Security and scavenging services to State medical colleges exempt as pure services under Entry 3, Notification 12/2017-CT (Rate)

AAR (WB) held that the applicant's supply of security and scavenging personnel to State-run medical colleges and hospitals constitutes "pure services" to the State Government, as no goods are supplied and consideration is confined to wages and related dues. These services are "in relation to" functions listed in Entry 23 of the Eleventh Schedule and Entry 6 of the Twelfth Schedule (health, sanitation, hospitals, public health, conservancy, solid waste management). Accordingly, all three conditions under Entry 3 of N/N 12/2017-CT (Rate) dated 28.06.2017 stand satisfied, and the services are exempt from GST.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether security and scavenging services supplied on contract to State Government medical colleges and hospitals qualify as "pure services" provided to the State Government in relation to functions entrusted to Panchayats or Municipalities under Articles 243G/243W, and are therefore exempt from GST under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 GST exemption for security and scavenging services under Notification No. 12/2017-Central Tax (Rate)

(a) Legal framework (as discussed in the ruling)

2.1.1 The Court considers Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which exempts from GST "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".

2.1.2 The concepts of "pure services" and "composite supply" are examined with reference to the notification and section 2(30) of the CGST Act. "Pure services" are understood (as per the notification) to exclude works contracts and other composite supplies involving goods, so that services with no supply of goods are treated as pure services.

2.1.3 Articles 243G and 243W of the Constitution, along with the Eleventh and Twelfth Schedules, are set out, with specific reference to Entry 23 of the Eleventh Schedule ("Health and sanitation, including hospitals, primary health centres and dispensaries") and Entry 6 of the Twelfth Schedule ("Public health, sanitation conservancy and solid waste management").

(b) Interpretation and reasoning

2.1.4 The Court identifies three cumulative conditions for exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate): (i) the supply must be a pure service, i.e., not a works contract or other composite supply involving goods; (ii) the recipient must be the Central Government, State Government, Union Territory, local authority or Governmental authority; and (iii) the activity must be "in relation to" any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W.

2.1.5 On facts, based on invoices and departmental orders produced, the Court notes that the applicant supplies only manpower (security personnel and scavenging staff) to State Government medical colleges and hospitals, and the bills include only wages, employer's contribution to EPF and ESIC, and bonus, with no element of supply of goods.

2.1.6 From this, the Court infers that the services do not involve any supply of goods and are, therefore, properly characterized as "pure services" within the meaning of Serial No. 3 of the notification.

2.1.7 The recipient of the services is identified as the Government of West Bengal, acting through its medical colleges and hospitals. The Court therefore treats the services as being provided to the "State Government" for purposes of the notification.

2.1.8 As regards the third condition, the Court analyses Entries 23 (Eleventh Schedule) and 6 (Twelfth Schedule), and finds that they impose responsibilities on Panchayats and Municipalities in relation to health, sanitation, hospitals, and public health-related sanitation and solid waste management.

2.1.9 The Court emphasises that the notification uses the expression "any activity in relation to" such functions, and construes "in relation to" as having a wide ambit. The test applied is whether the activity in question is related to, and forms part of, any function of Municipalities or Panchayats specified in the Eleventh or Twelfth Schedules.

2.1.10 The Court reasons that hospitals, as public health institutions, cannot function effectively without security and scavenging services, which are essential support services for the effective delivery of public health and sanitation. In their absence, the effective public delivery of health and sanitation services would not be possible.

2.1.11 On this reasoning, the Court holds that provision of security personnel and scavenging staff to government hospitals is an activity "in relation to" (i) "Health and sanitation, including hospitals, primary health centres and dispensaries" under Entry 23 of the Eleventh Schedule, and (ii) "Public health, sanitation conservancy and solid waste management" under Entry 6 of the Twelfth Schedule.

(c) Conclusions

2.1.12 The services supplied by the applicant (security personnel and scavenging staff) involve no supply of goods and are, therefore, "pure services" for purposes of Serial No. 3 of Notification No. 12/2017-Central Tax (Rate).

2.1.13 These pure services are provided to the State Government, acting through its medical colleges and hospitals.

2.1.14 The services constitute activities "in relation to" functions entrusted to Panchayats and Municipalities under Articles 243G and 243W, specifically those relating to health, sanitation, hospitals, public health and sanitation conservancy as set out in the Eleventh and Twelfth Schedules.

2.1.15 All three statutory conditions under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) are satisfied, and consequently, the security and scavenging services supplied by the applicant to State Government medical colleges and hospitals are exempt from GST.

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