TaxTMI 
TaxTMI 
2026 (6) TMI 158
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....itution? 4. Whether the applicant is eligible for exemption of services being provided by way of pure service or composite supply based on Entry 3A w.e.f. 25.01.2018 vide Notification No. 2/2018-CT(R) which needs to he clarified by way of Advance Ruling? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression 'GST Act' would mean the CGST Act and the MGST Act. 1. FACTS AND CONTENTION - AS PER THE APPLICANT 1.1 M/s. Rockline Constructions (hereinafter referred to as "the applicant") is a partnership firm registered under the GST Acts bearing GSTIN 27AAKFR3377HIZT, having its registered place of business at Office No. 5, Jyotirmay Complex, First Floor, Jalna Road, Aurangabad - 431001, Maharashtra. The applicant is engaged in the business of civil contracting and engineering, specifically in the execution ....
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.... 369.74 11.96% 2 Sub-Unit No. 2 - House Connections' 196.92 - - . Sub-Estimate No. 6 - Sewerage Treatment Plant 608.24 15.00 2.46% 3 Sub-Unit No. 3- Wet Well & Pump House 73.55 6.17 8.38% 4 Sub-Unit No. 4 - Providing & Erecting, Commissioning with Test & Trial of Non-Clog Submersible Pump-set and allied Electrical & Mechanical Equipment (40% Material) 30.46 14.60 40.04% Sub-Unit No. 4B - Non-Clog Submersible Pump-set (SPS No. 2 to Manhole) (40% Material) 62.10 24.84 40.00% Sub-Unit No. 4B - Non-Clog Submersible Pump-set (SPS No. 3 to STP) (40% Material) 64.35 25.74 40.00% 11 KV Structure / 2-Pole Structure (50% Material) 3.29 1.64 50.00% Sub-Estimate No. 5 - Sewage Rising Main from Wet Well to STP (50% Material) 11.47 5.74 50.04% TOTAL (Rs. in lakhs) 4,146.66 463.47 11.17% 1.8 The applicant further states that it commenced execution of the work during F.Y. 2016-17 after a gap of two years, since acquisition of land for the sewerage line by Katol Nagar Parishad was pending. Extension of time for executi....
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....fication. 2.4 Conditions of Exemption 2.4.1 As per Entry No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018, the following principal conditions must be satisfied in order to qualify for exemption: (i) Nature of Supply - Pure Services; (ii) Recipient of Services - Central Government, State Government, Local Authority, Union Territory, Governmental Authority or a Government Entity; (iii) Category of Services - any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution. 2.4.2 Supply of pure service, except works contract service or composite supplies involving supply of any goods, is exempted from GST subject to the conditions stated under the entry at Sr. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 2.4.3 Thereafter, with effect from 25.01.2018, the Legislature has permitted a composite supply in which the value of supply of goods constitutes not more than 25% of the value of t....
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....nder Schedule II of the CGST Act or which is not covered under the definition of "goods". Accordingly, in order to broaden this category, the Government has, with effect from 25.01.2018, allowed supply of goods not exceeding 25% of the total value of a composite supply with the principal supply being that of services. 2.4.6 With effect from 01.01.2022 (vide Notification No. 16/2021-Central Tax (Rate) dated 18.11.2021), the exemption under Entry 3A shall be eligible only where the supply is made to the Central Government, State Government, Union Territory or Local Authority - the words "or a Governmental Authority or a Government Entity" having been omitted with effect from 01.01.2022. The present recipient being a Local Authority, the said omission does not affect the applicant's claim. 2.4.7 The applicant notes that the above exemption is in pari materia with the exemption that existed under Sr. No. 25 of Notification No. 25/2012-ST dated 20.06.2012 under the erstwhile service tax regime; the said entry had earlier been restricted to services by way of water supply, public health, sanitation conservancy, solid-waste management, or slum improvement and upgradation. 2.5....
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....5) water supply for domestic, industrial and commercial purposes; (6) public health, sanitation conservancy and solid-waste management; (7) fire services; (8) urban forestry, protection of environment and promotion of ecological aspects; (9) safeguarding the interests of weaker sections of society; (10) slum improvement and upgradation; (11) urban poverty alleviation; (12) provision of urban amenities and facilities such as parks, gardens and playgrounds; (13) promotion of cultural, educational and aesthetic aspects; (14) burials and burial grounds; cremations, cremation grounds and electric crematoriums; (15) cattle pounds and prevention of cruelty to animals; (16) vital statistics including registration of births and deaths; (17) public amenities including street lighting, parking lots, bus stops and public conveniences; and (18) regulation of slaughter-houses and tanneries. Prayer 2.8.1 In view of the above facts and circumstances, the applicant prays before this Authority that - (a) the supply of pure services. (excluding works contract service or ....
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....either deemed to be a service under Schedule II of the CGST Act or which is not covered under the definition of "goods". For example, supply of manpower services for cleanliness work, security guards, architect services, consultancy services etc., not involving any supply of goods, would be treated as supply of pure services. 3.A.3 (Para 3 - Interpretation of Law and Facts.) Notification No. 12/2017-CT(R), Entry 3, covers only pure services, excluding works contracts or composite supplies involving goods. The applicant's own break-up of the contract shows supply of goods (e.g., submersible pumps, pipelines, electrical equipment). Such a contract falls squarely under the definition of "works contract" as per Section 2(119) of the CGST Act. Works contracts are specifically excluded from Entry 3 and are admitted under Entry 3A only subject to the prescribed threshold. 3.A.4 (Para 4 - Conditions of exemption under Entry 3 / 3A.) The conditions are: (i) the nature of supply must be pure service or composite supply where goods do not exceed 25%; (ii) the recipient must be Government / Local Authority etc .; and (iii) the services must relate to functi....
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....s pertain to the nature of supply (pure service / composite), the recipient's status and the constitutional function involved. These are valid grounds for seeking an advance ruling under Section 97(2) of the CGST Act, 2017. 3.B.2 (Para 2 - Statement of Facts.) The facts presented establish that the applicant is engaged in civil works related to underground sewerage systems for Katol Nagar Parishad under UIDSSMT, a Central Government scheme. The work is executed through a formal tender and work order, with multiple extensions granted due to land-acquisition delays. The scope of work and execution timeline are clearly documented and supported by official correspondence. 3.B.3 (Para 3 - Interpretation of Law and Facts.) The applicant has correctly interpreted Entry 3 and 3A of Notification No. 12/2017-CT(R). The supply qualifies as either pure service or composite supply with goods not exceeding 25% of the total value, which is supported by the detailed cost break-down. The recipient, Katol Nagar Parishad, qualifies as a "Local Authority" under Section 2(69) of the CGST Act, 2017. The nature of work - "sewerage and drainage" - falls squarely under functions entrusted to Muni....
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....n of nature of supply and applicability of Entry 3A. Mr. Shivam Kumar, Assistant Commissioner of CGST, appeared on behalf of the Department and reiterated the para-wise comments on record, including the supplementary comments dated 15.10.2025. We have heard both sides. 5. OBSERVATIONS AND FINDINGS: 5.1 We have carefully considered the facts of the case, the documents placed on record, the written as well as the oral submissions of the applicant, and the para-wise comments of the jurisdictional officer (both original and supplementary). 5.2 From the record before us, the following material facts emerge, which are not in dispute between the parties: (i) the applicant is a registered person under the GST Acts bearing GSTIN 27AAKFR3377H1ZT and is engaged in the business of civil contracting, specifically in the execution of water tanks, laying of water pipelines, sewerage and drainage lines and allied works for Municipalities / Nagar Parishads / Municipal Corporations; (ii) the applicant is executing, on behalf of Katol Nagar Parishad, District Nagpur, an Underground Sewerage Scheme for Katol Town under the Urban Infrastructural Development Scheme for Small a....
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....admitted. 5.4 The Legal Framework - Entry 3 and Entry 3A of Notification No. 12/2017-CT(R) 5.4.1 The exemption that the applicant invokes is founded on Section 11(1) of the CGST Act, 2017, which empowers the Central Government, on the recommendation of the Council, to exempt generally, either absolutely or subject to such conditions as may be specified, goods or services or both of any specified description, from the whole or any part of the tax leviable thereon with effect from such date as may be specified. In exercise of that power, the Central Government issued Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 exempting intra-State supplies of specified services from the central tax leviable thereon under Section 9(1) of the Act. 5.4.2 Entry at Sr. No. 3 of the said notification exempts certain "pure services" - services provided to Government, Local Authority, Governmental Authority or Government Entity by way of any activity in relation to functions entrusted to a Panchayat or a Municipality under Article 243G / 243W. The entry expressly excludes from its coverage "works contract service or other composite supplies involving supply of any goods". This excl....
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....he said exemption only if all four of the said conditions are satisfied. The failure of any one condition is fatal to the claim. We therefore proceed to examine each of the said conditions question-wise on the facts disclosed on the record. 5.5 Principles Governing the Construction of Exemption Notifications 5.5.1 Before entering upon the merits, we set out the settled law governing the construction of an exemption notification. The Constitution Bench of the Hon'ble Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and Ors. (2018) 9 SCC 1 has authoritatively laid down that every exemption notification is to be construed strictly. At the stage of determining whether a person is eligible for an exemption, the burden is on the assessee to show that its case falls squarely within the four corners of the exemption, and any ambiguity at that stage must be resolved in favour of the revenue. Only after eligibility is established -i.e., at the subsequent stage of quantifying or applying the benefit - does ambiguity, if any, enure to the benefit of the assessee. Earlier authorities to the same effect, being Union of India v. Wood Papers (1990) 4 S....
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....and sewerage treatment plant. Consideration for the entire scope is a single, aggregated contract price of Rs.41,43,37,527/-, with sub-unit-wise estimates recorded in the tender documents. 5.6.3 Section 2(119) of the CGST Act, 2017 defines "works contract" as under :- "(119) 'works contract' means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract." 5.6.4 The underground sewerage infrastructure being laid by the applicant - comprising sewer networks, wet-wells, pump-houses, rising mains, sewerage treatment plants and associated electro mechanical installations - is plainly an immovable property, affixed to and embedded in the earth and incapable of being removed without destruction. The execution of the contract necessarily, involves transfer of property in goods (pipes, pumps, equipment, structures and materials as part of the work to be performed. The activity of the applic....
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.... "pure service" within the meaning of the exclusionary clause in Entry 3 of the notification. Entry 3 is, accordingly, not available to the applicant. The applicant's own alternative prayer in paragraph 2.8.1(b) of its submissions correctly proceeds on the footing that the supply is a composite supply, and seeks exemption under Entry 3A. We proceed to test the applicant's entitlement under Entry 3A. 5.7 Question 1 (contd.) - Whether the Value of Supply of Goods Does Not Exceed 25% of the Value of the Said Composite Supply 5.7.1 The second limb of the first condition under Entry 3A is the quantitative threshold - that the value of supply of goods should not exceed 25% of the value of the composite supply. On the break-up provided by the applicant and reproduced at paragraph 1.7 above, the aggregate value of materials over the entire work order is Rs.463.47 lakhs as against the aggregate value of work of Rs.4,146.66 lakhs, which yields a ratio of 11.17% on aggregate. This aggregate ratio has not been contested on the record. 5.7.2 We have, however, to address an important analytical point that arises on the very break-up submitted by the applicant. Examined....
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....years and, the break-up as placed on record being an estimate derived from the tender, the ratio of goods to total value of the composite supply is susceptible to change on account of price escalation, scope variation, or such other eventuality as may occur in the course of execution. In the circumstances, while on the material presently on record the aggregate 11.17% ratio is not in excess of 25%, the question of entitlement must finally be tested on the actual ratio of goods to total value of the composite supply at the time of conclusion of the contract. In the event that the ratio, so computed at the time of conclusion, were to exceed 25%, the exemption under Entry 3A would cease to be available, and the benefit granted in the interim would have to be reversed with such consequences as the law provides. 5.7.5 We therefore hold, in answer to Question 1, that the supply made by the applicant is a composite supply of goods and services (and not a pure service), and that, on the material presently on record, the value of supply of goods does not exceed 25% of the value of the said composite supply on an aggregate basis. The final entitlement under Entry 3A on the quantum c....
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....er: "243W. Powers, authority and responsibilities of Municipalities, etc. - Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow - (a) the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to - (i) the preparation of plans for economic development and social justice; (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule; (b) the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule." 5.9 The Twelfth Schedule of the Constitution of India, to which Article 243W refers, enumerates eighteen subjects in respect of which functions may be entrusted to a Municipality. Of these, Entry 6 is "P....
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.... value of goods in the composite supply is 11.17%, which does not exceed the 25% ceiling prescribed under Entry 3A, subject to the caveat that the final ratio at the time of conclusion of the contract may differ (paragraphs 5.7.3 to 5.7.5 above); (iii) the recipient Katol Nagar Parishad is a Local Authority within Section 2(69)(b) and (c) of the CGST Act, 2017 (paragraph 5.8 above); and (iv) the supply is by way of an activity in relation to a function (public health and sanitation) entrusted to a Municipality under Article 243W, as enumerated at Entry 6 of the Twelfth Schedule (paragraph 5.9 above) - the four cumulative conditions of Entry 3A stand, on the material before us, satisfied in the case of the applicant. 5.10.2 We are conscious of the shift in the departmental position between the initial para-wise comments (paragraph 3.A above) and the supplementary comments dated 15.10.2025 (paragraph 3.B above). The initial comments, with respect, correctly identified the activity as a works contract within Section 2(119) and correctly pointed to the strict construction rule applicable to exemption notifications - both propositions which this Authority has indepe....
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....regoing, the applicant is, on the facts presently disclosed, entitled to the benefit of Entry 3A of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 as amended - with effect from 25.01.2018, on which date the said Entry was inserted - in respect of its composite supply of goods and services to Katol Nagar Parishad under the work order dated 31.12.2015, subject to the final quantitative test under Entry 3A being satisfied on the actual ratio of the value of goods to the value of the composite supply at the time of conclusion of the said contract. 5.11 Section 103 - Binding Effect of the Ruling 5.11.1 We would like to place on record that an advance ruling pronounced by the Authority or the Appellate Authority shall be binding only on the applicant who had sought it, and the concerned officer or the jurisdictional officer in respect of the applicant. This is the limited and personal operation of the ruling as prescribed by Section 103 of the CGST Act, 2017 read with the corresponding provision of the MGST Act, 2017. The ruling, further, is confined to the question on which the ruling is sought and the facts disclosed on the record; its operation does not extend to a....