GST exemption for public healthcare supply of medicines and logistics to State affirmed as nil-rated under municipal functions.

The appellant's procurement and logistic services for supplying medicines to State health facilities qualify as pure services and are integrally linked to health and sanitation functions entrusted to panchayats and municipalities. Rule 33 CGST, being a valuation provision for pure agents, cannot be read to define or limit the meaning of "pure services"; that interpretive use is misplaced. Because the services fall within the constitutional municipal functions relating to public health, they attract nil rate exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) and corresponding State notifications, and the appellant is entitled to that exemption.

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Issues: (i) Whether the appellant is a Governmental Authority or a Government Entity in terms of explanation to Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017; (ii) Whether the services provided by the appellant constitute "pure services"; (iii) Whether the services supplied by the appellant are entitled to exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Issue (i): Whether the appellant is a Governmental Authority or a Government Entity in terms of explanation to Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Analysis: The appellant was established by the State Government to implement the Free Medical Distribution Scheme and was incorporated with government equity and control to carry out functions entrusted by the State, including procurement, warehousing and distribution of medicines and maintenance of medical equipment. The nature and purpose of the governmental resolution and the extent of government participation were considered in light of the definitions in the explanation to Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Conclusion: In favour of Appellant on the question of being a Government Entity; negative on the question of being a Governmental Authority.

Issue (ii): Whether the services provided by the appellant constitute "pure services".

Analysis: The appellant procures goods on funds allocated by the Government, does not treat amounts paid to suppliers as its revenue or expenditure, and retains only a government-authorised service charge reflected in its accounts. The functions performed (procurement, inventory management, distribution, maintenance) are integral parts of the public health scheme and the use of Rule 33 (which concerns valuation for a pure agent) was assessed as misplaced for defining "pure services"; the character of supply was determined from the contractual/functional mandate and accounting treatment.

Conclusion: In favour of Appellant; the services constitute pure services.

Issue (iii): Whether the services supplied by the appellant are entitled to exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

Analysis: Entry Sl. No. 3 grants nil rate to pure services provided to government in relation to functions entrusted to Panchayats or Municipalities under Articles 243G/243W. The appellant's mandated activities are integrally linked to public health functions expressly enumerated in the Eleventh and Twelfth Schedules and arise from the State's policy to provide essential medicines free of cost; therefore the services fall within the scope of the notified exemption.

Conclusion: In favour of Appellant; the services are entitled to exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and the corresponding State notification.

Final Conclusion: The appellant qualifies as a Government Entity, its supplies are pure services, and those services are covered by the nil-rate exemption at Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017; the earlier AAR conclusions to the contrary are set aside to the extent inconsistent with these rulings.

Ratio Decidendi: Where an entity is established and controlled by the Government to perform functions entrusted under Articles 243G/243W and performs procurement and related services on government funds while retaining only an authorised service charge (not treating supplier payments as its revenue), such activities constitute pure services and fall within the nil-rate exemption at Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

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