In re Indian Hume Pipe Company Ltd (GST AAAR Karnataka)
The Appellant has also taken pains to emphasise that BWSSB has been registered with the Income Tax Department and the GST Department as a ‘local authority’; that when both the departments have acknowledged the status of BWSSB as a local authority and accordingly granted them a PAN and GSTIN, the lower Authority cannot take a u-turn and change the status of BWSSB to a Governmental Authority and not a local authority. This argument does not impress us much. GST Registrations are granted based on the information furnished by the applicant. In the application for registration, BWSSB have declared their constitution of business as a ‘local authority’ since Section 9(2) of the BWSSB Act states that for the purposes of the said Act, the Board shall be deemed to be a local authority. However, when it comes to determining the rate of tax applicable on the supplies made by the Appellant, which is dependant on whether the supplies have been made to a local authority or not, it is necessary to examine in detail whether BWSSB qualifies to be termed as a local authority in terms of the definition of ‘local authority’ as given in Section 2(69) of the CGST Act. In so examining, we find that BWSSB does not qualify as a ‘local authority’ as defined in Section 2(69) of the CGST Act. Accordingly, we hold that with effect from 1st January 2022, the Appellant is not eligible for concessional rate of tax of 12% in terms of entry Sl.No 3(iii) of Notification No 11/2017 CT (Rate) dated 28-06-2017 as amended by Notification No 15/2021 CT (Rate) dated 18-11-2021 on the supplies made to BWSSB. We uphold the order passed by the lower Authority with regard to the rate of applicable tax on the supplies of works contract service made by the Appellant to BWSSB with effect from 1st January 2022.
We uphold the Advance Ruling No. KAR/ADRG 23/2022 dated 12-08-2022 and dismiss the appeal filed by The Indian Hume Pipe Company Limited on all counts.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA
1. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.
2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by M/s The Indian Hume Pipe Company Ltd, 58/1, Bellary Road, Venkatala Village, Yelahanka, Bangalore 560064 (herein after referred to as Appellant) against the Advance Ruling order No. KAR ADRG 23/2022 dated 12th August 2022.
Brief Facts of the case:
3. The Appellant is a Company which is engaged in construction commissioning and maintenance of entire work for water supply projects/sewerage projects/facilities. The Appellant has been awarded a contract by M/s Bangalore Water Supply & Swerage Board (hereinafter referred to as ‘BWSSB’ in short) to execute the work of Rehabilitation/Remodeling/Replacement of 400-100 mm dia sewer line in V-Valley. GST Rate Notification No 11/2017 CT (Rate) dated 28-06-2017 prescribed a rate of 18% on composite supply of works contract as defined in clause 119 of Section 2 of the CGST Act. This was subsequently amended vide Notification No 20/2017 CT (Rate) dated 22-08-2017 wherein entry Sl.No 3(iii) was applicable to composite supply of works contract when supplied to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for (i) water supply, (ii) water treatment or (iii) sewerage treatment or disposal and GST rate was at 12%. The entry Sl.No 3(iii) of the rate notification was further amended vide Notification No 31/2017 CT (Rate) dated 13-10-2017 to include the supplies of works contract to Central Government, Statement, Union territory, a local authority, a Governmental Authority or a Government Entity at the rate of 12%. This notification also defined the meaning of the terms “Governmental Authority’ and ‘Government Entity’. The entry Sl.No 3(iii) was further amended vide Notification No 15/2021 CT (Rate) dated 18-11-2021 (effective from 1st Jan 2022) where the concessional rate of 12% was made applicable only to the supplies made to the Central Government, State Government, Union territory or a local authority. The supplies made to a Governmental Authority and Government Entity were no longer eligible for concessional rate of 12% with effect from 1st January 2022.
4. In view of the changes made to the GST rate vide Notification No 15/2021 CT (Rate) dated 18-11-2021, the Appellant approached the Authority for Advance Ruling (AAR) seeking a ruling on the following question:-
“i) Whether the supply of services by the applicant to BWSSB is covered by Notification No 15/2021 CT (Rate) dated 18-11-2021 read with Notification No 22/2021 CT (Rate) dated 31-12-2021?
ii) If the supplies as per question 1 are covered by Notification No 15/2021 CT (Rate) dated 18-11-2021 read with Notification No 22/2021 CT (Rate) dated 31-12-2021, then what is the applicable rate of tax on such supplies made w.ef1-1-2022?
iii) In case if the supplies as per question 1 are not covered by the Notification supra, then what is the applicable rate of tax on such supplies w.ef1-1-2022? “
5. The AAR vide its order KAR ADRG No 23/2022 dated 12th August 2022 after giving a finding that BWSSB is not a local authority but a Governmental Authority, gave the following ruling in respect of the above questions:-
i) The supply of services by the applicant to BWSSB is covered by Notification No 15/2021 CT (Rate) dated 18-11-2021 read with Notification No 22/2021 CT (Rate) dated 31-12-2021.
ii) The applicable rate of tax on the supplies made by the applicant to BWSSB is 18% w.e.f 1-1-2022 as per entry 3(xii) of Notification No 11/2017 CT (Rate) dated 28-06-2017
iii) In view of the riding given at question (i), this question becomes redundant.
6. Aggrieved by the ruling given by the AAR, the Appellant has filed this appeal on the following grounds.
6.1. The Appellant submitted that BWSSB holds PAN under Income Tax and GSTIN under GST which have been issued by the Departments classifying the entity as a local authority; that BWSSB is an autonomous body formed by the State Legislature under BWSSB Act on 10-09-1964 for water supply and sewage disposal. As per the definition of ‘Local Authority’ given in Section 2(69) of the CGST Act any other authority legally entitled or entrusted by the State Government with the control or management of a municipal or local fund qualifies as a local authority; that a person which has already been held to be a ‘local authority’ under the GST law cannot be conferred with a different constitution for different purposes.
6.2. They submitted that the lower Authority in order to answer the queries raised in the application have gone on to determine the Constitution of BWSSB based on the old provisions of law; that the terms ‘Governmental Authority’ and ‘Government Entity’ were part of the entry 3(iii) of Notification No 11/2017 CT (Rate) dated 28-06-2017 as amended by Notification No 31/2017 CT (Rate) dated 13-10-2017and the explanation to the notification defining Governmental Authority and Government Entity applied to it; that these terminologies have been deleted from the entry 3(iii) of Notification No 11/2017 CT (Rate) dated 28-06-2017 vide Notification No 15/2021 CT (Rate) dated 18-11-2021 and hence the explanation does not have any role to play while interpreting the rate of tax; that in order to determine the rate of tax, one has to see the definition of the term ‘ local authority’ in totality as defined under the GST Act. He submitted that the constitution of BWSSB squarely fits into the definition of ‘local authority’. He emphasised the fact that BWSSB is holding GSTIN 29BLRA06245B1DJ issued by the GST Department classifying them under Local Authority; that a person cannot have two different constitutions under the same Act. The Appellant submitted that since the constitution of BWSSB is being considered in this case, the representatives of BWSSB may be given an opportunity of being heard to submit the necessary evidence.
6.3. The Appellant also filed an application for condonation of 20 days delay in filing the appeal; that the appeal could not be filed within the prescribed period as the contractee (BWSSB) were holding discussions for further course of action as the ruling impacted their payment of tax. Further, the filing of appeal was also delayed since the impugned order was not uploaded by the Department authorities due to technical glitches on the Portal. Hence, due to circumstances beyond their control, they prayed for condonation of 20 days delay in filing the appeal.
PERSONAL HEARING
7. The appellant was granted a virtual hearing on 17th January 2023. The hearing was conducted on the Webex platform following the guidelines issued by the CBIC vide Instruction F.No 390/Misc/3/2019-JC dated 21st August 2020. The Appellant was represented by Shri. Manish Goel, Chartered Accountant.
7.1. The Chartered Accountant explained that the Appellant is a manufacturer of cement pipes and has obtained a contract from BWSSB for remodelling/replacement of sewer line; that the works contract service being supplied to BWSSB was initially chargeable to GST at 18% but later reduced to 12% vide amendment Notification No 31/2017 CT (Rate) dated 13-10-2017; that a further amendment made vide Notification No 15/2021 CT (Rate) dated 18-11-2021 read with Notf No 22/2021 CT (Rate) dated 31st Dec 2021, restricted the concessional rate of 12% only to works contract supplied to Central Govt, State Govt, Union Territory or a local authority; that the Appellant had approached the advance ruling authority seeking a ruling whether they were covered by the Notification No 15/2021 CT (Rate) dated 18-11-2021 read with Notf No 22/2021 CT (Rate) dated 31st Dec 2021 with effect from 1st Jan 2022. He stated that the lower Authority held that the Appellant is not eligible for the concessional rate of 12% GST on the works contract service supplied to BWSSB in as much as BWSSB is not a local authority but a Governmental Authority. Aggrieved by the said decision, the Appellant is in appeal.
7.2. The Chartered Accountant requested the Bench for permission to invite the representatives of BWSSB for the hearing since the issue whether BWSSB is a local authority or not and whether tax at 18% is chargeable on the service supplied by the Appellant to BWSSB is of interest to the Appellant’s client since the tax is ultimately to be paid by BWSSB to the Appellant. Hence, he requested for permission to allow BWSSB to be part of the proceedings. The Bench responded that the issue was relating to the rate of tax applicable on the supply made by the Appellant and the presence of BWSSB as recipient of the supply is not relevant to the issue; that even though the tax will ultimately be paid by BWSSB, they cannot be construed as an aggrieved party to the ruling given. Further, BWSSB was not a party to the proceedings before the lower Authority and the Bench does not think it fit to include them in the proceedings at this stage.
7.3. The Chartered Accountant submitted that BWSSB is registered under the Income Tax law as a local authority; that even under GST, BWSSB has been granted a registration as a local authority and therefore, once the entity is considered a local authority as per law, it cannot change to a Governmental Authority when it comes to the point of taxation. He submitted that the supply of water by the BWSSB is a duty of the Municipal body. He stated that the lower authority has gone on to hold that BWSSB is a Governmental Authority by relying on a definition of the term ‘Governmental Authority’ which has been deleted from the Notification; that the Authority should have restricted its finding to whether BWSSB was a local authority within the meaning of the term given in Section 2(69) of the CGST Act. On whether BWSB qualifies as a local authority, he submitted that the AAR has not examined clause (c) of the definition of local authority which clearly covers within its scope ‘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’. He submitted that BWSSB is set up by the State Government and they are answerable to the State Govt and the BWSSB Act empowers them to collect taxes under Section 16 of the said Act. He relied on the advance ruling given by the West Bengal Authority for Advance Ruling in the case of Newtown Kolkata Development Authority (NKDA) wherein it was held that NKDA is a statutory authority established to carry out municipal functions and that it operates a local fund and hence is a local authority. On the issue of what constitutes a local fund, he said the same has not been defined in GST law and hence one needs to go to the General Clauses Act; that the same was examined by the Supreme Court in its decision dated 17th Feb 1981 in the case of UOI vs R.C Jain. He submitted that since BWSSB is empowered by the Act to manage a local fund and is answerable to the State Govt, it qualifies as a local authority. Consequently, the supply made by the Appellant to BWSSB is liable to tax at 12% GST in terms of Notification No 15/2021 CT (Rate) dated 18-11-2021 read with Notf No 22/2021 CT (Rate) dated 31st Dec 2021
DISCUSSIONS AND FINDINGS
8. We have gone through the records of the case and taken into consideration the submissions made by the Appellant in the grounds of appeal as well as during the personal hearing. The Appellant has sought for condonation of delay of 20 days in filing the present appeal. Given that the appeal has been filed within the condonable period, the delay in filing the appeal is hereby condoned in exercise of the power vested in terms of the proviso to Section 100(2) of the CGST Act.
9. Coming to the issue at hand, briefly stated, the facts are that the Appellant is a supplier of works contract service to BWSSB as per the contract dated 21-12-2017. They were paying GST at concessional rate of 12% on the supply made to BWSSB by virtue of the entry 3(iii) of rate Notification No 11/2017 CT (Rate) dated 28-06-2017 as amended by Notification No 31/2017 CT (Rate) dated 13-10-2017. The relevant entry 3(iii) of the rate notification is reproduced hereunder for reference:
