18% GST Applicable to Work Contract Service to Uttar Pradesh Jal Nigam: AAAR [Read Order]

In a recent ruling, the Uttar Pradesh Appellate Authority for Advance Ruling (AAAR) ruled that 18% Goods and Services Tax (GST) applicable on work contract services to Uttar Pradesh Jal Nigam (JPJN).

The bench of Dr. Uma Shanker and Ministhy S. observed that the Uttar Pradesh Jal Nigam (JPJN) is not a local authority but qualifies as a Governmental authority Thus it attracts 18% Goods and Services Tax (GST).

The applicant, M/s The Indian Hume Pipes Company Limited is engaged in the contracts for the construction of headworks sumps, pump rooms, jointing of pipe lines, and commissioning and maintenance of the entire work for water supply projects, sewerage projects, and facilities.

The services were provided to the government bodies or entities or authorities mainly  M/s Uttar Pradesh Jal Nigam for the mentioned work.

The Uttar Pradesh Authority for Advance Ruling (AAR) ruled that the supply of services by the Applicant to M/s Uttar Pradesh Jal Nigam is not covered by Notification No. 15/2021-Central Tax (Rate), dated 18th November, 2021 read with Notification NO. 22/2021-CentraI Tax (Rate) dated 31st December, 2021 and attracts a tax rate of 18%.

The applicant, unsatisfied with the decision of the AAR, preferred an appeal before the Appellate authority.

The applicant asserted that M/s Uttar Pradesh Jal Nigam squarely covered under the definition of ‘Local Authority’ as provided under Section 2(69) of the CGST Act, 2017 and as per Notification 11/2017- Central Tax (rate) as amended, local authority is to be taxed at 12% GST.

The bench observed the decision of the Supreme Court in the case of Union of India and others v. R.C. Jain and others  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’ as given under Section 3(31) of the General Clauses Act.

1. The authorities must have a separate legal existence as corporate bodies. It must be Legally independent entities.
2. The authority must function in a defined area and ordinarily, wholly or partly, directly or indirectly be elected by the inhabitants of the area.
3. The authority must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the Area administered by them.
4. The authority must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal bodies.
5. The authority 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.
6.  Essentially, control or management of the funds must vest in such authority.

The appellate authority noted that in order to be considered a governmental authority, a body must be established by an act of the State Legislature or the Parliament, hold 90% or more of the government, and perform any duties assigned to a municipality under Article 243W of the Indian Constitution. Conclusively, the bench decided that as the UPJN does not qualify as a ‘Local Authority but qualify as a Governmental Authority’ and attracts 18% Goods and Services Tax (GST). The appellate authority upheld the decision of the Authority for Advance Ruling.

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