TaxTMI 
TaxTMI 
2026 (2) TMI 584
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....Limited having Principal Place of Business at Infront Of Ram Mandir, Convent Square, Bhubaneswar, Khordha, Odisha, 751007 bearing GSTIN 21AABCO9370P121 (herein after referred to as the 'Appellant') against the Advance Ruling ORDER No. 4/ODISHA-AAR/2025-26 dated 10.07.2025 pronounced by the Odisha Authority for Advance Ruling (AAR). The date of receipt of the physical appeal application is 17.10.2025. 2.0. In the instant case, the Appellant M/s. Odisha State Medical Corporation Limited having GSTIN No. 21AABCO9370PIZ1 is a Government Company formed under Resolution of Department of Health & Family Welfare under Govt. of Odisha, filed an application for Advance Ruling on 18.02.2025. The Appellant submitted that the Corporation/Appellant was formed for procurement of quality medicines, surgical and EIF (Equipment, Instrument and Furniture) centrally through a fair competitive tendering process; managing central drug warehouses to ensure smooth supply of medicines to the health facilities up to the CHC level located at different places; monitoring centrally the Drug Distribution counters to be set up across health facilities and track prescription practices and disease pattern and p....
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....ise salary and other establishment expenses, tendering expense, testing expense, storage and handling expenses and freight charges thus, implying that, there is no purchase of any goods for eventual supply to the Government for supplying the mandated service of procuring and distributing medicines to the health care facilities free of cost and procuring, installing as well as maintaining the medical equipment at different Health facilities. The services so supplied are pure service only integrally connected with the targeted improvement in the status of public health. The services being pure service supplied health department of the Government and being internally connected with the "medicines free distribution scheme of the State Government" to achieve improvement in status of public health would qualify for exemption from the levy of GST in terms of SI.No. 3 of Notification 12/2017-Central Tax (Rate) dated 28.06.2017 and matching Notification issued under Section 11 by the State Goods and Services Tax Act, 2017 in the capacity of the applicant being a "Government Authority" or a "Government Entity. 2.6 In view of the statutory exemption available in SI. No. 3 of Notification N....
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.... consideration amount charged by the Appellant is inclusive of the value of goods. Such interpretation of the condition in clause (d) of the Explanation in Rule 33 is grossly erroneous and incorrect. 4.2 The Appellant submitted that the very objective of Rule 33 is to address the peculiar issue of determining the taxable value of the services in case of pure agent who charges the principal both for the agency services rendered by him as well as the cost incurred on account of the goods/services procured from the third parties for and on behalf of the principal. This being a special provision, it begins with a non-obstante clause to provide the required overriding effect. Nowhere, it defines Pure Services, which was core issue for determination in the impugned proceeding. Besides, clause (d) of the Explanation doesn't prohibit the pure agent from charging the principal for the actual cost of goods and services procured for the principal in addition to the service charge of the pure agent. Clause (d) simply puts a restrictive condition on the pure agent to charge "the actual amount incurred to procure such goods and services" in addition to its own service charge. In the impugned ....
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....opriated by the appellant. In fact, there is no possibility of any overcharging on either account for the strict internal and external control mechanism including audit by the CAG. Thus, the finding on non-fulfilment of the conditions in clause (d) of the Explanation in rule-33 is further nullified in the absence of concrete finding on any amount having been overcharged by the appellant in excess of the amount paid to the third-party supplier. 4.4. The bundle of functions entrusted to the appellant in the Government Resolution No. Sch-1-ed-264/13(Pt)/8844 dated 26.06.2013 are, in fact, a natural bundle of services, each integrally connected with the other. There is absolutely no indication in the Government Resolution for supply of any goods by the appellant for the simple reason that the objective behind setting up the corporation was only to facilitate procurement of quality medicine for and on behalf of the Government and to facilitate smooth distribution of the medicines so procured, by maintaining warehouses up to the CHC level located at different places for eventual free dispensation to the patients under the Government Scheme. 4.5 On plain reading of the functions ent....
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.... to the service charge allowed to the Appellant fails to fulfill the qualifying condition in clause (d) of the explanation in Rule 33, thus failing the Appellant to qualify as a pure agent and the supplies as pure services. Such erroneous interpretation of the qualifying condition in clause (d) of the explanation in Rule 33 have been convincingly countered by placing reliance on (i) on the interpretation of clause (d) of the Explanation in Rule 33, (ii) the standard accounting procedure, and (iii) the government procedure for issue of UC in the prescribed template and in the prescribed manner. It has also been convincingly explained that clause (d) of the Explanation in Rule 33 doesn't prohibit charging of the actual amount paid the third-party supplier along with the charge relatable to the pure agent. Therefore, the Appellant very well qualifies as a pure agent of the Government for supply of the entrusted services including procurement of medicines and equipment. In fact, the Appellant has been functioning as a pure agent right since the inception and the accounts of the company has been maintained accordingly by taking in to account the amount of commission only allowed to the ....
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.... Notification No. 12/2017-CT (Rate) dt.28.06.2017, as amended, becomes applicable entitling the Appellant for exemption of the services supplied to the Government from the levy of GST. Admittedly, this is a new question not raised earlier, but having flowed from the core issue raised earlier, merits consideration now. 4.9 To sum up, the issue of the test of a pure agent has been brought in to the proceeding by travelling beyond the moot question on applicability of SL. 3 of Notification No. 12/2017-CT(Rate) dt.28.06.2017,as amended, exempting pure services provided to Government from the levy of GST. Even while examining the qualification condition in clause (d) of the Explanation in rule 33 of the Rule, the impugned order failed to take note of the permissibility of charging the actual amount paid to the third-party suppliers and erroneously concluded the appellant as not being a pure agent and not a supplier of pure services, notwithstanding a clear and unambiguous mandate in the GR for supply of services only which has also been examined and accepted in the impugned order. As convincingly explained above by negating the averments in the impugned order, the Appellant is, in fa....
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....artment to meet their recurring Expenditure. 5.3 The Appellant has also submitted that the Government of India, Ministry of Finance (Department of Revenue) released a notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 wherein as against Serial 3 and Chapter No. 99 the services of "Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution", the rate of GST determined is NIL along with conditions being NIL too, making the aforementioned services exempted from GST. The Appellant is involved in inter alia procurement of medicines, medical consumables surgical and EIF (Equipment, Instrument and Furniture) through fair competitive tendering process and supply those medicines and are only involved in Procurement medicines for the Government of Odisha. The overall objective behind establishing the Appel....
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....tand duly satisfied. (i) The service provided is a pure service, i.e. service to Government of Odisha devoid of any commercial element. (ii) The service is provided to the Government, specifically the Health and Family Welfare Department, Government of Odisha. (iii) The service is in relation to public health functions, a core activity entrusted to Panchayats and Municipalities under Article 243G and Article 243W of the Constitution of India. Accordingly, the services rendered by Appellant are squarely covered under the scope of the above-stated exemption notification. 5.7 The Appellant further relied on the decision of the Appellate Authority for Advance Ruling in the case of Andhra Pradesh Medical Services and Infrastructure Development Corporation (Order No. AAAR/AP/09(GST)/2022 dated 20.12.2022), wherein the Hon'ble Authority held that establishment charges paid to APMSIDC by the State Government are exempt under Entry No. 3 of Notification No. 12/2017-Central Tax (Rate). However, the said AAAR wrongly interpreted and stated that Andhra Pradesh corporation was charging only the establishment expenses from Government of Andhra Pradesh, the Appellant....
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.... inventory management system; monitor Drug Distribution Centre to be set up across health facilities centrally and tract prescription practices and disease pattern; procurement and maintenance of medical equipment across health facilities. • It was decided in the resolution that Managing Director of the Corporation shall be an IAS officer on deputation from the State Government. • The resolution has been passed for procurement of medicines and for distribution of the same to different to centres for which Govt. have to pay 5 % (now it is upto 2.5%) on the procurement value to the Appellant Company, for sustainability of the entity. • Whatever purchase done by the corporation is neither entered in the books of accounts nor as purchase in records. The Appellant Company submits utilization certificate to the Govt. for the said purchases. The services provided by the Appellant are pure service provided to the Govt. • In the AAR, it was discussed in para 6.5 of the ruling that as the applicant is not fulfilling the condition (1) (which is the supply in question is not pure supply), exemption notified at Sl.No. 3 of the Notification No.....
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....sed by the centres. The medicines are purchased by the Corporation for the Government. The Member (Centre) asked as to how the amount received form Govt. is accounted in the Appellant's financial records to which Shri Das submitted that the fund allocated by Govt. is shown as Govt. Budgetary Allocation in their records and the Appellant Company issues utilization certificates to the extent of expenses towards the purchase of medicines including handling, testing charges and service charges. Shri Das stated that the Appellant is not raising any bills to Govt. but issues utilization certificate by deducting the procurement value from the budget allocation. DISCUSSION & FINDINGS 6.0. We have gone through the records of the case, the written submissions made by the Petitioner and submission made by the authorized representatives of the Petitioner during the personal hearing through virtual mode on 17.10.2025. 6.1 The issue before us is to decide on the following aspects: (i) Whether the Appellant Company is a Govt. Authority/ Govt. Entity in terms of explanation in Para 2 (zf)/Para 2(zf) of Notification No. 12/2017-CT (Rate) dated 28.06.2017. (ii). Whether th....
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....entral drug warehouses to ensure smooth supply of health facilities through a Centralized online inventory Management System. (iii) Monitoring Drug Distribution Counters to be set up across health facilities centrally and track prescription practices and disease pattern (v) Procurement and maintenance of medical equipment across the health facilities. Further, the Appellant Company was incorporated with whole of equity and control of Government of Odisha to carry out specific function entrusted by the Govt. Therefore, the Appellant Company satisfies as "Government Entity" as per Para (zfa) of Explanation to Notification No. 12/2017-CT (Rate) dated 28.06.2017. 6.4 Now, it is to decide whether the services made by the Appellant are pure service or not. On going through the functions of the Appellant Company as discussed in the above Para, it is observed that the Appellant is entrusted with procurement of medicine, medical equipments, managing drug houses and monitoring Drug Distribution Counters etc. Further, in as per G.R dated 26.06.2013 which was later amended vide Resolution dated 31.12.2019, the Appellant shall be paid service charges upto 5% (earlier ....
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....he Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution." The above are subject to Nil rate of tax as per the Notification. Therefore, the pure services provided to State Government by way of any activity which are under 234G or 243W of the Constitution will attract nil rate of GST. As discussed above, the services provided by the Appellant are "pure services". Now, it is to decide whether the services entrusted and provided by the Appellant to Govt. falls under article 243G or 243W of the Constitution. The main purpose of the creation of the Appellant Corporation is to procure, maintain and distribute medicines and medical equipment for providing better health services to the patients for implementation of "Free Medical Distribution Scheme" in respect of health facilities up to CHC level. Relevant portion of SI. No. 10 of Govt. Resolution No. Sch-I-Med-264/13 (Pt.)/8844 dated 26.06.2013 (supra) is reproduced below:- ................Hon'ble Chief Minister have approved setting up of Odisha State Medical Corporation and establishment of 1102 Drug Distribution Centre in respect of health facilities up to CHC lev....