Kerala Water Authority Not 'Local Authority,' Works Contract Services Taxable At 18% From 2022: GSTAT Thiruvananthapuram

The GST Appellate Tribunal (GSTAT), Thiruvananthapuram Bench, has held that the Kerala Water Authority (KWA) is not a “local authority” under the CGST Act. It consequently ruled that works contract services supplied to KWA were taxable at 18% from January 1, 2022, instead of the 12% rate paid by the assessee.

A coram of Vice-President Subramanya Rayaprol and Technical Member Ramamoorthi Sriram held that KWA does not fall within any of the categories of “local authority” specified under Section 2(69) of the CGST Act.

This was despite Section 3 of the Kerala Water Supply and Sewerage Act, 1986, which provides that KWA shall be deemed to be a local authority.

The case concerned a partnership firm engaged in providing works contract services to various persons, including KWA. During an audit for the period from September 2019 to March 2022, the GST authorities alleged short payment of tax following the change in the applicable rate from 12% to 18%.

The department determined differential GST of Rs. 45,26,398 on two transactions. Tax on both transactions had been paid at 12%.

One of the works was completed on December 16, 2021, but the bill was raised and payment was received in January 2022. The second work was completed on January 31, 2022, with the bill raised and payment received in February.

The adjudicating authority confirmed the entire differential tax along with interest and a 10% penalty. The First Appellate Authority also rejected the appeal, holding that KWA was not a “local authority” under Section 2(69) of the CGST Act.

It further held that the concessional 12% rate was no longer available for the works contract services after Notification No. 15/2021-CT (Rate) amended Notification No. 11/2017-CT (Rate) with effect from January 1, 2022. The differential GST of Rs. 45,26,398 was therefore liable to be recovered.

Before the Tribunal, the appellant challenged the interpretation of “local authority” under Section 2(69) of the CGST Act. It also relied on the Kerala Water Supply and Sewerage Act, 1986, under which KWA is deemed to be a local authority.

The Revenue submitted that KWA had been registered under GST in the category of “local authority” based on its declared constitution. It argued that the term has a specific meaning under Section 2(69) of the CGST Act and that KWA does not fall within any of the categories listed there.

The Tribunal agreed with the Revenue's contention. It noted that Section 3 of the Kerala Water Supply and Sewerage Act establishes KWA as an autonomous authority and provides that it shall be deemed to be a local authority.

However, the Bench held that the definition of “local authority” under Section 2(69) of the CGST Act is specific. It found that KWA does not fall under any of the categories listed in clauses (a) to (g) of the provision.

“Likewise Kerala Water Authority formed under Kerala Water Supply and Sewerage Act, 1986, does not qualify as 'local authority' for the purposes of the GST Act,” the Bench observed.

The Tribunal further held that a statutory body, corporation or authority created by Parliament or a State Legislature is neither “Government” nor a “local authority” for GST purposes.

It observed that such bodies are separate juridical entities and do not fall within the definition of “local authority” under the GST Act.

The Bench also referred to CBIC Circular No. 245/02/2025-GST dated January 28, 2025. The order records that the circular clarified that statutory authorities such as development authorities are not “local authorities” under Section 2(69).

Accordingly, the Tribunal held that works contract services supplied to KWA were not eligible for the concessional rate applicable to services supplied to a local authority. It held that the services were taxable at 18% from January 1, 2022.

On interest, the Tribunal noted that the appellant had paid the differential tax pursuant to directions issued by the Kerala High Court. The payment was made partly through the Electronic Credit Ledger and partly through the Electronic Cash Ledger.

The Bench held that interest was payable only on the portion of the differential tax paid through the Electronic Cash Ledger. It consequently set aside the interest demand relating to the amount paid through the Electronic Credit Ledger.

“Kerala Water Authority is a statutory body of the Kerala State and not a 'local authority' in terms of Section 2 (69) of the CGST / KGST Act, 2017. It is further held that the appellant are liable to pay the tax at higher rate of 18% wef 1-1-2022 under Notification No. 11/2017-CT(Rate) as amended.The interest is payable only on the amount of tax paid through electronic cash ledger,” the Bench held.

The Tribunal accordingly disposed of the appeal. Its final order records that KWA is not a “local authority”, the works contract services provided to it are taxable at 18% from January 1, 2022, and interest on the differential tax is payable only on the amount paid through the Electronic Cash Ledger.

For the Appellant: Kartik Singhal, Chartered Accountant and Monika Lalwani, Accounts Head

For the Respondent: Suresh S., Authorised Representative