Basis of Opinion
At the outset, we would like to draw your kind attention to some of the key phrases and relevant extracts of certain notifications, connected with the subject matter to understand the concept with more clarity.
Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 as amended from time to time
1. No. 4: Services by governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution is chargeable at Nil Rate. [Heading 99]
2. No. 41: Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 20 percent or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area is chargeable at Nil Rate subject to certain conditions. [Heading 9972]
Explanation. – For the purpose of this exemption, the Central Government, State Government or Union territory shall have 20 percent or more ownership in the entity directly or through an entity which is wholly owned by the Central Government, State Government or Union territory.
Sec. 2(16) of IGST Act: For the purposes of this clause, the expression “governmental authority” means an authority or a board or any other body-
(i) set up by an Act of Parliament or a State Legislature; or
(ii) established by any Government,
with ninety per cent or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.
The term Municipality has not been defined in the GST law. However, according to Section 2(69) of the CGST Act, 2017 the said term derives its meaning from clause (e) of the Article 243P of the Constitution of India. The said Article defines Municipality to mean an institution of self-government constituted under Article 243Q. As per Article 243Q, Municipality includes Nagar Panchayat in Transitional area, Municipal Council for smaller urban area and Municipal Corporation for larger urban area. The following are the powers specified under article 243 W (Twelfth Schedule) of the Constitution of India which are entrusted to the Municipality:
Article 243 W: 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.
List of items covered under 12th Schedule of Indian Constitution:
1. Urban planning including town planning.
2. Regulation of land-use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
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 the environment. and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
10. Slum improvement and upgradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, play-grounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.
15. Cattle ponds; 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.
18. Regulation of slaughter houses and tanneries.
Any services by the Government by way of activity in relation to the above functions entrusted to the municipality will be exempt in nature.
Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 as amended from time to time, notifies that on categories of supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said Table:-
|Sl. No. (1)||Category of Supply of Services
|Supplier of service
|Recipient of Service
|5||Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding,—||Central Government, State Government, Union territory or local authority||Any business entity located in the taxable territory.|
|-1||renting of immovable property, and|
|-2||services specified below—|
|(i)||services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority;|
|(ii)||services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;|
|(iii)||transport of goods or passengers.|
FAQ: Government Services
Question 19: Whether services in the nature of change of land use, commercial building approval, utility services provided by a governmental authority are taxable?
Answer: Regulation of land-use, construction of buildings and other services listed in the Twelfth Schedule to the Constitution which have been entrusted to Municipalities under Article 243W of the Constitution, when provided by governmental authority are exempt from payment of tax.
Circular No. 101/20/2019-GST dated 30th April, 2019 which clarified that GST exemption on the upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for long term lease (of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business under Entry No. 41 of Exemption Notification 12/2017 – Central Tax (R) dated 28.06.2017 is admissible irrespective of whether such upfront amount is payable or paid in one or more instalments, provided the amount is determined upfront.
Case Laws of Authority of Advance Ruling
1. Yamuna Expressway Industrial Development Authority, In re  98 taxmann.com 391 (AAR- UTTAR PRADESH)
“5. As per Sl. No. 41 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 as amended by Notification No. 32/2017-CentraI Tax (Rate), dated 13-10-2017 —
“Upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable in respect of service by way of granting of long-term lease of thirty years, or more) of industrial plots or plots for development of infrastructure for financial business, provided by the State Government Industrial Development Corporations or Undertakings or by any other entity having 50 per cent. or more ownership of Central Government, State Government, Union territory to the industrial units or the developers in any industrial or financial business area.”.
From the plane reading of the above notification, it can be concluded that contention of applicant is correct i.e. the above such services are exempted from the GST, if fulfil all the above conditions as mentioned in the notification.
6. In the light of the above, we rule as under:
7. GST is not applicable i.e. exempted on upfront amount, if the conditions are satisfied as mentioned [at] SI. No. 41 of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 as amended by Notification No. 32/2017-Central Tax (Rate), dated 13-10-2017.”
2. Amaravathi Metro Rail Corporation Ltd., In re  99 taxmann.com 104 (AAR – ANDHRA PRADESH)
“4.2.2 We have observed that AMRCL is a SPV which is set up vide Government of Andhra Pradesh G.O.Ms 141 of MA &UD. The applicant has also submitted that it is 100% owned by state of A.P.; that it is answerable to Government of Andhra Pradesh; that its Chairman is the Principal Secretary. The Government of Andhra Pradesh, issued G.O. Rt. No. 599, MA&UD(H2) Department, dated : 14.09.2015, in which, the Government of Andhra Pradesh has decided that the special purpose vehicle for Vijayawada Metro Rail Project, hence forth be called as ‘AMARAVATHI METRO RAIL CORPORATION LIMITED (AMRC)’. Based on above facts, it is evident that the applicant is a Government authority as per the Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017
As discussed in preceding paragraph, all the above activity is in the nature of urban transportation and urban planning and we held that the same is covered under the purview of the functions of Municipality under article 243W read with Twelfth Schedule to the constitution of India, and the same fall within the purview of the aforesaid exemption Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017
5. Accordingly, we give the following ruling:
(i) The applicant/AMRCL is a Government Authority as per Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017
(ii) The consultancy services for preparation of transport studies such as comprehensive mobility plan, transit oriented development plan, NMT plan and consultancy services of transaction advisors/preparation of DPRs comes within the purview of the functions of Municipality under article 243 read with Twelfth Schedule to the constitution of India, and accordingly, falls within the purview of the aforesaid exemption notification.”
From the above discussions, we can conclude that the services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution are exempt subject to fulfillment of the above conditions as discussed above.
For instance, charges received by the Government for the regulation of land use like a conversion from residential to commercial purposes are exempt from payment of tax. Also, charges recovered by the Government for approval of the sanction plan or license will also be exempt from payment of tax.
However, the exemption will not be applicable if any of the above-discussed conditions are contravened. This means that in the following situations the exemption will not be available:
(a) The period of lease is less than 30 years
(b) The plots have been provided by any entity other than the State Government Industrial Development Corporation or Undertakings or by any other entity having 20 per cent or more ownership of Central Government, State Government, Union territory
(c) The plots are provided for residential purposes or any other unauthorized purpose
(d) The plots are provided to any person other than for industrial or authorized financial purpose
For example, the Greater Noida Industrial Development Authority provides land on long term lease to various industrial units for setting up their industrial parks. This will be considered as exempt.