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1 Feb 2014

Change in the Definition of Governmental Authority and Consequential Benefits

Central Government vide Notification No. 02/2014-ST dated 30th January, 2014 has substituted the definition of ‘governmental authority’ to expand the scope of exemption to an authority or a board or any other body established by Government, with 90 percent or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.

After this amendment, organizations like HSIDC, RIICO, which are established by State Government with 90% or more participation by way of equity or control fall under the definition of ‘governmental authority’ and carrying out any function entrusted to a municipality under article 243W of the Constitution.

To understand the impact of this amendment, we need to refer definition of ‘governmental authority’ under both scenarios.

Old Definition:

“governmental authority’’ means a board, or an authority or any other body established with 90% or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution.

New Definition:

“governmental authority” means an authority or a board or any other body;

(i)    set up by an Act of Parliament or a State Legislature; or

(ii)    established by Government, with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.

Change:

Earlier organizations established by Government to carry out any function entrusted to municipality under article 243W of the constitution were covered under the definition of ‘governmental authority’ only if these organizations were set up by an Act of the Parliament or a State Legislature. Now after this amendment these organizations fall under the definition of ‘governmental authority’ even if these are not set up by an Act of the Parliament or a State Legislature.

Impact:

With effect from 30th January, 2014 following exemptions are available to these organizations:-

A)    Services provided by governmental authority

Services by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution are exempt. (Refer Sr. No. 39 of Mega Exemption)

B)    Services received by governmental authority

a)    Specified services as listed in Sr. No. 12 of Mega Exemption relating to construction, erection, commissioning, installation, repair etc.

b)    Services in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or repair or maintenance of vessel. (Refer Sr. No. 25 of Mega Exemption)

c)    Services received from a service provider located in a non- taxable territory by such authorities in relation to any purpose other than commerce, industry or any other business or profession. (Refer Sr. No. 34 of Mega Exemption)