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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 ..... fication 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"? 4. As per the declaration given by the applicant in Form ARA-01, the issue raised by the applicant is neither pending in any proceedings nor decided in any proceedings in the applicant's case under any of the provisions of the CGST Act, 2017/UPGST Act, 2017. 5. The applicant has submitted that- (1) The applicant is predominantly engaged in the business of providing works contract services to the Construction & Design Services Division of the Uttar Pradesh Jal Nigam (hereinafter referred to as "the C&DS division of the U.P. Jal Nigam"). (2) U.P. Jal Nigam has been established under the Uttar Pradesh Water Supply and Sewerage Act, 1975 (hereinafter referred to as the "said Act"). (3) As per sub-section (3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the U.P. Jal Nigam to carry out any construction or related activity whether or not bearing a direct nexus to the water supply and sewerage treatment. (7) Until 31.12.2021, by virtue of item (vi) of serial no. 3 of Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 as amended, the GST rate of 12% (CGST 6% + SGST 6%) was applicable on the works contract services provided to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession or a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment. (8) By virtue of Notification No. 22/2021 - Central Tax (Rate) dated 31.12.2021, items (iii), (vi), (vii), (ix) and (x) against serial number 3 of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 have been amended with effect from 01.01.2022, to, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nigam, the C&DS division has been registered under the provisions of the Income Tax Act, 1961 under one PAN as a "Local Authority", the commercial nature of the C&DS division of the U.P. Jal Nigam carrying out activities as an independent contractor undertaking projects of tremendous magnitudes in areas outside the State of Uttar Pradesh and not having any direct nexus to the water supply and sewerage treatment as was envisioned by the parent statute has fuelled a conundrum as to whether the C&DS division of the U.P. Jal Nigam can be considered a "Local Authority" at all. The nature of activities and the scope of the operations of the C&DS division of the U.P. Jal Nigam ostensibly stretch beyond the confines of the responsibilities which are ordinarily entrusted to a local authority. (12) The provisions of the Uttar Pradesh Water Supply and Sewerage Treatment Act, 1975 apply only to the extent of the actions taken or omitted to be taken which are subservient to the principal objectives of the said Act viz, to provide for the development and regulation of water supply and sewerage services and for matters connected therewith. A harmonious interpretation of the said Act would lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract,. (2) On a perusal of the Letter of Acceptance ("LOA"), it can be observed that since the applicant has entered into a contract for the construction of various structures which constitute an immovable property and the said contract involves application of goods for the construction of the immovable property resulting into transfer of property in goods, the activity of the applicant qualifies to be a "works contract services" within the meaning of clause (119) of section 2 of the CGST Act. (3) On perusal of the LOA, it can be deduced that the immovable property so constructed is intended to be used for non-commercial purposes. Accordingly, the works contract services rendered by the applicant to the C&DS division of the U.P. (4) Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 has been amended by Notification No. 22/2021 - Central T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (x) "Government Entity" means an authority or a board or any other body including a society, trust, corporation, (i) set up by an Act of Parliament or State Legislature; or (ii) established by any Government, with 90 per cent or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority. (8) U.P. Jal Nigam appears to qualify as a "Local Authority" by virtue of sub-clause (c) of clause (69) of section 2 of the CGST Act since, as can be found on a perusal of the Uttar Pradesh Water Supply and Sewerage Act, 1975, U.P. Jal Nigam has been entrusted by the Government of Uttar Pradesh with the management of local fund which shall be called the Nigam Fund by virtue of section 40 of the Uttar Pradesh Water Supply and Sewerage Act, 1975 and the same shall be deemed to be a local fund. Accordingly, even though C&DS division of the U.P. Jal Nigam constitutes an integral unit of the U.P. Jal Nigam, it has progressively gained growth and autonomy in its affairs and operations that cannot be said to be circumscribed by the principles, when harmoniously inferred, of the statute under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and sewerage services; (vii) to perform all functions, not stated herein which were being performed by the Local Self-Government Engineering Department before the commencement of this Act; (viii) to review annually the technical, financial, economic and other aspects of water supply and sewerage system of every Jal Sansthan or local bodies which have entered into an agreement with the Nigam under Section 46; (ix) to establish and maintain a facility to review and appraise the technical, financial, economic and other pertinent aspect of every water supply and sewerage scheme in the State; (x) to operate, run and maintain any waterworks and sewerage system, if and when directed by the State Government, on such terms and conditions and for such period as may be specified by the State Government; (xi) to assess the requirements for manpower and training in relation to water supply and sewerage services in the State; (xii) to carry out applied research for efficient discharge of the functions of the Nigam or a Jal Sansthan; (xiii) any other functions entrusted to the Nigam by or under this Act; and (xiv) such other functions as may be entrusted to the Nigam by the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Authority" has been enlarged under the provisions of CGST Act by appending clauses (e) to (g) so as to cover "Regional Council", "District Council" and "Development Board" within the meaning of the term "Local Authority". (12) Even though all the divisions of the U.P. Jal Nigam have been registered under the Income Tax Act, 1961 as a "Local Authority", the ambiguity in the said status exists more particularly for the C&DS division emanating from the fact that the C&DS division of the U.P. Jal Nigam has been granted unbridled authority to carry out any type of construction activity not merely within the jurisdiction of the U.P. Jal Nigam but also beyond, i.e., outside the State of Uttar Pradesh. 7. The application for advance ruling was forwarded to the Jurisdictional GST Officer to offer his comments/views/verification report on the matter. The Deputy Commissioner, Commercial Tax, Sector-16, Ghaziabad vide his letter C.No. 75/Deptt-Comm.-16 19.04.2022 has submitted that UP Jal Nigam is not covered in the definition of 'local authority' contained in Section 2(69) of the CGST Act, 2017 as such works contract services provided to UP Jal Nigam by the applicant is liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant and have examined the explanation submitted by them. The applicant has ticked following issues in column no. 13 of Form GST ARA-01- (1) Classification of any goods or services or both (2) Applicability of a notification issued under the provisions of this Act. We find that the issue raised in the application is squarely covered under Section 97(2) of the CGST Act 2017. We therefore, admit the application for consideration on merits. 11. We observe that the question sought by the applicant is as under- `With effect from 01.01.2022, whether the works contract services provided by way of construction of non-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity is defined in S. 2(69) of the CGST Act as follows: (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 243? 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 municipal or local fund; (d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006); (e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution; (f a Development Board constituted under article 371 81-and article 37111 of the Constitution; or (g) a Regional Council constituted under article 371A of the Constitution; 15. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here must be. Next, they must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal 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. etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. 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 moneys 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. 18. The Apex Court in the case of Union of India and others v. R.C. Jain and others (supra) has laid down the following ingredients, which are required to be fulfilled cumulatively before an authority can be said to be a 'local authority', in the light of the definition of 'local authority' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and may at any time during financial year. Further, the accounts of UPJN shall be audited by such auditor as the State Govt. may direct. (4) As per Section 89 of the UPWSS Act, the UPJN shall be guided by such directions on questions of policy as may be given to it by the State Govt. (5) As per Section 90 of the UPWSS Act, the UPJN shall submit to the State Govt. an annual report giving an account of its activities during the previous financial year and the State Govt. shall cause every such report to be laid before the State Legislature. 19.3 The Apex court in the RC Jain case (supra) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not an authority, though, under section 3(3) of the U.P. Forest Corporation Act, 1974 it is provided that for all purposes, it shall be the 'local authority'. Hence, on the similar analogy, provisions of Section 3 (3) of U.P. Act no. 1975 is of no use to the assessee. 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. At the cost of repetition, it may be mentioned that in the instant case, the assessee has three wings namely; N Jal Nigam Wing; (ii) Nalkoop Wing; and (iii) Construction & Design Wing. In the case of R. C. Jain; AIR 1981 (SC) 951, it was observed that the "local authority" must be entrusted by statute with such governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the CGST Act. However, Notification No. 31/2017-Central Tax (Rate) dated October 13, 2017, which amended the Notification No 11/2017 - Central Tax (Rate) dated June 28, 2017, defined Governmental Authority as follows: "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 90 per cent. or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243 W of the Constitution or to a Panchayat under article 243 G of the Constitution." 25. Thus, 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. 26. As already discussed, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The said Entry 3(xii) of the Notification No.11/2017 reads as follows: Description of Service Rate (percent) "(xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (iii), (iv), (v), (va), (vi), (vii), (viii), (ix), (x) and (xi) above." 9 29. Accordingly, we pass the following ruling. RULING Question- With effect from 01.01.2022, whether the works contract services provided by way of construction of non-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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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