down by the Supreme Court i.e department of Government getting transferred to a corporation. In view of the above, they submitted that the electricity distribution companies are State under Article 12 of the Constitution. 8.6. They further submitted that as per Section 2(h) of the Right to Information Act, 2005, a public authority means any authority or body or institution of self-government established or constituted; that the electricity distribution companies are body owned, controlled and financed by Government of Karnataka and therefore, they fall squarely under the meaning of public authority as provided under the RTI Act. Further, they submitted that the electricity distribution companies are State under Article 12 of the Constitution notwithstanding the fact that they are also covered under the definition of Government Entity; that a corporation which is covered under the definition of Government Entity can also be covered under the definition of State Government. In view of the above submissions, the Appellant contended that the Explanation to entry 3 (vi)(a) of the Rate Notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llation, completion, fitting out, repair, maintenance, renovation, or alteration of- (a) A civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (b) A structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or (c) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act,2017. Explanation . - For the purposes of this item, the term business shall not include any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities. 12% Provided that where the services are supplied to a Government Entity, they should have been procured by the said entity in relation to a work entrusted to it by the Central Government, State Government, Union territory or local authority, as the case may be. 11. The lower Authority on examining the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amental rights, it starts right from Article 12 to Article 35. For the purposes of Part III of the constitution, the state comprises of the following: 1. Government and Parliament of India i.e the Executive and Legislature of the Union 2. Government and Legislature of each State i.e the Executive and Legislature of the various States of India 3. All local or other authorities within the territory of India 4. All local and other authorities who are under the control of the Government of India Today s government performs a large number of functions and acts through natural persons as well as juridical persons. Some functions are discharged through the traditional governmental departments and officials while some functions are discharged through autonomous bodies existing outside the departmental structure, such as, companies, corporations etc. The term other authorities in Article 12 has nowhere been defined. Neither in the Constitution nor in the General Clauses Act, 1897 nor in any other statute of India. Therefore, the term other authorities has been interpreted by various judicial pronouncements in accordance with the facts and circumstances of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment. While considering whether such government entities are an authority within the meaning of Article 12, we are of the opinion that authorities constitutional or statutory invested with power by law but not sharing the sovereign power do not fall within the expression State as defined in Article 12. Those authorities which are invested with sovereign power i.e., power to make rules or regulations and to administer or enforce them on citizens and others fall within the definition of State in Article 12, and constitutional or statutory bodies which do not share that sovereign power of the State are not, State within the meaning of Article 12 of the Constitution. Further, there must be deep and pervasive governmental control over the financial, administrative and functional activities of the entity. Mere regulatory control by the Government will not suffice to fulfil the requirements of Article 12. Therefore, we reject the Appellant s argument on this count and hold that the electricity distribution companies like BESCOM, MESCOM and HESCOM though being Government Entities, do not qualify as State within the meaning given in Article 12 of the Constitution. 16. For ava ..... X X X X Extracts X X X X X X X X Extracts X X X X
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