PURE SERVICES UNDER GST

[Mr. M. GOVINDARAJAN]

Pure services

Any supply which is either deemed as services under Schedule II of CGST Act or which is not covered under the definition of goods shall be categorized as pure services.   Services without involving any supply of goods would be treated as supply of ‘pure services’.  For example, supply of man power for cleanliness of roads, public places, architect services, consulting engineer services, advisory services, and like services provided by business entities not involving any supply of goods would be treated as supply of pure services. On the other hand, let us take the example of a governmental authority awarding the work of maintenance of street lights in a Municipal area to an agency which involves apart from maintenance, replacement of defunct lights and other spares. In this case, the scope of the service involves maintenance work and supply of goods, which falls under the works contract services. The exemption is provided to services involves only supply of services and not for works contract services.

Exemption to pure services

Vide Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 the Central Government granted exemptions to the following pure services from GST-

• Chapter 99 - 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 or a Government Entity 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.

Governmental authority

The explanation to section 2(16) of the Integrated Goods and Services Tax Act, 2017 defines the expression ‘governmental authority’ as an authority or a Board or any other body-

• set up by an Act of Parliament or a State Legislature; or
• established by any Government

with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under Article 243W of the Constitution.

Section 2(zf) the Central Goods and Services Tax Act, 2017 defines the expression ‘governmental authority’ as an

Authority or a Board or any other Body-

• set up by an Act of Parliament or a State Legislature; or
• established by any Government

with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under Article 243W of the Constitution or to a Panchayat under Article 243G of the Constitution.

The expression ‘Governmental entity’ is defined in Notification No. 31/2017-Central Tax (Rate), dated 13.10.2017 as an authority or a board or any other body including a society, trust, corporation-

• set up by an Act of Parliament or State legislature; or
• established by any Government

with 90% or more participation by way of equity or control to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.

From the above, it is evident that if any ‘pure services’ are provided to a Governmental Authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution and that ‘Governmental Authority’ is an authority or a board set up by an Act of Parliament or a State Legislature or established by the Government with 90% or more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution, then the same is exempted vide Sl. No. 3 of the Notification No. 12/2017- Central Tax (Rate).

In re ‘Uralungal Labor Contract Co-Op Society Limited’ – 2019 (4) TMI 112 - AUTHORITY FOR ADVANCE RULINGS, KERALA the Department of Cultural Affairs of Kerala authorized the petitioner to arrange skill exhibition centers, sustained livelihood by creating new opportunities, strong market contacts by excluding middle man to connect them with various Government programs aimed to address their social and economic backwardness and collect data about them.  The petitioner requested to know the GST liability before the Authority.  The Authority found that the services rendered by the petitioner to the Department of Cultural Affairs of Kerala come under the classification of purse services.  The Authority held that the services provided by the petitioner fall under the category of pure services as per Sl. No. 3 of the Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.  As per the notification pure services (excluding the 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 of a Government Authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243 G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution.  The Authority held that the activities performed by the petitioner are exempted from GST.

In re ‘Kerala State Construction Corporation Limited’ – 2019 (5) TMI 961 - AUTHORITY FOR ADVANCE RULINGS, KERALA the Authority held that the Centrage charges/consultancy charges received by the applicant in relation to pure services provided to the State Government by way of activity in relation to function entrusted to a Panchayat/Municipality under 243G/243W of the Constitution is exempted from GST as per Sl. No.3 of the Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.

In re ‘Tamil Nadu Water Investment Company Limited’ – 2019 (2) TMI 187 - AUTHORITY FOR ADVANCE RULING, TAMILNADU the Authority held that the activity of the applicant as per the three contracts entered with Chennai Metro Water Supply and Sewerage Board i.e., for Project Management Consultancy  services entered by the Applicant with CMWSSB for construction management and supervision including off site inspection for the proposed design, build, commission of 45 MLD capacity Tertiary Treatment Reverse Osmosis Plan at Kodungaiyur and Koyampedu and for consultancy services for preparation of detailed project report for providing smart water supply and sewerage services in T. Nagar under Smart City Mission are ‘pure services’ and are exempted under Sl. No. 3 of Notification No. 12/2017-CT(Rate), dated 28.06.2017.

In re ‘Dhananjay Kumar Singh’ – 2019 (2) TMI 64 - AUTHORITY FOR ADVANCE RULINGS, CHHATTISGARH the applicant is a service provider engaging in the business of executing service contracts.  He had been awarded a contract by the Chhattisgarh Housing Board for providing services in relation to solid waste management, water supply operations, Garbage Collection door to door and disposal, cleaning of colony etc., of common area of residential area developed by the Board.    The Authority held that the Chhattisgarh Housing Board is a governmental authority.  The service supply to be provided by the applicant by their very nature appear to fall in the list of services enumerated in 12^th Schedule of Article 243W of the Constitution, thus qualifying to be ‘pure services’.  Further the said services do not involve any transfer/sale of any goods.  Therefore the said services are exempted under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.

In re ‘Ex-Servicemen Resettlement Society’ – 2019 (1) TMI 1491 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL, the Applicant is supplying of Security Guards & Scavenging Services to the medical colleges and hospitals of West Bengal without and also to the Central Govt. Cancer Institute. The Applicant has stated that under the Exemption Notification, the services provided by them are exempt by way of 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 Applicant, in letter ERS/GST/2019 dated 07.01.2019, has stated that they are supplying Scavenging/Karmabandhu/Menial Personnel in addition to Security Personnel. The nature of activities performed by the Scavenging Personnel comprise of-

• Manual cleaning where required;
• Duties of attendants viz. bringing of Medicine/Oxygen Cylinders from a particular store to different wards;
• Operating trolleys for the carriage of patients from the Emergency Ward to different wards, or from the Wards to the different laboratories for different tests, like blood tests, x-rays, scans, etc.

They have also declared that for the functions of the above categories, no materials/equipments are supplied by them.

The Authority observed that the Applicant’s eligibility under Sl No. 3 or 3A of the Exemption Notification should, therefore, be examined from three aspects-

• whether the service being supplied is pure service or composite supply,
• whether the recipient is government, local authority, governmental authority or government entity, and
• whether the services provided are classifiable as a function entrusted to a Panchayat or a Municipality under the Constitution.

The applicant contended that pure service is not defined in the GST Act. However, it appears from the context that services involving no supply of goods are considered as pure service. The Applicant claims he is not supplying any goods while provisioning the services. The Applicant’s services are, therefore, classifiable as pure service.

The Authority analyzed the 11^th Schedule and 12^th Schedule.  A study of the two lists makes it clear that ‘Security Services’ provided to Government Hospitals and Medical Colleges, as institutions of Central/State/District/Local authorities, are clearly not covered under the either list. The services provided under the head ‘Scavenging Services’, according to the Applicant’s submission, includes manual cleaning, duties of attendant or operator of trolleys. Article 243G under Serial No 26 covers ‘Health and sanitation, including hospitals, primary health centers and dispensaries’. Article 243W under Serial No 7 covers ‘Public health sanitation, conservancy and solid waste management’.  No other entries in the Eleventh or the Twelfth Schedules of the Constitution appear relevant while examining applicability of the Applicant’s services bundled as ‘Scavenging Services’.

‘Health Care Service’ is defined under clause 2(zg) of the Exemption Notification. It means inter alia any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicine in India and includes services by way of transportation of patient to and from a clinical establishment. It is classified under SAC 99931. It does not include any of the services the Applicant bundled under the description ‘Scavenging Services’. Again, ‘Sanitation and similar services’ are classified under SAC 99945. It includes sweeping and cleaning, but only with reference cleaning of a road or street. Cleaning of hospital premises is not, therefore, classified under ‘Sanitation or similar service’. The services the Applicant bundled under the description ‘Scavenging Services’ are, therefore, not exempt under Sl No. 3 of the Exemption Notification.

Pure services v. composite supply

In re ‘Arihant Dredging Developers Private Limited’ – 2019 (6) TMI 550 – AAR, West Bengal, The applicant submitted that the recipient is the State Government and a price schedule that describes the work and its value. The applicant contended  that the work involves earthwork in excavation and re-excavation of the drainage channels and riverbed, and is pure service or a composite supply where the supply of goods is negligible. He claims that the work is an activity in relation to a function entrusted to a panchayat under Article 243G and/or a municipality under Article 243W. In his support, the Applicant submits a copy of a letter vide memo no 469 dated 22/04/2019 from the recipient, which states that project is in relation to a function entrusted to a panchayat under Article 243 G and/or a municipality under Article 243W.

The Applicant’s eligibility under Sl No. 3 or 3A of the Exemption Notification should, therefore, be examined from three aspects-

• whether the supply being made is pure service or a composite supply, where supply of goods does not exceed more than 25% of the value of the supply,
• whether the recipient is government, local authority, governmental authority or a government entity, and
•  whether the supply is being made in relation to any function entrusted to a panchayat or a municipality under the Constitution

The recipient is the State Government. The contract is meant for resectioning of river Jamuna. It involves the earthwork in the excavation of the drainage channels and deposit of the excavated materials to locations outside the government land. The total contract value includes the cost of services like loading and unloading, transportation, the arrangement of land etc. It is evident from the description of the work that it is a composite supply of various services, where excavation and re-excavation of the drainage channel is the principal supply. Supply of goods, if any, is purely incidental, and is not accounted for separately in the price schedule.

The Authority held that The Applicant’s supply to the Irrigation and Waterways Directorate, Government of West Bengal, is exempt from the payment of GST under Sl. No. 3A of Notification No 9/2017 - Integrated Tax (Rate) dated 28/06/2017, as amended from time to time.

Reversal of ITC

The input tax credit attributable to inputs/input services/capital goods used for providing exempted output supplies are not eligible input tax credit hence subject to be reversed, if availed.  If input tax credit is availed for providing pure services they are not eligible for input tax credit and to be reversed.