Pure services exemption denied where consultancy lacked nexus to Panchayat or Municipality functions under GST notification.

Consultancy services involving construction supervision, project management and contract administration were treated as pure services because no goods were supplied, so they did not constitute works contract or composite supply. However, the services related to upgradation and supervision of State highways and major district roads, which were not shown to be functions entrusted to a Panchayat or Municipality under Articles 243G and 243W. As the required functional nexus was absent, exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) was unavailable, and GST could be charged from the service recipient under the contract.

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Issues: (i) Whether the consultancy services supplied by the applicant were pure services and not works contract or composite supply; (ii) Whether the services were in relation to functions entrusted to a Panchayat or Municipality under Articles 243G and 243W of the Constitution of India; (iii) Whether the applicant was entitled to exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 and consequently entitled to charge GST from the service recipient.

Issue (i): Whether the consultancy services supplied by the applicant were pure services and not works contract or composite supply.

Analysis: The contract involved construction supervision, project management and contract administration consultancy without any supply of goods. A supply without goods does not satisfy the definition of works contract, and it also does not amount to a composite supply where goods are not involved. The service was therefore treated as a pure service for the purpose of the exemption entry.

Conclusion: The services were pure services and not works contract or composite supply.

Issue (ii): Whether the services were in relation to functions entrusted to a Panchayat or Municipality under Articles 243G and 243W of the Constitution of India.

Analysis: The services related to upgradation, development and supervision of State Highways and major district roads undertaken by the State Government through its Public Works Department. Such works were held to lie beyond the territorial and functional sphere of Panchayats and Municipalities. The activities were not shown to be works entrusted to those local bodies under the constitutional provisions.

Conclusion: The services were not in relation to any function entrusted to a Panchayat or Municipality under Articles 243G and 243W.

Issue (iii): Whether the applicant was entitled to exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 and consequently entitled to charge GST from the service recipient.

Analysis: The exemption entry applied only when pure services were supplied to specified government entities by way of activity in relation to Panchayat or Municipality functions. Although the first two conditions were satisfied, the third condition failed because the services did not relate to such constitutional functions. The exemption was therefore unavailable, and the contract terms permitted reimbursement of indirect taxes.

Conclusion: The exemption was not available and the applicant was entitled to charge GST from the service recipient.

Final Conclusion: The advance ruling determined that the consultancy services were taxable and did not qualify for the notified exemption, while the applicant could recover GST from the recipient under the contract.

Ratio Decidendi: Exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) is available only when pure services are supplied to the specified authority by way of an activity in relation to a function entrusted to a Panchayat or Municipality; if that functional nexus is absent, the exemption does not apply.

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