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, and (ii) the supply is an activity in relation to a function entrusted to a Panchayat; both conditions are satisfied here because the services (collection, transportation, segregation, processing, street sweeping, drain cleaning, public awareness) are pure services, the recipient is a local authority, and solid waste management is a Panchayat function under the Eleventh Schedule; outcome: such services to the Gram Panchayat are GST-exempt.

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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.

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