Uttar Pradesh Jal Nigam Is Not A Local Authority: AAAR Denies Concessional Rate Benefit On Works-Contract Services

The Uttar Pradesh Appellate Authority of Advance Ruling (AAAR) has held that Uttar Pradesh Jal Nigam (UPJN) is not a local authority and 18% GST is payable on the works-contract services.

The Bench of Uma Shankar and Ministhy S, while upholding the ruling of the Authority of Advance Ruling (AAR) observed that by way of Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, the lower rate of tax of 12% was restricted to works contracts supplied to the Central Government, State Government, Union Territory, and a local authority only. As the UPJN does not qualify as a ‘local authority’ and qualifies as a governmental authority, a tax rate of 18% is applicable on the work contract services provided to the UPJN.

The applicant undertakes 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 applicant sought an advance ruling on the issue of whether the supply of services by the appellant to M/s Uttar Pradesh Jal Nigam is covered by Notification No. 15/2021 Central Tax (Rate) read with Notification 22/2021-Central Tax (Rate) dated December 31, 2021.

As per Notification No. 15/2021-Central Tax (Rate) dated November 18, 2021, composite supply of works contracts to government entities or authorities will be taxable at the rate of 18%, and job work by way of dyeing and printing of textiles and textile products will be taxable at the rate of 12%.

The AAR held 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 November 18, 2021, read with Notification No. 22/2021-Central Tax (Rate) dated December 31, 2021. The applicable rate of tax is 18% GST.

The applicant contended that the Authority for Advance Ruling has failed to appreciate the fact that tax liability under works contracts is to be determined in terms of Notification 11/2017-Central Tax (Rate) dated June 28, 2017, as amended from time to time. M/s Uttar Pradesh Jal Nigam is 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) dated June 28, 2017, as amended, local authorities are to be taxed at 12% GST.

The AAAR noted that in order to qualify as a governmental authority, such an authority must be set up by an act of Parliament or the State Legislature, have a 90% or greater stake in government, and carry out any functions entrusted to a municipality under Article 243W of the Constitution of India.

The AAAR held that the requirement that the authority must be established to carry out any function entrusted to a municipality under Article 243 W of the constitution has been fulfilled. Thus, UPJN is a "government authority.

Appellant’s Name: Indian Hume Pipes Company Ltd

Date: 10/03/2023

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