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Kerala Water Authority Not a , GSTAT Rules Works Contract Taxable at 18%
In a significant ruling that clarifies the scope of "" under the Goods and Services Tax (GST) regime, the , has held that the does not qualify as a under . Consequently, supplied to KWA are taxable at the from , rather than the that the assessee had applied. The Tribunal also provided important guidance on interest liability, ruling that interest on is payable only on the amount paid through the , not on sums discharged from the .
The Case
The matter arose from a GST audit of a partnership firm engaged in providing to various entities, including KWA. For the period from to , the revenue authorities alleged short payment of tax following the change in the applicable rate from 12% to 18% for services supplied to entities that are not local authorities. The differential GST of ₹45,26,398 pertained to two transactions where tax had been paid at 12%. The first work was completed on , but the bill was raised and payment received in January 2022. The second work was completed on , with billing and payment in February 2022.
The adjudicating authority confirmed the entire along with interest and a 10% penalty. The First Appellate Authority upheld that decision, holding that KWA was not a "" under , and that the was no longer available after amended with effect from .
Definition of '' Under GST
The core legal issue turned on the interpretation of , which defines "" exhaustively through clauses (a) to (g). These clauses cover entities such as municipal committees, panchayats, cantonment boards, and other bodies specifically notified by the government. The appellant contended that KWA should be treated as a because , deems it to be a for the purposes of that Act.
The Revenue, however, argued that the GST Act has its own
, and that KWA, being a
created by a state legislature, does not fall within any of the enumerated categories. The Tribunal agreed, observing that
"a statutory body, corporation or authority created by Parliament or a State Legislature is neither 'Government' nor a '
' for GST purposes."
Such bodies are separate juridical entities and cannot be equated with local authorities merely because a state law deems them as such.
Arguments and Reasoning
Before the Tribunal, the appellant relied on the in the , and also noted that KWA had itself registered under GST as a "" based on its declared constitution. The Revenue countered that the term "" under the must be interpreted strictly in light of its specific definition, and that KWA's registration category did not alter the legal position.
The Tribunal, comprising Vice-President Subramanya Rayaprol and Technical Member Ramamoorthi Sriram, upheld the Revenue's contention. It observed that
"Kerala Water Authority formed under
, does not qualify as '
' for the purposes of the GST Act."
The Bench referenced
Circular No. 245/02/2025-GST dated
, which clarified that statutory authorities like development authorities are not local authorities under Section 2(69). This circular, though issued after the transactions in question, provided
consistent with the plain reading of the provision.
On the rate of tax, the Tribunal held that supplied to KWA were not eligible for the applicable to services supplied to a . Accordingly, the services were taxable at 18% from , the effective date of the notification amendment. The of ₹45,26,398 was thus correctly demanded.
Impact on Interest Liability
A notable aspect of the ruling concerns the payment of interest on the . The assessee had paid the pursuant to directions issued by the , partly through the (ECL) and partly through the (ECL). The Tribunal distinguished between the two modes of payment, holding that interest is payable only on the portion of tax discharged through the . This is because tax paid through the does not involve an actual outflow of cash from the taxpayer, and the credit already represents taxes previously paid. Therefore, the interest demand relating to the amount paid through the was set aside.
The Bench concluded:
"The interest is payable only on the amount of tax paid through
."
This aspect provides clarity for taxpayers who may have deposited
under protest or pursuant to court orders.
Conclusion and Implications
The GSTAT's decision reinforces the principle that the GST regime has its own independent definitions, and state law deeming provisions cannot override the specific enumeration under the . For practitioners and businesses dealing with statutory bodies, this ruling serves as a cautionary note: merely because a body is treated as a under a state enactment does not automatically confer that status for GST purposes. The classification depends on the strict criteria of Section 2(69), which lists only traditional local governance entities.
The ruling also has immediate financial implications. Works contract service providers to entities like KWA, water supply boards, development authorities, and similar statutory corporations must now charge 18% GST from , unless the recipient qualifies as a government entity or under the GST definition. This could result in significant retrospective tax demands for pending assessments and audits.
On the interest front, the Tribunal's nuanced approach in recognizing that payment through does not attract interest is a welcome clarification that aligns with the principle that interest is compensatory for the use of funds. Taxpayers who have paid through credit ledger may be entitled to a refund of interest already paid.
The Tribunal accordingly disposed of the appeal, affirming the demand of but restricting interest to the cash ledger portion. The order records that KWA is not a , to it are taxable at 18% from , and interest on the is payable only on the amount paid through the .
This ruling will be closely watched by infrastructure service providers, state government undertakings, and tax practitioners, as it clarifies a long-debated issue and sets a precedent for similar statutory bodies across India.
