In re Kannivadi Town Panchayat (AAR Tamilnadu)
The Tamil Nadu Authority for Advance Ruling (AAR) examined a request from Kannivadi Town Panchayat, a local authority, regarding the Goods and Services Tax (GST) applicability on the activity of granting a tender to a contractor for collecting entry fees for a weekly market. The Town Panchayat, registered under GST for other services like renting property, sought clarification on whether this specific activity falls under the functions entrusted to a Panchayat under Article 243G of the Constitution and is consequently treated as neither a supply of goods nor services, as per Notification No. 14/2017-CT (Rate).
The applicant explained that they grant the right to a successful tenderer to collect entry fees from vendors, farmers, and the public utilizing the open space or temporary tents for selling various goods during weekly market days. The fees collected are as prescribed by the Town Panchayat, and receipts are issued in the Panchayat’s name. The Panchayat argued that this activity aligns with the function of “Markets and Fairs” listed in the Eleventh Schedule of the Constitution, which outlines the responsibilities of Panchayats. They referred to Section 7(2)(b) of the CGST Act, 2017, and Notification No. 14/2017-CT (Rate), which state that activities undertaken by a local authority as a public authority in relation to a function entrusted to a Panchayat under Article 243G are treated as neither a supply of goods nor services.
The AAR considered the submissions and the relevant legal framework. They acknowledged that the Town Panchayat is a local authority and the organization of markets and fairs is a function listed in the Eleventh Schedule under Article 243G. The Authority determined that the activity of granting the right to collect entry fees for the weekly market is directly related to this entrusted function. They emphasized that the nature of the activity does not change based on whether it is performed directly by the Panchayat or through a contractor, provided there is a close nexus between the activity and the entrusted function and the contractor acts effectively on behalf of the Panchayat. Therefore, the AAR concluded that this activity, undertaken by the local authority as a public authority in relation to a function under Article 243G, qualifies for the treatment outlined in Notification No. 14/2017-CT (Rate).
The AAR ruled that the activity of leasing the right to a contractor to collect entry fees for the weekly market is covered under the functions entrusted to a Panchayat under Article 243G of the Constitution. Consequently, as per Notification No. 14/2017-CT (Rate), this activity is treated as neither a supply of goods nor a supply of services, and therefore, is not subject to CGST and SGST. This ruling clarifies the GST position for such activities undertaken by local authorities through a tendering process.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
