2024 (7) TMI 522 - AAR - GST

Security services supplied to municipal corporation on outsourced basis subject to GST, not exempt under Article 243W

The AAR Karnataka ruled that security services supplied to the municipal corporation on an outsourced basis are not exempt from GST. The authority ... Exemption for pure services to local authority under Entry 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 - pure services excluding works contract service or other composite supplies involving any goods - local authority - function entrusted under Article 243G of the Constitution - function entrusted under Article 243W of the ConstitutionLocal authority - exemption for pure services to local authority under Entry 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 - Whether Bruhat Bengaluru Mahanagara Palike (BBMP) qualifies as a local authority for the purposes of the exemption entry. - HELD THAT: - The AAR examined the statutory definition of 'local authority' and the constitutive statute for BBMP. BBMP is established and governed under the Karnataka Municipal Corporations Act and is described in the enabling statute as the Corporation and its authorities. On that basis the Authority concluded that BBMP falls within the definition of a local authority and therefore the first condition for invoking the Entry 3 exemption (that the recipient be the Central/State/UT or a local authority) is satisfied. [Paras 11]BBMP is a local authority and the first condition of Entry 3 is satisfied.Pure services excluding works contract service or other composite supplies involving any goods - function entrusted under Article 243G of the Constitution - function entrusted under Article 243W of the Constitution - exemption for pure services to local authority under Entry 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 - Whether the security services provided to BBMP are by way of any activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W, thereby qualifying for exemption under Entry 3. - HELD THAT: - Entry 3 requires, in addition to the recipient being a local authority, that the services be supplied 'by way of any activity in relation to any function entrusted' to Panchayats or Municipalities under Articles 243G/243W and the Eleventh/Twelfth Schedules respectively. The Authority assessed the nature of the security services supplied to BBMP and compared them with the matters listed in the Eleventh and Twelfth Schedules. It found that the security services rendered to BBMP are not provided by way of any activity in relation to a function specifically entrusted under Article 243G or Article 243W. Because the second statutory condition for the Entry 3 exemption is not satisfied, the supply cannot be held exempt under that notification entry. [Paras 11, 12, 13]Provision of security services to BBMP is not an activity in relation to functions entrusted under Articles 243G/243W and therefore does not qualify for exemption under Entry 3.Final Conclusion: The Authority ruled that (i) BBMP is a local authority, but (ii) the security services supplied to BBMP do not relate to functions entrusted under Article 243G or Article 243W and accordingly such supplies are not exempt from GST under Entry 3 of Notification No. 12/2017-Central Tax (Rate). Issues:1. Whether security services provided to a local authority are exempt from GST under specific provisions.2. Admissibility of the application under Section 97(2)(e) of the CGST Act 2017.3. Taxability of providing security services to a specific entity.4. Interpretation of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.5. Determination of whether the entity in question qualifies as a local authority.Analysis:1. The applicant, a Private Limited Company, sought an advance ruling on the taxability of providing security services to a local authority, specifically Bruhat Bengaluru Mahanagara Palike (BBMP). The key question was whether such services are exempt from GST under certain provisions.2. The application was deemed admissible under Section 97(2)(e) of the CGST Act 2017, which pertains to the determination of the liability to pay tax on goods or services.3. The applicant had entered into a work order with BBMP to provide security services to their head office premises for three years, prompting the query on the taxability of these services.4. The applicant claimed that BBMP considered the supply of security services as exempt under SI. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, leading to the need for interpretation of this notification.5. The ruling authority analyzed the definition of 'Local Authority' under the KGST Act 2017 to determine whether BBMP falls under this category. BBMP's establishment under the Karnataka Municipal Corporations Act confirmed its status as a corporation and a local authority.6. Further examination involved assessing whether the security services provided to BBMP were related to functions entrusted to a Panchayat under article 243G of the Constitution or a Municipality under article 243W of the Constitution. It was concluded that the services did not meet these criteria, rendering them not exempt from GST.7. The final ruling stated that the supply of security services to BBMP was not considered as part of any function entrusted to a Panchayat or Municipality under the Constitution, hence not exempt from GST.This detailed analysis of the judgment provides insights into the interpretation of relevant legal provisions and the specific circumstances surrounding the taxability of security services provided to a local authority.