GST exemption for health-related local functions depends on service nexus with constitutional Panchayat duties, not recipient identity.

GST exemption for services linked to constitutionally assigned local-government functions turns on the nature of the activity, not merely the identity of the provider or recipient. Applying the exemption notification with the corresponding circular and earlier service tax exemption, the text explains that "in relation to any function" is to be read broadly. Administrative services for procurement, management, construction and maintenance connected with public health, including hospitals and dispensaries, fall within Article 243G and the Eleventh Schedule. A body established by the State Government with full equity and control to carry out those functions may qualify as a governmental authority, and the related services may be exempt under the relevant notification entry.

---

---

Issues: Whether the applicant is a governmental authority and whether its administrative cost for procurement, management, construction and maintenance services is exempt under the relevant GST exemption notification as a service in relation to functions entrusted to a Panchayat.

Analysis: The exemption notification was interpreted in light of the corresponding GST circular and the earlier service tax exemption, showing that the expression "in relation to any function" is to be construed broadly and by reference to the nature of the service, not merely the identity of the service provider or recipient. The activity of managing procurement of drugs and equipment and maintaining health facilities was held to be connected with public health and the establishment and maintenance of hospitals and dispensaries, which fall within the Eleventh Schedule read with Article 243G of the Constitution. The applicant was found to be a body established by the State Government with full equity and control to carry out such functions, and therefore answered the definition of a governmental authority.

Conclusion: The applicant was held to be a governmental authority and its supply of services in relation to establishment and maintenance of hospitals and similar health facilities was held to be exempt under the relevant entry of the notification.

Final Conclusion: The ruling recognises exemption for the applicant's service activity as falling within the constitutional and notification-based framework governing services connected with Panchayat functions and public health.

Ratio Decidendi: For exemption under the relevant GST entry, the decisive test is whether the service is an activity relatable to a constitutionally assigned local-government function; if so, a body established by Government with requisite control may qualify as a governmental authority and the service may be exempt even where the service is not rendered directly to a Panchayat or Municipality.

---