The Goods and Services Tax Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has held that the Kerala Water Authority (KWA) is not a “local authority” under Section 2(69) of the CGST/KGST Act, 2017 and works contract services attract 18% GST from January 2022.
The Bench of Subramanya Rayaprol (Vice-President) and Ramamoorthi Sriram (Technical Member) has observed that works contract services supplied to KWA are not eligible for the concessional GST rate applicable to works contracts provided to specified local authorities.
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The appellant/assessee, a partnership firm engaged in providing works contract services, including services to the Kerala Water Authority, was subjected to scrutiny by the CGST Department for the period from September 2019 to March 2022.
During the audit, the Department alleged that the appellant had short-paid GST because of the change in the applicable rate from 12% to 18%, resulting in a differential tax liability of ₹45,26,398.
The Department examined the appellant’s Form 26AS, stage-wise completion statements and payment details. It also obtained information from the Executive Engineer of the Kerala Water Authority. According to the Department, two invoices relating to the financial year 2021-22 were raised and paid after the applicable rate had increased to 18%, even though one of the underlying works had been completed before January 1, 2022.
The Department calculated the differential tax as follows: Work completed on December 16, 2021, with bill/payment in January 2022: ₹26,32,454; Work completed on January 31, 2022, with bill/payment in February 2022: ₹18,93,944, and Total differential GST: ₹45,26,398
A show cause notice dated October 19, 2023, was thereafter issued proposing recovery of the differential GST under Section 73(1) of the CGST Act, along with applicable interest and penalty under Section 73(1) read with Section 122(2)(a).
The Assistant Commissioner confirmed the entire differential tax demand along with interest and a 10% penalty through an order dated November 9, 2023.
The matter subsequently reached the Joint Commissioner (Appeals), who rejected the appellant’s appeal through an order dated June 10, 2024.
The appellate authority held that the Kerala Water Authority did not qualify as a “local authority” under Section 2(69) of the CGST Act. It further noted that Notification No. 15/2021-CT (Rate), dated November 18, 2021, had removed Governmental Authorities and Government Entities from the category entitled to the concessional rate for the relevant works contract services with effect from January 1, 2022.
Accordingly, the authority concluded that the appellant was liable to pay GST at 18% rather than 12%.
The appellant argued that the lower appellate authority had incorrectly interpreted the expression “local authority” under Section 2(69) of the CGST Act.
The appellant also questioned the reliability of the audit findings and contended that the audit conclusions were self-contradictory. It was further submitted that the prescribed DRC-01A had not been issued, allegedly in violation of Rule 142(1A).
The appellant informed the Tribunal that the differential tax and penalty had already been paid after receiving the corresponding amount from the Kerala Water Authority. The dispute before the Tribunal therefore substantially concerned the liability towards interest.
The Department argued that although Kerala Water Authority had been registered under the GST system as a “local authority” based on its declared constitution, the expression “local authority” has a specific statutory meaning under Section 2(69) of the CGST Act.
According to the Revenue, KWA did not fall within any of the categories specified in clauses (a) to (g) of Section 2(69). Therefore, merely being treated as a local authority under the Kerala Water Supply and Sewerage Act could not make it a “local authority” for GST purposes.
The Tribunal identified the central question as whether Kerala Water Authority qualifies as a “local authority” under Section 2(69) and, consequently, whether the appellant was entitled to the 12% concessional GST rate or was required to pay GST at 18% on the disputed invoices.
The Bench reproduced Section 2(69), which specifically covers entities such as Panchayats, Municipalities, specified municipal and district bodies, Cantonment Boards, Regional or District Councils under the Sixth Schedule, Development Boards constituted under Articles 371 and 371J, and Regional Councils constituted under Article 371A.
The Tribunal considered the Kerala Water Supply and Sewerage Act, 1986.
Under Section 3 of that legislation, the Kerala Government established the Kerala Water Authority as an autonomous authority and body corporate. The provision also states that the Authority shall, for all purposes, be deemed to be a “Local Authority.”
The Tribunal noted that KWA was originally established in 1984 and subsequently governed by the Kerala Water Supply and Sewerage Act, 1986. Its functions include preparation, execution and operation of water supply and wastewater schemes, rendering water supply and wastewater services, preparation of State plans, fixation and revision of tariffs and charges, and establishment of standards for water supply and wastewater services.
The Tribunal, however, drew a distinction between being described as a “local authority” under a State law and satisfying the specific definition prescribed under GST law.
It observed that the expression “local authority” under Section 2(69) is specifically defined and is confined to the categories enumerated in that provision.
The Bench noted that various statutory development authorities created under State laws may be referred to as local bodies or authorities, but that does not automatically make them “local authorities” for GST purposes. The Tribunal referred to examples such as the Greater Cochin Development Authority, Delhi Development Authority and Ahmedabad Urban Development Authority.
The Tribunal held that the Kerala Water Authority, despite its status under the Kerala Water Supply and Sewerage Act, does not qualify as a “local authority” under the CGST Act.
The Tribunal further observed that a statutory body, corporation or authority created by Parliament or a State Legislature is a separate juridical entity.
According to the ruling, such statutory bodies cannot automatically be treated as the Central Government or State Government, nor do they fall within the definition of “local authority” merely because they have been created through legislation.
The Tribunal consequently concluded that KWA did not fall within any of the categories specified in Section 2(69)(a) to (g) of the CGST Act.
The Tribunal also referred to CBIC Circular No. 245/02/2025-GST dated January 28, 2025, observing that statutory authorities such as development authorities are not “local authorities” under Section 2(69).
On this basis, the Bench concluded that the Kerala Water Authority is a statutory authority/governmental authority but does not fall within the statutory definition of “local authority” under the CGST Act.
Having concluded that KWA is not a “local authority”, the Tribunal held that the works contract services supplied to it were not eligible for the concessional rate under Serial No. 3(iii) of Notification No. 11/2017-CT (Rate).
The services were therefore liable to GST at 18% with effect from January 1, 2022, following the amendment introduced by Notification No. 15/2021-CT (Rate).
The ruling is particularly relevant to contractors providing works contract services to statutory authorities because the classification of the recipient can directly affect the applicable GST rate.
The Tribunal also took note of earlier proceedings before the Kerala High Court where the appellant had sought directions to the Kerala Water Authority for payment of the additional 6% tax resulting from the higher GST rate.
The High Court had directed the concerned respondents to release the differential tax amount to the appellant upon submission of evidence establishing payment of tax at the higher rate.
The Revenue subsequently submitted that the appellant had paid the differential tax along with penalty pursuant to the High Court’s directions. The Tribunal recorded the payment details, including amounts paid through the electronic credit ledger and electronic cash ledger.
The Tribunal drew an important distinction concerning interest on delayed payment of tax.
The Bench noted that the appellant had discharged part of the differential tax through the Electronic Credit Ledger (ECL) and the balance through the Electronic Cash Ledger.
Referring to Section 50(1) of the CGST/KGST Act, the Tribunal held that interest would not be payable on the portion of differential tax discharged through the Electronic Credit Ledger.
According to the Tribunal, interest would be payable only to the extent that the differential tax was paid through the Electronic Cash Ledger. The interest demand corresponding to the amount paid through ITC was therefore set aside.
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