Notified Area Authority, Vapi Is Neither A 'Local Authority' Nor 'Governmental Authority: Gujarat High Court

The Gujarat High Court has ruled that the Notified Area Authority, Vapi, does not qualify as a local authority or governmental authority. As a result, the Solid Waste Management and recycling services provided to it are not eligible for exemption under Notification No. 12/2017-State Tax (Rate) dated 30th June 2017.

The division bench, comprising Justice Bhargav D. Karia and Justice Niral M. Mehta, held, “considering the conspectus of law laid down by the Hon'ble Apex Court in the case of New Okhla Industrial Development Authority (supra), the Notified Area Authority, Vapi cannot be considered as “local authority” or “Governmental Authority”. Therefore, the Notified Area Authority,Vapi is neither a “local authority” nor a “Governmental Authority” carrying out any activity in relation to any function entrusted to Panchayat under Article 243G of the Constitution or in relation to any function entrusted to Municipality under Article 243W of the Constitution.”

The petitioners - M/S Nepra Resources Management Pvt. Ltd - challenged an order dated February 17, 2021, issued by the Appellate Authority for Advance Ruling Gujarat. The primary contention was that the Notified Area Authority, Vapi, did not qualify as a "local authority" or a "governmental authority." This determination rendered the petitioners ineligible for exemptions under specific tax rate notifications, namely Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, and Notification No. 12/2017-State Tax (Rate) dated June 30, 2017.

The Advance Ruling Authority, in its order dated September 17, 2020, denied the petitioners' application for exemption from GST. The rationale was that the services provided by the petitioners could not be classified as pure services. According to the agreement between the petitioners and the Notified Area Authority, Vapi, the rate for the supply of services included the cost of various goods such as collection vehicles with licensed drivers, fuel, oil, tools, plants, suction machines, machinery, and protective gear like gumboots and raincoats. Therefore, the services included a supply of goods.

However, the Appellate Authority accepted the petitioners' argument that the establishment and operation of material recovery and food composite facilities did not involve any transfer of goods. The Appellate Authority concluded that the use of necessary goods and equipment, including the deployment of workers by the petitioners to provide services to the Notified Area Authority, Vapi, did not alter the nature of the services from pure services to a supply of services with goods.

The Appellate Authority held that the Notified Areas Authority, Vapi, is not a "panchayat" and does not fall under any clauses of Section 2(69) of the GST Act. According to Clause (e) of Article 243P of the Constitution, a "Municipality" is an institution of self-government constituted under Article 243Q. Therefore, the Notified Area Authority, Vapi, is neither a "Municipality," "Municipal Committee," "Jilla Parishad," "Development Board," nor "Cantonment Board" as defined by various clauses of Section 2(69) of the GST Act.

The petitioner was engaged in the business of Solid Waste Management and recycling services. The Notified Area Authority of Vapi issued a tender inviting applications for waste management services, which the petitioner participated in and subsequently won.

The Notified Area Authority, Vapi, was established by the State of Gujarat under Section 16 of the Gujarat Industrial Development Act, 1962. It operated similarly to a municipality, with a Board of Management and Chief Officer responsible for various administrative functions and tax collection, akin to those of a municipality.

The petitioners argued that their services to the Notified Area Authority, Vapi, were exempt from certain tax rates as per Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017, and Notification No. 12/2017-State Tax (Rate) dated 30th June 2017. However, the Appellate Authority for Advance Ruling determined that the Notified Area Authority, Vapi, did not qualify as either a “local authority” or a “governmental authority.”

The petitioners contended that the Notified Area Authority, Vapi, should be classified as a “local authority” or “governmental authority” according to the relevant provisions of the GST Act. The Court, however, disagreed, citing the Supreme Court's decision in the case of the New Okhla Industrial Development Authority.

The Court rejected the petitioner's argument that the Notified Area Authority, Vapi, performed the functions of a municipality.

The Court noted, “in the facts of the case, the petitioners have made submissions regarding the remaining two conditions, which were not considered by the authority of Advance Ruling. Therefore, the Appellate Authority has given an opportunity to the petitioner and it cannot be said that there is any breach of the principles of natural justice.”

Therefore, the court dismissed the petition.

Case Title: NEPRA Resources Management Pvt. Ltd. & Anr. Vs State of Gujarat & Anr.

LL Citation: 2024 LiveLaw (Guj) 69