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Issues: (i) Whether the sewerage scheme contract was a pure service or a composite supply in the nature of a works contract; (ii) whether the recipient, Katol Nagar Parishad, was a local authority; (iii) whether the supply was in relation to a function entrusted to a Municipality under the Constitution; and (iv) whether the applicant was eligible for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate).
Issue (i): Whether the sewerage scheme contract was a pure service or a composite supply in the nature of a works contract.
Analysis: The contract covered design, construction, installation, testing, commissioning and allied civil and electro-mechanical work for an underground sewerage system, with transfer of property in goods involved in execution. The supply was held to be a composite supply of goods and services in the nature of a works contract and not a pure service. The exclusion in Entry 3 for works contract service or composite supplies involving goods was therefore attracted.
Conclusion: The supply was not a pure service, but a composite supply in the nature of a works contract.
Issue (ii): Whether the recipient, Katol Nagar Parishad, was a local authority.
Analysis: A Nagar Parishad is a municipality within the constitutional scheme and falls within the definition of local authority. On the facts, the recipient was held to satisfy Section 2(69) of the CGST Act, 2017.
Conclusion: The recipient was a local authority.
Issue (iii): Whether the supply was in relation to a function entrusted to a Municipality under the Constitution.
Analysis: Underground sewerage infrastructure was held to relate to public health, sanitation conservancy and solid waste management, which are municipal functions under the Twelfth Schedule and Article 243W of the Constitution of India. The phrase "in relation to" was applied broadly to cover the activity.
Conclusion: The supply was in relation to a municipal function under Article 243W.
Issue (iv): Whether the applicant was eligible for exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate).
Analysis: Entry 3A applies to composite supplies of goods and services where the value of goods does not exceed 25% of the value of the composite supply, and the supply is made to a specified recipient for a qualifying municipal function. On the record, the aggregate goods component was 11.17%, the recipient was a local authority, and the activity related to a municipal function. The exemption was therefore available on the facts presently on record, subject to the statutory quantitative condition at the time of conclusion of the contract.
Conclusion: The applicant was eligible for exemption under Entry 3A on the facts presently on record.
Final Conclusion: The ruling determined that the contract is a composite works contract supply, that the recipient is a local authority, that the activity is connected with a municipal function, and that the exemption under Entry 3A is available on the present record subject to the quantitative threshold being satisfied at the relevant time.
Ratio Decidendi: For Entry 3A, the 25% goods threshold is assessed on the composite supply as a whole, and exemption depends on strict satisfaction of all cumulative statutory conditions.
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