Shuba Lakshmanan | Nov 29, 2021 |
State owned entities are either ‘govt. entity’ or ‘govt. authority’ for providing pure services and exempt from GST: Gujarat AAR
An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advanced Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appellate authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR.
The question of law which is address through this AAR is as follows:
The applicant, M/S. Gujarat State Road Development Corporation (GSRDC), is a 100% equity and control owned Government of Gujarat Company, registered under the erstwhile Companies Act 1956. In the wake of public-private partnership concept(PPP), the government of Gujarat formulated Road Policy on December 1996 where private participation was encouraged in the construction, development, up-gradation, repair, operation, management and maintenance of roads, falling under the Government of Gujarat jurisdiction. The Government of Gujarat set up two organizations namely Gujarat Infrastructure Development Board (GIDB) and GSRDC for inviting private sector participation in the infrastructure development of roads, bridges and bypass. The primary objective with which GSRDC was set up was for assisting the Road and Building Department of Government of Gujarat under the BOLT, BOTT and BT projects, where 8 road projects were proposed and GSRDC would seek PPP for constructing and maintaining superior quality roads at competitive prices.
The applicant has presented that vide Sr.No. 3 of Notification No. 12/2017-CT (Rate) dated 28.Jun.2017, pure services provided to Central / State Governments or Union territories or local authority or governmental authority or governmental entity is exempt from GST. Further it presented that ‘government authority’ and ‘government entity’ are defined under Notification No. 11/2017-CT (Rate) dated 28.Jun.2017 amended vide Notification No. 31/2017-CT (Rate) dated 13.Oct.2017 as below.
“Government authority means an authority or a board or any other body, (i) set up by an Act of Parliament or State Legislature’ or (ii) established by any government with 90% or more participation by way of equity or control, to carry out any function entrusted to a Municipality under Article 243W of Constitution or to a Panchayat under Article 243G of the Constitution.”
“Government entity means an authority or a board or any other body including a society, trust, corporation, (i) set up by an Act of Parliament or State Legislature’ or (ii) established by any government with 90% or more participation by way of equity or control, to carry out a function entrusted by the Central/State governments or Union Territory or a local authority.”
The applicant opined that since building and development of state highways, roads as required by State Government does not fall within the list of services as enumerated under Article 243W and 243G of the Constitution of India, the applicant is not a ‘government authority’ and hence is disqualified for exemption under GST vide notification Sr.No. 3 of Notification No. 12/2017-CT(rate) dated 28.Jun.2017.
The applicant further submitted their ongoing project description under BOT which were mainly infrastructure development projects of state highways or other roads such as Deesa-Panthavada-Gundri etc which fall within the jurisdiction of either a Municipality or Panchayat. The applicant sought clarification if the functions undertaken by them would fall under Article 243G and 243W as function entrusted to a Panchayat or Municipality, under the Constitution of India and under which heading the applicant falls under, ‘government authority’ or ‘government entity’.
The AAR, on verification of the representation made by the applicant through its learned representative on 27.Jul.2021, acknowledged the clarification sought by applicant through its application and enquired if the applicant built village/municipal roads for which the learned counsel affirmed that the roads they built for the state did fall under municipalities and panchayats lands.
The AAR opined that they are not the appropriate authority to answer question 1 raised by the applicant namely ‘whether functions undertaken by them would fall under Article 243G and 243W as function entrusted to a Panchayat or Municipality, under the Constitution of India’. The applicant agreed to the AAR’s contention.
On question 2 which the applicant had raised whether if applicant falls under, ‘government authority’ or ‘government entity’, the authority opined that GSRDC would fall under the definition of ‘government entity’ because, as per the resolution passed dated 22.Feb.1999, the primary objective of the applicant was to assist the Gujarat government to undertake the development of roads and bridges. Further the AAR opined that since GSRDC roads and bridges are constructed by GSRDC in the lands falling within jurisdiction municipalities and panchayats and hence the applicant performs the function of a municipality or panchayat as given under Article 243G and 243W of Constitution of India. In such cases, the AAR classified the applicant as ‘government authority’.
The AAR hence concluded that GSRDC is primarily a ‘government entity’ and in cases where it constructs roads and bridges within municipality and village jurisdictions, it shall be a ‘government authority’.
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