TMI Blog2024 (5) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution of India. The Hon ble Apex Court, in the case of SAIJ GRAM PANCHAYAT VERSUS STATE OF GUJARAT AND OTHERS. [ 1999 (1) TMI 531 - SUPREME COURT] , held that the Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IXA of the Constitution and the Gujarat Panchayats Act, 1961. Considering the conspectus of law laid down by the Hon ble Apex Court in the case of New Okhla Industrial Development Authority, the Notified Area Authority, Vapi cannot be considered as local authority or Governmental Authority . Therefore, the Notified Area Authority, Vapi is neither a local authority nor a Governmental Authority carrying out any activity in relation to any function entrusted to Panchayat under Article 243G of the Constitution or in relation to any function entrusted to Municipality under Article 243W of the Constitution. Petition dismissed. - HONOURABLE MR. JUSTICE BHARGAV D. KARIA AND HONOURABLE MR. JUSTICE NIRAL R. MEHTA Appearance: For the Petitioner(s) No. 1,2 : Mr Mihir Joshi Senior Advocate With Mr Kuntal A Parikh (7757) For the Respondent(s) No. 1,2 : None For the Respondent(s) No. 2 : Mr Raj Tanna AGP. For the Respondent(s) No. 1 Notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the municipality under Schedule XII of the Constitution for any area in which the municipality is established under Article 243Q of the Constitution. They are also entrusted with the responsibility to recover taxes and allocate it in a way to ensure the notified area is managed and maintained in similar way as the municipality does it in any other area in its jurisdiction. Under the Notified Areas Rules, the Board of Management and Chief Officer of the Notified Area Authority, Vapi has to carry out functions as mentioned in Clause 5 of Chapter II and Chapter III of the said Rules. [7] The petitioner No. 1 participated in the bidding process for the said Tender and was granted the Tender vide letter dated 22nd January 2019 for providing services to the Notified Area Authority, Vapi for an amount of Rs. 1,71,10,000/- for a period of 5 years. An agreement was executed on 4th February 2019 between the petitioner No. 1 and the Notified Area Authority, Vapi. Under the said agreement, the petitioner No. 1 has to provide services for collection, sorting, recovery of solid waste management and establish and set up material recovery facility for sustainable waste management in the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Notified Area Authority, Vapi, as per the agreement, is not exempted under Notification No. 12/2017 dated 28th June 2017 because the services provided by the petitioner No. 1 to the Notified Area Authority, Vapi are not pure services as it includes supply of goods. It was further held that since the petitioner do not fulfill the first condition of Serial No. 1 of Notification No. 12/2017 for claiming exemption, the applicability of other two conditions to the case of the petitioner was not decided. [12] Being aggrieved by the order dated 17th September 2020 passed by the Advance Ruling Authority, Gujarat, the petitioner No. 1 preferred an appeal before the Appellate Authority under Section 100 of the GST Act. The respondent No. 2 Appellate Authority rejected the appeal of the petitioner vide order dated 19th February 2021 and it was held that the petitioners are not entitled to the benefit of exemption available under Serial No. 3 of Notification No. 12/2017 as the petitioner is not a local authority or governmental authority . [13] Learned Senior Advocate Mr. Mihir Joshi for the petitioners submitted that the respondent No. 2, while rejecting the appeal, has replaced the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the legislature for inserting the said provisions in the Act was to give the same powers and duties to an industrial area in the State of Gujarat, as those of municipalities and by amending Section 2(13) and Section 264C, the legislature intended that the said industrial area should be deemed to be a municipality and the area of a municipal borough as provided under Clause (2) of Article 243Q of the Constitution. It was, therefore, submitted that the Notified Area Authority, Vapi is deemed to be a municipality, as defined in Clause (e) of Article 243P of the Constitution and therefore, it would fall within the meaning of term local authority , as defined in Section 2(69)(b) of the GST Act. It was, therefore, submitted that considering the functions and powers of the Board of Management and the Chief Officer of the Notified Area Authority, Vapi equivalent to that of the powers of the Chief Officer of the Municipality, the function of the notified area is akin to that of the Municipality and therefore, the Notified Area Authority, Vapi is nothing, but a local authority , as defined in the GST Act. Learned Senior Advocate Mr. Joshi, referring to Section 2(69)(c) of the GST Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph No. 2 of exemption Notification No. 12/2017. [19] It was, therefore, submitted that once the Appellate Authority has concluded that original Advance Ruling Authority has erred in deciding the issue of pure services , could not have given any finding on the other issues as the same were not decided by the Advance Ruling Authority. It was submitted that as per Section 101 of the GST Act, which specifically provides for powers of the Appellate Authority, the Appellate Authority has only the powers to either confirm or modify the ruling appealed from and therefore, the Appellate Authority could not have decided the other issues, which are not decided by the original authority nor the same was challenged before the Appellate Authority and therefore, the impugned order passed by the Appellate Authority is without jurisdiction, coram non-judice and without authority of law and therefore, liable to be quashed and set aside. [20] Learned Senior Advocate Mr. Joshi, has referred to and relied upon the decision of the Hon ble Bombay High Court in the case of JSW Energy Ltd vs. Union of India reported in [2019] 108 taxmann.com 27 (Bombay) , wherein it is held that the grounds, which are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be available and New Okhla Industrial Development Authority is also not covered by the word Municipality in Clause (e) of Article 243-P, therefore, cannot be included in Clause (ii) of Explanation to Section 10(20-A) of the Income Tax Act, 1961. It was, therefore, submitted that the Hon ble Apex Court, while considering the applicability of the provisions of Section 10(20), as amended by the Finance Act, 2002, the word local authority , as contained in Explanation to Section 10(20), has been discussed exhaustively to come to the conclusion that the appellant New Okhla Industrial Development Authority cannot be considered as local authority , and therefore, not entitled to the exemption from income under the provisions of the Act. It was therefore submitted that the Notified Area Authority, Vapi also cannot be considered as local authority or governmental authority . [23] Having heard the learned advocates appearing for the respective parties, a short question which arises for consideration is as to whether the petitioner is entitled to the benefit of exemption from payment of GST in respect of contract awarded to the petitioner by the Notified Area Authority, Vapi to provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raincoat in the monsoon, etc., therefore, the services include supply of goods. [28] The Appellate Authority, however, accepted the contention of the petitioner that setting up of material recovery facility and food composite facility, operation and maintenance does not involve any transfer in goods and accordingly, the Appellate Authority was of the view that use of required goods and equipment by the appellant including workers deployed in order to provide services to the Notified Area Authority, Vapi would not change the nature of services from pure services to supply of services with goods. [29] The Appellate Authority, however, examined the remaining two conditions, which the Advance Ruling Authority did not consider in view of their finding that the petitioner was not providing pure services. The Appellate Authority while examining the condition No. 2 that the exemption is admissible when pure services are provided to the Central Government, State Government, or Union Territory or local authority or governmental authority or a government entity analyzed the provisions of Section 2(69) of the GST Act to hold that the Notified Area Authority, Vapi does not fall in any of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , authority and responsibilities of Panchayats - Subject to the provisions of this Constitution the Legislature of a State may, by law, endow the Panchayats with such powers and authority and may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Panchayats, at the appropriate level, subject to such conditions as may be specified therein, with respect to-- (a) the preparation of plans for economic development and social justice; (b) the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule. [32] Article 243P of the Constitution reads as under: 243P. Definitions- In this Part, unless the context otherwise requires,-- (a) 'Committee' means a Committee constituted under article 243S; (b) 'district' means a district in a State; (c) 'Metropolitan area' means an area having a population of ten lakhs or more, comprised in one or more districts and consisting of two or more Municipalities or Panchayats or other contiguous areas, specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice; (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule; (b) the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule. [35] Clause (d) of Article 243 of the Constitution gives definition of panchayat means an institution by whatever name called of self-government constituted under Article 243B for the rural areas. Therefore, the Appellate Authority held that the Notified Areas Authority, Vapi is not a panchayat and would not fall in any clauses of Section 2(69) of the GST Act. Whereas Municipality as defined in Clause (e) of Article 243P of the Constitution means an institution of self-government constituted under Article 243Q, and hence, the Notified Area Authority, Vapi is neither Municipality nor Municipal Committee nor Jilla Parishad nor Development Board nor Cantonment Board as per various clauses of Section 2(69) of the GST Act. [36] The contention raised on behalf of the petitioner that the Notified Area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Government, Union Territory or local authority against the consideration received from the Central Government, State Government, Union Territory or local authority in the form of grants. Therefore, the Notified Area Authority, Vapi cannot be considered as a Government Entity or Governmental Authority . [38] Reliance was placed by the Appellate Authority as well as the learned A.G.P. on the decision of the Hon ble Supreme Court in the case of New Okhla Industrial Development Authority (supra), wherein the issue as to whether the Area Development Authority can be considered as local authority or not has been considered by the Hon ble Supreme Court while deciding as to whether the provisions of Section 10(20), as amended by the Finance Act, 2002 of the Income Tax Act, 1961, would be applicable to such Development Authority as a local authority or not in granting exemption from income. In that context, considering such issue, the Hon ble Supreme Court held as under: 15. The only issue which needs to be considered in these appeals is as to whether the appellant is a local authority within the meaning of Section 10(20) as amended by Finance Act, 2002 w.e.f. 01.04.2003. Section 10(20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, that is to say, an area in transition from a rural area to an urban area; (b) a Municipal Council for a smaller urban area; and (c) a Municipal Corporation for a larger urban area, in accordance with the provisions of this Part: Provided that a Municipality under this clause may not be constituted in such urban area or part thereof as the Governor may, having regard to the size of tile area and the municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as he may deem fit, by public notification, specify to be an industrial township. (2) In this article, a transitional area, a smaller urban area or a larger urban area means such area as the Governor may, having regard to the population of the area, the density of the population therein, the revenue generated for local administration, the percentage of employment in non agricultural activities, the economic importance or such other factors as he may deem fit, specify by public notification for the purposes of this Part. 18. Article 243R pertains to Composition of Municipalities which is to the following effect: 243R. Composition of Municipalities.-( 1) Save a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of a State having a Legislative Council, by each House of the Legislature of that State. 21. It is also relevant to notice certain provisions of Act, 1976, before we proceed further to examine the issue. The authority has been constituted by notification dated 17.04.1976 exercising power under Section 3 of Act, 1976. Section 3 provides for Constitution of the Authority which is to the following effect: 3. (1) The State Government may, by notification, constitute for the purposes of this Act, An authority to be called (Name of the area) Industrial Development Authority, for any industrial development area. (2) The Authority shall be a body corporate. (3) The Authority shall consist of the following: (a) The Secretary to the Government, Uttar Pradesh, Member Industries Department or his Nominee not below Chairman the rank of Joint Secretary-ex-official. Member Chairman (b) The Secretary to the Government, Uttar Pradesh, Member Public works Department or his nominee not below the rank of Joint Secretary ex-official. Member (c) The Secretary to the Government, Uttar Pradesh, Local Member Self-Government or his nominee not below the rank of joint Secretary-ex official. Member (d) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnor in exercise of the powers under the proviso to Clause (1) of Article 243Q. The notification is as follows: NOTIFICATION No.6709/77-4-2001-56 Bha/99 In exercise of the powers under the proviso to Clause (1) of Article 243Q of the Constitution of India, the Governor, having regard to the size of the New Okhla Industrial Development Area, which has been declared as an industrial development area by Government Notification No. 4157-HI/XVIII-11, dated April 17, 1976 and the municipal services being provided by the New Okhla Industrial Development Authority in that area, is pleased to specify the said New Okhla Industrial Development Area to be an industrial township with effect from the date of publication of this notification in the official gazette. By order, Sd/- (Anoop Mishra) Secretary. 25. The submissions made by the parties can be dealt with in the following two heads: A. The status of the Authority by virtue of notification dated 24.12.2001 issued under Clause (1) of Article 243Q. B. Whether the appellant is a local authority within the meaning of Section 10 sub-section (20) as explained in Explanation added by Finance Act, 2002. (A) Part IXA of the Constitution: 26. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular and fair conduct of elections. In the Statement of Objects and Reasons in the Constitution Amendment Bill relating to urban local bodies, it was stated... 28. The constitutional provisions as contained in Part IXA delineate that the Constitution itself provided for constitution of Municipalities, duration of Municipalities, powers of Authorities and responsibilities of the Municipalities. The Municipalities are created as vibrant democratic units of self-government. The duration of Municipality was provided for five years contemplating regular election for electing representatives to represent the Municipality. The special features of the Municipality as was contemplated by the constitutional provisions contained in Part IXA cannot be said to be present in Authority as delineated by statutory scheme of Act, 1976. It is true that various municipal functions are also being performed by the Authority as per Act, 1976 but the mere facts that certain municipal functions were also performed by the authority it cannot acquire the essential features of the Municipality which are contemplated by Part IXA of the Constitution. The main thrust of the argument of the learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to above, this Court has in a long course of decisions explained and adumbrated the various shades, aspects and elements of a proviso. In State of Rajasthan v. Leela Jain, AIR 1965 SC 1296 , the following observations were made: So far as a general principle of construction of a proviso is concerned, it has been broadly stated that the function of a proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part. 39. In the case of STO, Circle-I, Jabalpur v. Hanuman Prasad, AIR 1967 SC 565 , Bhargava, J. observed thus: 5 .It is well-recognised that a proviso is added to a principal clause primarily with the object of taking out of the scope of that principal clause what is included in it and what the legislature desires should be excluded. 40. In Commissioner of Commercial Taxes v. R.S. Jhaver, AIR 1968 SC 59, this Court made the following observations: 8. ...Generally speaking, it is true that the proviso is an exception to the main part of the section; but it is recognised that in exceptional cases a proviso may be a substantive provision itself. 41. In Dwarka Prasad v. Dwarka Das Saraf, AIR 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is clear that proviso is an exception to the constitutional provisions which provide that there shall be constituted in every State a Nagar Panchayat, a Municipal Council and a Municipal Corporation. Exception is covered by proviso that where an industrial township is providing municipal services the Governor having regard to the size of the area and the municipal services either being provided or proposed to be provided by an industrial establishment specify it to be an industrial township. The words industrial township have been used in contradiction of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. The object of issuance of notification is to relieve the mandatory requirement of constitution of a Municipality in a State in the circumstances as mentioned in proviso but exemption from constituting Municipality does not lead to mean that the industrial establishment which is providing municipal services to an industrial township is same as Municipality as defined in Article 243P(e). We have already noticed that Article 243P(e) defines Municipality as an institution of self-government constituted under Article 243Q, the word constituted used under Article 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneys received by the Authority from the State Government by way of grants, loans, advances or otherwise, all fees, rents, charges, levies and fines received by the Authority under the Act, all moneys received by the Authority from disposal of its movable or immovable assets and all moneys received by the Authority by way of loan from financial and other institutions and debentures floated for the execution of a scheme or schemes of the Authority duly approved by the State Government. Unless the State Government directs otherwise, all moneys received by the Authority shall be credited to its funds which shall be kept with State Bank of India and/or one or more of the nationalised banks and drawn as and when required by the Authority. 33. On the question as to whether the Adityapur Industrial Area Development Authority was covered within the meaning of local authority as per Section 10(20) as amended by the Finance Act, 2002, the High Court held that the appellant authority could not have claimed benefit under the provisions after 01.04.2003. In paragraphs 6 and 7 following was held: 6. It would thus be seen that the income of a local authority chargeable under the head Income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant to the present case since, the Court has also dwelled upon Section 10(20) as amended w.e.f. 01.04.2003. We, thus, do not accept the submission of the appellant that the above case was not relevant for the present case and was wrongly relied on by the High Court. 36. The second judgment which is relied on by the High court is Agricultural Produce Market Committee, Narela (supra). The Agricultural Produce Market Committee was constituted under the Delhi Agricultural Produce Marketing (Regulation) Act, 1998. The question arose as to whether Agricultural Market Committee is a local authority under the Explanation to Section 10(20) of the Income Tax Act, 1961. In the above context it was noticed that all Agricultural Market Committees at different places were enjoying exemption from income tax under Section 10(20) prior to its amendment by the Finance Act, 2002 w.e.f. 01.04.2003. The definition of local authority under Section 3(31) of General Clauses Act, 1897 is as follows: 3.(31) local authority shall mean a municipal committee, district board, body or port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive attributes and characteristics of a Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a Municipal Committee, District Board or Body of Port Commissioners shares with any other local authority? First, the authorities must have separate legal existence as corporate bodies. They must not be mere governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next, they 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 but, an appreciable measure of autonomy there must be. Next, they must be entrusted by statute with such governmental functions and duties as are usually entrusted to municipal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insertion of the Explanation/definition clause to that sub-section vide the Finance Act, 2002. 39. This Court held that Agricultural Marketing Committee is also not covered by the words Municipal Committee, District Board, Body of Port Commissioners as used in Explanation of Section 10(20). 40. In this context, we also refer to the judgment of this Court in Saij Gram Panchayat vs. State of Gujarat an others, 1999 (2) SCC 366 . This Court had occasion to consider in the above case Gujarat Industrial Development Act, 1962, the provisions of Article 243Q and Gujarat Municipalities Act, 1963. 41. This Court held that Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IXA of the Constitution and the Gujarat Panchayats Act, 1961. In paragraph 16 of the judgment following was held: 16 . The Gujarat Industrial Development Act operates in a totally different sphere from Parts IX and IX-A of the Constitution as well as the Gujarat Panchayats Act, 1961 and the Gujarat Municipalities Act, 1962 the latter being provisions dealing with local self-government, while the former being an Act for industrial development and orderly establishment and organisati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon ble Bombay High Court in the case of JSW Energy Ltd (supra), while dealing with the contention of the assessee with regard to ground of failure of principles of natural justice and consequently, the entire decision making process is vitiated, held as under: 25. In Reckitt Colman of India Ltd. vs. Collector of Central Excise - 1996 (88) ELT-641 (SC), the Supreme Court was concerned with adjudicatory proceedings, which, to a great extent, are adversarial in nature. It is in that context that the Supreme Court observed that an Appellate Tribunal is not competent to make out in favour of the Revenue, a case which the Revenue never canvassed or which the assessee was never required to meet. Such observations therefore, will have to be read in the context of adjudicatory proceedings, the scope of which is not quite the same as the scope of proceedings where an assessee or a potential assessee seeks advance ruling. 26. Therefore, we are unable to accept Mr. Dada's contention that the Appellate Authority exceeded jurisdiction in adverting to 'new grounds', in support of its decision as reflected in the impugned order dated 2 nd July 2018. However, the moot question whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the inputs being supplied by the principal and the amount and quantity of the inputs/material being used by the job worker to the inputs supplied by the principal to carry out the job work process. (ii) The detail manufacturing process of M/s JEL for production of Electricity mentioning the name, quantity and value of the inputs. (iii) The procedure/process for accounting for the inputs received from M/s. JSL by M/s. JEL and co-relation thereof with the goods supplied after job work. Though it is not possible to ascertain the quantity and value of the material being utilized by the job worker in the conversion of coal provided by the principal into electricity accurately in absence of data before us, it can nevertheless be seen from the details provided by the appellant that coal is not the only input used for the production of electricity. There is large quantity of water and air being utilized in the process. The other materials being used by the job worker are not minor additions to the inputs and all inputs are not provided by the principal. Accordingly it is seen that the process cannot be considered as Job work following the ratio of the above judgment. 30. The aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot providing documentary evidences during the appeal proceedings, on the aspects set out in clauses (i),(ii) and (iii) above. There is again, no dispute, that the petitioner was never called upon to produce such documentary evidences in the course of appeal proceedings. In effect, this means that an order adverse to the interests of the petitioner has been made by the Appellate Authority, even after agreeing the petitioner that the primary reasoning of the Advance Ruling Authority was not proper, without affording the petitioner opportunity to meet with or to clarify or to produce materials or documentary evidences which might have had a bearing on the 'new grounds' ultimately relied upon by the Appellate Authority. This, according to us, involves failure of natural justice, thereby vitiating the decision making process leading to the making of the impugned order dated 2nd July 2018. 33. The fact that the proceedings before the Appellate Authority partake a judicial or a quasi judicial character was not seriously disputed at the bar. Accordingly, there can be no serious dispute that the Appellate Authority was required to adhere to the principles of natural justice in arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated. The Supreme Court held that failure to do so would constitute failure of natural justice and therefore, remand to the second Appellate Court, was in order. 36. Applying the aforesaid principles to the facts and circumstances of the present case, we are satisfied that the Appellate Authority should have at least indicated to the petitioner that it proposed to take into consideration the 'new grounds' and further, afford an opportunity to the petitioner to place on record agreements or other documentary evidences referred to in paragraphs 52 and 56 of the impugned order dated 2nd July 2018, in order to meet these 'new grounds'. The failure to do so has not only resulted in violation of principles of natural justice, but also occasioned serious prejudice to the petitioner. 37. Accordingly, on the aforesaid ground, we set aside the impugned order dated 2 July 2018 made by the Appellate Authority and remand the petitioner's appeal to the Appellate Authority for reconsideration on its own merits and in accordance with law. On this occasion, however, we grant the petitioner liberty to produce before the Appellate Authority additional material or documentary evid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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