Hyderabad Water Board loses GST exemption on medical insurance but retains vehicle insurance exemption under Entry 3 Notification 12/2017

The AAAR, Telangana ruled on GST exemption eligibility for Hyderabad Metropolitan Water Supply and Sewerage Board. The authority held that medical insurance premiums for employees and families are not exempt as they lack direct relation to water supply/sewerage functions under Article 243W. However, vehicle insurance for water/sewerage transport vehicles qualifies for exemption under Entry 3 of Notification 12/2017. Post-amendment effective 01-01-2022, which omitted "Governmental Authority" from the notification, all services to the applicant became taxable, losing exemption eligibility.

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Issues Involved:

1. Eligibility of Medical Insurance Premium for GST exemption under Entry No. 3 of Notification No. 12/2017 - Central Tax (Rate), dated 28th June 2017.
2. Eligibility of Vehicle Insurance Policy for GST exemption under the same notification.

Detailed Analysis:

1. Eligibility of Medical Insurance Premium for GST Exemption:

The applicant, M/s. Hyderabad Metropolitan Water Supply And Sewerage Board, sought an advance ruling on whether the medical insurance premium paid for employees, pensioners, and their family members is exempt from GST under Entry No. 3 of Notification No. 12/2017 - Central Tax (Rate), dated 28th June 2017. This entry exempts "Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution."

The lower authority ruled that the medical insurance premium is not eligible for exemption. The Appellate Authority upheld this decision, stating that the insurance services for employees and their family members do not have a direct and proximate relationship to the functions of water supply and sewerage management entrusted to a Municipality under Article 243W of the Constitution. Citing the Supreme Court's judgment in Commissioner of Customs (Import), Mumbai Vs Dilip Kumar and Company & Ors (2018), the authority emphasized strict interpretation of exemption notifications and concluded that the exemption does not apply.

2. Eligibility of Vehicle Insurance Policy for GST Exemption:

The applicant also sought a ruling on the eligibility of vehicle insurance policies for GST exemption. The lower authority's ruling was conditional:

- Yes, if the vehicles are directly used for providing services under Schedule XII of the Constitution (water supply and sewerage management).
- No, if the vehicles are used for transportation of employees, board members, or other persons without a direct relationship to the functions under Article 243W.

The Appellate Authority examined the conditions under which the exemption applies, noting that the insurance services must be "pure services" and directly related to the functions entrusted to a Municipality. It concluded that vehicle insurance for vehicles used in water supply and sewerage management is exempt, while insurance for other vehicles is not.

Post 18-11-2021 Amendment:

The Appellate Authority noted that from 18-11-2021, the words "Governmental authority" were omitted from the exemption entry by Notification No. 16/2021 - Central Tax (Rate). Consequently, from this date, the services provided to the applicant are not eligible for exemption under Entry No. 3 of Notification No. 12/2017.

Order:

The Appellate Authority upheld the lower authority's order, confirming that:

- The medical insurance premium for employees, pensioners, and their family members is not eligible for GST exemption.
- Vehicle insurance is exempt only if the vehicles are used directly for water supply and sewerage management functions.

The appeal was disposed of accordingly.

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