Pure consultancy services lose GST exemption when they lack nexus with Panchayat or Municipality functions.

Pure consultancy services are exempt under Notification No. 12/2017-Central Tax (Rate) only when they relate to a function entrusted to a Panchayat or Municipality. Consultancy for design, engineering, finance, construction, operation and maintenance of highways and district roads outside local body limits was held not to satisfy that constitutional nexus, even though the recipient was a Government Entity and the services were pure services. The exemption therefore failed, and GST was held chargeable under the CGST and HGST regimes.

---

---

Issues: (i) Whether the independent consultancy services for design, engineering, finance, construction, operation and maintenance of the road project were an activity in relation to a function entrusted to a Panchayat or a Municipality under Articles 243G and 243W of the Constitution of India; (ii) Whether such services were pure services eligible for exemption under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, and whether GST was therefore chargeable.

Issue (i): Whether the independent consultancy services for design, engineering, finance, construction, operation and maintenance of the road project were an activity in relation to a function entrusted to a Panchayat or a Municipality under Articles 243G and 243W of the Constitution of India.

Analysis: The exemption for pure services under serial number 3 of Notification No. 12/2017-Central Tax (Rate) applies only when the supply is connected with a function entrusted to a Panchayat or a Municipality. The road project concerned highways and district roads outside the territorial limits of Panchayats and Municipalities. The services were rendered to a State department and related to infrastructure beyond local body jurisdiction. The functions listed in the Eleventh and Twelfth Schedules did not bring such extra-territorial road consultancy within the constitutional functions relied upon for exemption.

Conclusion: No. The services were not in relation to a function entrusted to a Panchayat or a Municipality.

Issue (ii): Whether such services were pure services eligible for exemption under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, and whether GST was therefore chargeable.

Analysis: The consultancy did not involve supply of goods and was treated as pure services. The Public Works Department was regarded as a Government Entity, but exemption was still unavailable because the statutory condition linking the supply to Panchayat or Municipal functions was not satisfied. As a result, the notification did not exempt the supply from GST.

Conclusion: No. The services were not exempt and GST was chargeable under the CGST and HGST regimes.

Final Conclusion: The ruling denied exemption and held that the consultancy services remained taxable, so the applicant was required to charge GST on the services supplied.

Ratio Decidendi: Pure services are exempt under Notification No. 12/2017-Central Tax (Rate) only when they are supplied in relation to a function entrusted to a Panchayat or a Municipality; where that nexus is absent, the exemption fails notwithstanding the service being pure and the recipient being a Government Entity.

---