Pure services linked to municipal functions can remain GST-exempt even when supplied through a sub-contractor arrangement.

Services for preparing detailed project reports and providing project management consultancy under the PMAY arrangement were treated as activities linked to functions entrusted to Municipalities and Panchayats, because the work concerned housing, urban development, beneficiary verification, project monitoring, slum improvement and related municipal functions under Articles 243W and 243G. The ruling also treated these consultancy services as pure services, not works contract or composite supplies involving goods, and applied Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), as amended, to hold that GST exemption is not denied merely because the services are routed through a main contractor and sub-contractor arrangement.

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Issues: (i) Whether the services of preparing detailed project reports and providing project management consultancy under the PMAY arrangement were activities in relation to functions entrusted to Panchayats or Municipalities under Articles 243G and 243W of the Constitution of India; (ii) whether those services qualified as pure services and were exempt from GST under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), as amended, when supplied through a main contractor and sub-contractor arrangement.

Issue (i): Whether the services were activities in relation to functions entrusted to Panchayats or Municipalities under Articles 243G and 243W of the Constitution of India.

Analysis: The scope of work under the project showed that the services were directed to housing, urban development, beneficiary verification, project monitoring, slum-related work, and implementation of PMAY for urban local bodies and beneficiaries. These activities were treated as connected with urban poverty alleviation, urban planning, slum improvement, and allied municipal functions reflected in the constitutional schedules.

Conclusion: The services were held to be in relation to functions entrusted to Municipalities under Article 243W and to Panchayats under Article 243G.

Issue (ii): Whether the services qualified as pure services and were exempt from GST under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), as amended, in a main contractor and sub-contractor arrangement.

Analysis: The ruling treated the services as pure services because the contract was for consultancy and project-related work, not works contract service or a composite supply involving goods. It further held that the exemption entry turns on the nature of the supply and the recipient category, and does not deny exemption merely because the applicant supplied the services through a sub-contract. The amended notification was applied together with the original exemption entry.

Conclusion: The services were held to be pure services and exempt from GST under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), as amended.

Final Conclusion: The application succeeded on both questions, and the services were found to fall within the constitutional function-linked exemption for pure services, including when executed through a sub-contractor.

Ratio Decidendi: For exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), the decisive test is the nature of the supply and its nexus with functions entrusted to Panchayats or Municipalities, and the exemption is not lost merely because the exempt pure service is supplied through a sub-contract.

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