GST exemption for sewage plant operation fails where the composite supply does not meet the 25% goods threshold.

Exemption under entry 3A of the GST notifications applies only where the supply is a composite supply, the value of goods does not exceed 25% of the composite value, the recipient is a specified governmental body, and the activity relates to a function under Article 243G or 243W. Although sewerage functions fell within Article 243W and the recipient was treated as a local authority, the contract was part of an integrated design-build-operate-transfer arrangement and the goods component was not shown to satisfy the 25% ceiling. The outward supply of operation and maintenance of the sewage treatment plant was therefore not exempt, and the connected inward supplies also did not qualify for exemption.

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Issues: (i) Whether the outward supply of operation and maintenance of a sewage treatment plant was exempt under Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018, Notification No. 2/2018-Integrated Tax (Rate) dated 25.01.2018 and the corresponding State notification. (ii) Whether the inward supplies directly received for the said services were also exempt from GST.

Issue (i): Whether the outward supply of operation and maintenance of a sewage treatment plant was exempt under Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018, Notification No. 2/2018-Integrated Tax (Rate) dated 25.01.2018 and the corresponding State notification.

Analysis: Exemption under entry 3A applied only to a composite supply where the value of goods did not exceed 25% of the value of the composite supply, the recipient was a specified governmental body, and the activity related to a function under Article 243G or Article 243W. On the contract documents, the supply was part of a larger integrated design-build-operate-transfer arrangement, and the value of goods could not be isolated and shown to be within the 25% threshold. The recipient was treated as a local authority, and sewerage-related functions were held to fall within Article 243W, but the valuation condition for the exemption was not satisfied on the facts of the contract.

Conclusion: The outward supply was not exempt under the notifications.

Issue (ii): Whether the inward supplies directly received for the said services were also exempt from GST.

Analysis: The claim to exemption for inward supplies depended on the main outward supply being exempt. Since the outward supply itself was held not to qualify for exemption, the connected inward supplies could not independently claim exemption on that basis.

Conclusion: The inward supplies were also not exempt from GST.

Final Conclusion: The composite contract did not satisfy the exemption conditions, so GST liability remained attracted on the outward supply and the related inward supplies did not enjoy exemption.

Ratio Decidendi: For exemption under entry 3A of the relevant GST notifications, all statutory conditions must be satisfied cumulatively, including the 25% ceiling on the value of goods in the composite supply.

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