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

The AAAR, Uttar Pradesh in the case of M/s the Indian Hume Pipes Company Ltd. (Appeal Order No. 05/AAAR dated March 10, 2023) 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 Advance Ruling Order No. UP ADRG 12/2022 dated November 23, 2022 ("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 Appeal order No. 05/AAAR 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 v. R.C. Jain [(1981) 2 SCC 308] 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 Income tax Appeal No. 128/2008, 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:

……………………….

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 90 percent. 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 243G of the Constitution.”