Supply with combined goods and service charges not eligible for exemption under Notification No. 12/2017-Central Tax (Rate)

The AAR, Odisha held that the applicant's supply does not qualify as a "pure service" under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as the applicant received consideration inclusive of both procurement value of goods and service charges from the Government. The applicant failed to meet the condition requiring separation of procurement costs from service charges in the utilization certificate. Consequently, the supply is not eligible for the exemption at Sl. 3 of the said notification.

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ISSUES:

Whether the applicant qualifies as a "Government Authority" under explanation in Para 2(zf) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.Whether the applicant qualifies as a "Government Entity" under explanation in Para 2(zfa) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.Whether the services provided by the applicant constitute "pure service."If affirmative on the above, whether such services are entitled to exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and matching State Notification issued under Section 11 of the State Act.Whether the services rendered relate to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.

RULINGS / HOLDINGS:

On whether the applicant is a Government Authority under Para 2(zf): Negative.On whether the applicant is a Government Entity under Para 2(zfa): Affirmative. The applicant is a wholly owned State Government company established to carry out functions entrusted by the State Government.On whether the services provided are pure services: Negative. The applicant receives consideration inclusive of both goods (medicines, medical equipment) and service charges, thus the supply is not purely service.On entitlement to exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017: Negative. Since the supply is not pure service, exemption is not applicable.On whether the services relate to functions entrusted to Panchayat or Municipality under Articles 243G or 243W: The applicant performs functions entrusted by the State Government but exemption requires supply to be pure service, which is not fulfilled.

RATIONALE:

The definitions of "Government Authority" and "Government Entity" under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended) were applied, focusing on equity participation and functions carried out.The applicant was fully funded and controlled by the State Government and performs functions entrusted by the Government, satisfying criteria for Government Entity but not for Government Authority.The concept of "pure service" was analyzed with reference to the common understanding and the explanation to Rule 33 of CGST Rules, 2017, which defines "pure agent." The applicant did not meet the condition that it should receive only the actual amount incurred for goods or services procured, as it received a combined amount inclusive of procurement value and service charge.Exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) requires the supply to be a pure service provided to Government/Government Authority/Government Entity in relation to functions entrusted to Panchayat or Municipality; failure to satisfy the pure service condition precludes exemption.A prior ruling from the Appellate Authority for Advance Ruling of Andhra Pradesh was considered but distinguished on facts due to the nature of consideration received by the applicant.

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