2026 (3) TMI 341 - AAR - GST

Exemption for pure municipal sanitation services: activity linked to Panchayat functions qualifies as GST-exempt under notification.

Exemption under Notification entry is available where (i) the supply is a pure service excluding works contracts or composite supplies involving goods, ... Applicability of GST exemption for solid waste management services provided to a Gram Panchayat under Notification No. 12/2017 dated 29.06.2017. & Under Section 98(4) - Activity in relation to functions entrusted to a Panchayat under Article 243G - composite supply exclusion​​​​​​​ - Entry No. 3. Pure services provided to local authority - HELD THAT: - The Authority examined the two cumulative conditions in entry No. 3 of Notification No. 12/2017. First, the services supplied to the Gram Panchayat in Gantiganahalli are 'pure services' (excluding works contracts or composite supplies involving goods) and the Gram Panchayat constitutes a 'local authority' under Section 2(69) of the CGST/KGST Acts; accordingly the recipient/character of supply requirement is satisfied. Second, the services relate to functions entrusted to Panchayats under Article 243G of the Constitution; solid waste management falls within entry 23 (health and sanitation) of the Eleventh Schedule. Because both conditions in the notification are met, the supply falls within entry No. 3 and is exempt from GST. The Authority applied these legal tests to the factual activities described (collection, transportation, segregation, processing, street sweeping and public awareness) and reached the exemption conclusion. [Paras 11, 12, 13] The applicant's solid waste management services to the Gram Panchayat are exempt under entry No. 3 of Notification No. 12/2017. Final Conclusion: The Advance Ruling Authority held that the solid waste management services supplied by the applicant to the Gram Panchayat satisfy both limbs of entry No. 3 of Notification No. 12/2017 and are therefore exempt from GST. Issues: Whether pure solid waste management services (excluding works contract or composite supplies involving goods) provided to a Gram Panchayat qualify as exempt supply under Notification No. 12/2017-Central Tax (Rate) dated 29.06.2017 by virtue of being an activity in relation to a function entrusted to a Panchayat under Article 243G of the Constitution of India.Analysis: The exemption under entry No. 3 of Notification No. 12/2017-Central Tax (Rate) applies where (i) the supply is a pure service (excluding works contract or other composite supplies involving goods) provided to the Central Government, State Government, Union territory, local authority or a governmental authority, and (ii) the supply is by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution. The services described-collection, transportation, segregation, processing, street sweeping, drain cleaning and public awareness-are pure services and do not involve supply of goods or works contract. The recipient, Gantiganahalli Gram Panchayat, falls within the definition of local authority under Section 2(69) of the CGST Act. Solid waste management falls within Entry 23 (health and sanitation) of the Eleventh Schedule to the Constitution, which is a function entrusted to Panchayats under Article 243G. Each condition of the notification entry is therefore satisfied.Conclusion: The pure solid waste management services provided to the Gram Panchayat qualify as exempt supply under entry No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 29.06.2017; the services are not taxable under the GST Act.Ratio Decidendi: Pure services supplied to a local authority by way of an activity in relation to a function entrusted to a Panchayat under Article 243G of the Constitution are exempt under entry No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 29.06.2017, provided the supply is not a works contract or other composite supply involving goods.