Governmental Authority status and municipal-function GST exemption upheld, but pure-agent exclusion denied for contractor remittances.

An AAR held that an Uttarakhand smart-city special purpose vehicle qualifies as a Governmental Authority because it was established by Government with full public equity/control to perform municipal functions. It further held that services rendered in relation to the smart city and ESCO project, being linked to water supply and allied urban infrastructure functions in the Twelfth Schedule, are exempt under Notification No. 12/2017-Central Tax (Rate). However, the applicant was not treated as a pure agent for remitting the contractor's share, as it was actively involved in execution, supervision and financial management, so the remitted amounts remained part of the taxable value.

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Issues: (i) Whether the applicant qualifies as a Governmental Authority; (ii) Whether the services rendered in relation to the smart city and ESCO project are exempt under the relevant notification entry; (iii) Whether the applicant acts as a pure agent for remittance of the contractor's share, so as to exclude such from the taxable value.

Issue (i): Whether the applicant qualifies as a Governmental Authority.

Analysis: The definition in the exemption notification requires an authority or body established by Government with ninety per cent or more participation by way of equity or control to carry out a function entrusted to a Municipality or Panchayat. The applicant was found not to be set up by an Act, but to have been established by the Government of Uttarakhand as a special purpose vehicle under the smart cities framework. Its equity was held entirely through Government bodies, satisfying the equity/control requirement.

Conclusion: The applicant qualifies as a Governmental Authority.

Issue (ii): Whether the services rendered in relation to the smart city and ESCO project are exempt under the relevant notification entry.

Analysis: The notification grants exemption to services by a Governmental Authority by way of any activity in relation to functions entrusted to a Municipality under Article 243W of the Constitution. Water supply and allied urban infrastructure functions fall within the Twelfth Schedule. The applicant's services in relation to the project were found to be connected with municipal water supply functions and thus within the scope of the exemption entry.

Conclusion: The services are exempt under Serial No. 4 of Notification No. 12/2017-Central Tax (Rate), as amended.

Issue (iii): Whether the applicant acts as a pure agent for remittance of the contractor's share, so as to exclude such amount from the taxable value.

Analysis: Rule 33 permits exclusion only where the supplier acts as a pure agent on authorisation, the payment is separately indicated, and the procurements are in addition to the supplier's own services. On the facts, the applicant was held to be an active participant in execution, supervision and financial management of the project, and not a mere conduit for the contractor's payment.

Conclusion: The applicant does not qualify as a pure agent, and the remitted amounts are not excludible from the value of supply.

Final Conclusion: The ruling recognises the applicant as a Governmental Authority and grants exemption for its municipal-function related services, but denies pure-agent treatment for the contractor-linked remittances.

Ratio Decidendi: An entity established by Government with the requisite equity or control to perform municipal functions qualifies as a Governmental Authority, services by such authority in relation to Article 243W functions are exempt, and pure-agent exclusion under Rule 33 is unavailable unless all statutory conditions are strictly satisfied.

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