Pure consultancy services linked to local government functions qualify for GST exemption when they relate directly to constitutional schedule activities.

Consultancy services supplied as pure services to a State Government qualify for exemption when they are directly relatable to functions entrusted to a Panchayat or Municipality under the Constitution and do not form part of a composite supply involving goods. The stated test is the nature of the service, not the identity of the recipient or provider. Services linked to water management, minor irrigation and watershed development fall within the Eleventh Schedule, while services linked to roads and bridges fall within the municipal sphere under the constitutional framework and relevant State law. On that basis, such consultancy services are treated as exempt under Sl. No. 3 of Notification No. 9/2017-Integrated Tax (Rate).

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Issues: Whether consultancy services provided to State Governments for projects concerning water management and irrigation in Tamil Nadu and roads and bridges in Mizoram are pure services relatable to functions entrusted to a Panchayat or Municipality, so as to qualify for exemption under Sl. No. 3 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.

Analysis: The exemption was construed in the light of the departmental circular clarifying that the expression "in relation to any function" is broad and turns on the nature of the service, not on the identity of the recipient or the service provider. The relevant test was whether the supplied service is an activity relatable to a function listed in the Eleventh or Twelfth Schedule under Articles 243G and 243W of the Constitution, and whether it is a pure service not involving supply of goods. On the Tamil Nadu contract, the work related to water management, minor irrigation and watershed development, which fall within the Eleventh Schedule. On the Mizoram contract, the work related to roads and bridges, which fall within the constitutional and municipal sphere applicable to Mizoram under the Twelfth Schedule and the State municipal law.

Conclusion: The services were held to be eligible for exemption under Sl. No. 3 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.

Ratio Decidendi: Consultancy services supplied as pure services to a State Government are exempt where the services are directly relatable to functions entrusted to a Panchayat or Municipality under the Constitution and do not form part of a composite supply involving goods.

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