Tamil Nadu AAR grants GST exemption for housekeeping security electrical plumbing services to government hospitals under Notification 12/2017 /2017

The AAR Tamil Nadu ruled that housekeeping, security, and electrical/plumbing assistance services to 54 government hospitals under the Directorate of Medical and Rural Health Services qualify for GST exemption under Entry No.3 of Notification 12/2017-CT (Rate). The Authority held that public health being a constitutional function under Articles 243G and 243W, activities supporting hospital maintenance are integral to this function. Since these services directly relate to functions entrusted to Panchayats or Municipalities regarding public health facilities, they fall within the exemption's scope covering "any activity in relation to the functions entrusted."

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

• Whether the services provided by the applicant-comprehensive facility management including housekeeping, security, and assistance in plumbing, electrical, carpentry, cooking, and gardening-to 54 Government hospitals under the Directorate of Medical & Rural Health Services (DM&RHS), Tamil Nadu, qualify as exempt supplies under Entry No.3 or Entry No.3A of Notification No. 12/2017-C.T (Rate) dated 28.06.2017 (as amended)Rs.
• Whether the services rendered constitute "pure services" or "composite supply" involving supply of goods, and accordingly, which exemption entry appliesRs.
• Whether the recipient of services, i.e., the Directorate of Medical & Rural Health Services, qualifies as a "Governmental Authority" or "Government Entity" under the relevant GST provisionsRs.
• Whether the services provided are "by way of any activity in relation to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution," thereby attracting exemptionRs.
• Whether the presence of consumables and equipment supplied by the applicant affects the classification of the supply and the applicability of exemptionRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of exemption under Entry No.3 or Entry No.3A of Notification No. 12/2017-C.T (Rate)

Relevant legal framework and precedents: Entry No.3 exempts "pure services" provided to Government or Governmental Authorities by way of any activity related to functions entrusted to Panchayats (Article 243G) or Municipalities (Article 243W). Entry No.3A exempts "composite supply" of goods and services where goods constitute not more than 25% of the value, provided to such Government entities.

Court's interpretation and reasoning: The applicant's services involve comprehensive facility management, including manpower supply for housekeeping, security, and assistance in various maintenance activities at Government hospitals. The AAR examined whether these services qualify as "pure services" or "composite supplies" involving goods.

Key evidence and findings: The contract and Letter of Intent (LOI) showed that the applicant's scope includes supply of manpower and provision of consumables and equipment necessary for service delivery. The consumables and equipment constitute only 5-6% of the total billing. An invoice sample showed no separate charge for goods, indicating the supply is primarily service-based.

Application of law to facts: The Authority found that consumables and equipment are used by the service provider in delivering services and are not separately supplied goods to the hospitals. Therefore, the supply is a "pure service" rather than a composite supply involving goods. Entry No.3A was held inapplicable because no distinct supply of goods took place.

Treatment of competing arguments: The applicant argued that even if considered composite supply, the goods component is below 25%, thus exempt under Entry No.3A. The Authority rejected this, clarifying the distinction between goods supplied as part of composite supply and consumables used in service provision.

Conclusions: The supply by the applicant is a "pure service" eligible for exemption under Entry No.3, not Entry No.3A.

Issue 2: Whether the service recipient qualifies as a "Governmental Authority" or "Government Entity"

Relevant legal framework and precedents: The IGST Act defines "Governmental Authority" as an authority or body set up by an Act of Parliament or State Legislature or established by Government with 90% or more participation to carry out functions entrusted to Panchayats or Municipalities under Articles 243G and 243W.

Court's interpretation and reasoning: The Directorate of Medical & Rural Health Services (DM&RHS), Tamil Nadu, is an authority under the Health and Family Welfare Department of the State Government, responsible for managing Government hospitals.

Key evidence and findings: The Directorate's website and statutory status confirm it is a Governmental Authority. The contract is directly between the applicant and DM&RHS, the implementing and paying authority.

Application of law to facts: DM&RHS meets the definition of a Governmental Authority as it is established by the State Government to perform functions related to public health, a function entrusted to Panchayats and Municipalities.

Treatment of competing arguments: No contrary submissions were noted. The Authority accepted the Governmental Authority status of DM&RHS.

Conclusions: The second criterion for exemption-service provided to a Governmental Authority-is satisfied.

Issue 3: Whether the services are "by way of any activity in relation to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W"

Relevant legal framework and precedents: Articles 243G and 243W list functions entrusted to Panchayats and Municipalities respectively. Entry No.3 exempts services related to such functions. Public health and sanitation, including hospitals, are explicitly listed under these Articles.

Court's interpretation and reasoning: The Authority examined the scope of work-housekeeping, security, and maintenance assistance in hospitals-which are activities in relation to the function of public health and sanitation entrusted to Panchayats and Municipalities.

Key evidence and findings: The functions listed under Article 243G (Clause 23) and Article 243W (Clause 6) include health and sanitation, hospitals, primary health centres, dispensaries, and public health. The services provided by the applicant directly support these functions.

Application of law to facts: The Authority interpreted "in relation to" broadly to cover any activity that supports the entrusted functions, including maintenance and housekeeping services in hospitals.

Treatment of competing arguments: The applicant's reliance on the wide scope of "in relation to" was accepted. The Authority also relied on a prior ruling (Order No. 31/ARA/2021) on identical facts supporting exemption.

Conclusions: The services rendered are activities related to functions entrusted to Panchayats and Municipalities, fulfilling the third criterion for exemption.

3. SIGNIFICANT HOLDINGS

The Authority held:

"The proposed supply of services for housekeeping, Security, assistance in electrical, plumbing, etc., to the 54 Government hospitals under the charge of the Directorate of Medical and Rural Health Services, Tamilnadu, is exempt under Entry No.3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017, read with Entry No.3 of Notification No. II(2)/CTR/532(d-14)/2017 vide G.O.(Ms) No.73 dated 29.06.2017."

Core principles established include:

• "Pure services" provided to Governmental Authorities by way of any activity related to functions entrusted to Panchayats or Municipalities under Articles 243G/243W are exempt under Entry No.3.
• Provision of consumables and equipment used by the service provider in delivering the service does not convert the supply into a composite supply involving goods for the purpose of Entry No.3A.
• The definition of "Governmental Authority" includes bodies established by Government with requisite control to perform Panchayat/Municipality functions.
• The phrase "by way of any activity in relation to the functions entrusted" is to be interpreted broadly to include ancillary activities like housekeeping and maintenance essential to the functioning of public health institutions.

Final determinations on each issue:

• The applicant's services are "pure services" and not composite supplies involving goods.
• The recipient, DM&RHS, is a Governmental Authority under the GST framework.
• The services are activities related to functions entrusted to Panchayats and Municipalities under the Constitution.
• Therefore, the services rendered by the applicant to the 54 Government hospitals under DM&RHS are exempt from GST under Entry No.3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017.

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