Pure services exemption denied where government entity services lacked nexus with Panchayat or Municipality functions

Pure services are exempt under Entry 3 of Notification No. 12/2017-Central Tax (Rate) only when supplied in relation to a function entrusted to a Panchayat or Municipality under Articles 243G or 243W; mere status as a Government Entity is not enough. The institute was treated as a Government Entity, but its higher-education activity was held not to fall within the relevant constitutional function list, and the manpower supply, security, horticulture, civil maintenance and electrical maintenance services had no nexus with any Panchayat or Municipality function. The exemption was therefore unavailable, and the services were held taxable under GST.

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Issues: Whether the pure services received by the applicant institute, namely manpower supply, security, horticulture, civil maintenance and electrical maintenance services, were exempt from GST under Entry 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Analysis: Entry 3 grants exemption to pure services, excluding works contract services and composite supplies involving goods, when provided to the Central Government, State Government, Union Territory, local authority, Governmental Authority or Government Entity and when such services are by way of activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W of the Constitution of India. The applicant institute was treated as a Government Entity, but the decisive question was whether the services were connected with a Panchayat or Municipality function. The institute provided higher education, which was held not to fall within Entry 17 of Schedule XI relating to education in the sense of school education, and the services received had no nexus with any function entrusted to a Panchayat or Municipality.

Conclusion: The exemption under Entry 3 was not available, and the pure services received by the applicant were taxable.

Final Conclusion: The application for advance ruling failed on the exemption question, and the services in question were held liable to GST.

Ratio Decidendi: Exemption under Entry 3 of Notification No. 12/2017-Central Tax (Rate) applies only when pure services are provided in relation to a function entrusted to a Panchayat or Municipality, and a mere status as Government Entity does not suffice.

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