Delhi HC Stays 18% GST Demand on DJB Contractors, Will Examine “Local Authority” Status.
Issue
Whether the Delhi Jal Board (DJB) qualifies as a “local authority” under Section 2(69) of the CGST Act, which would make works contract services provided to it eligible for a concessional 12% GST rate, or if it is not a local authority, making such services liable to the standard 18% rate.
Facts
The Directorate General of GST Intelligence (DGGI) issued show-cause notices to contractors performing works for the Delhi Jal Board (DJB).
These notices sought to demand GST at a higher rate of 18%, instead of the 12% concessional rate the contractors had been charging.
The contractors (petitioners) argued that the 12% rate was correct, as it applies to works contracts supplied to government entities or local authorities.
They contended that the DJB is a “local authority” and relied on a GST Policy Wing clarification dated 16-11-2020 that supported this view.
The GST department (respondents) argued that the DJB is not a “local authority,” and therefore the concessional 12% rate is not applicable.
The contractors filed a writ petition in the Delhi High Court to quash the notices.
Decision
The Delhi High Court admitted the writ petition for detailed consideration, stating that the legal question of DJB’s status must be resolved to prevent unnecessary litigation.
It granted an interim stay on the show-cause notices, preventing the department from proceeding with the demand for the higher 18% tax rate.
The matter has been listed for a final hearing on February 3, 2026, and the stay will continue in the meantime.
Key Takeaways
“Local Authority” Status is Key: The case hinges on the legal definition of “local authority” under Section 2(69) of the CGST Act. The outcome will determine the applicable GST rate for thousands of contractors working with such statutory bodies.
Interim Relief Granted: The High Court’s stay provides immediate protection to the contractors, shielding them from a large potential demand and coercive recovery actions while the legal issue is sub judice.
Conflicting Departmental Views: The case highlights a conflict where contractors are caught between a favorable clarification from the GST Policy Wing and an adverse position taken by the enforcement wing (DGGI).
Significant Financial Implications: The 6% difference in the tax rate (12% vs. 18%) has significant financial implications for both the contractors and the principal (DJB), making this a high-stakes issue for all government works contracts.