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Introduction: In the case of M/s. THDC India Limited v. Uttarakhand AAR [Advance Ruling No. 06/2023-24 dated February 26, 2024], the Uttarakhand Authority for Advance Ruling (AAR) addressed the applicability of GST on services provided by a Governmental Authority for design engineering and construction of water tanks.

Facts of the Case: M/s. THDC India Limited, a Public Sector Enterprise, entered into a Memorandum of Understanding (MOU) with Uttarakhand M/s Peyjal Sansadhan Vikas Evam Nirman Nigam (“Service Provider”) for the construction of a 500 KL RCC Overhead Tank at their campus in Rishikesh. The MOU specified that the Service Provider would perform design, engineering, and construction services on a “Deposit / Cost plus basis,” excluding GST and Labour Cess. Despite this, the Service Provider invoiced GST under Forward charge.

Issue: The main issue was whether GST is applicable on services of design engineering and contraction of water tank by the Government Authority.

Held: The Uttarakhand AAR ruled as follows:

  • The Service Provider does not qualify as a "Local Authority" under the GST provisions, hence Reverse Charge Mechanism (RCM) does not apply to the recipient, M/s. THDC India Limited.
  • The Service Provider is classified as a "Governmental Authority" and services provided under the MOU are exempt from GST under Notification No. 12/2017-Central Tax (Rate), which applies to services by governmental authorities related to functions entrusted to municipalities or panchayats under the Constitution of India (Articles 243W and 243G).
  • Therefore, GST is not applicable on the services of design engineering and construction of water tanks by the Governmental Authority in this case.

This ruling clarifies the GST treatment for services provided by Governmental Authorities under specific contractual arrangements, highlighting exemptions under relevant GST notifications.

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