Whether Pure Services provided to Statutory Authority (like ADA, DDA, etc.) exempt from GST after the clarification issued vide Circular No. 245/02/2025-GST dated 28/01/2025
Entry No. 3 of Notification No. 12/2017–Central Tax (Rate), issued under the CGST Act, 2017, grants GST exemption to pure services provided to specified government bodies when such services relate to constitutional functions of Panchayats under Article 243G or Municipalities under Article 243W. The exemption applies only if three conditions are met: the supply must be a pure service (no goods involved and not a works contract), the recipient must be an eligible government body, and the service must directly relate to listed constitutional functions such as sanitation, urban planning, or rural development. Circular No. 245/02/2025-GST clarifies that statutory authorities like development authorities are not “local authorities” under Section 2(69). However, this does not automatically make services taxable. If such bodies qualify as “Governmental Authorities” or “Government Entities” under Notification No. 31/2017 and meet ownership, control, and functional criteria, pure services may still remain exempt, subject to case-specific analysis.
PART I
Entry No. 3 contained in Notification No. 12/2017–Central Tax (Rate) dated 28/06/2017 issued under Section 11 of the CGST Act, 2017 grants exemption from GST for:
Pure services (excluding works contract service or other composite supplies involving supply of goods) provided to:
- Central Government
- State Government
- Union Territory
- Local Authority
- Governmental Authority
- Government Entity
By way of any activity in relation to any function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W of the Constitution.
Let us dive into this Entry for more clarity, this exemption is available only when the following 3 conditions are fulfilled. If even one condition is not satisfied, GST will be applicable.
1. The service must be a pure service. Pure service means only service is provided and no goods are supplied. For example, security service, manpower supply, cleaning service, consultancy service, or audit service. If goods are supplied along with service, even in small quantity, the exemption may not be available. Works contract services (like construction of road or building) are specifically not allowed under this entry.
2. The service must be provided to the right type of recipient. The exemption is available only if services are given to Central Government, State Government, Union Territory, Local Authority (like Municipality or Panchayat), Governmental Authority, or Government Entity. In case of Governmental Authority, the Government should have 90% or more control or ownership, and the authority must perform government functions.
3. The service must be related to functions given in the Constitution to Panchayats or Municipalities. Under Article 243G, Panchayats perform functions like rural development, roads, water supply, agriculture, and housing. Under Article 243W, Municipalities perform functions like urban planning, sanitation, solid waste management, public health, and fire services. The service provided should be directly connected to these functions.
For example, if a contractor provides manpower for cleaning work to a Municipal Corporation, it may be exempt because it is a pure service and relates to sanitation, which is a municipal function. However, if the contractor also supplies cleaning materials, the exemption may not apply.
Accordingly, Entry No. 3 gives GST exemption only when three main conditions are satisfied: it must be pure service, provided to an eligible Government body, and related to constitutional functions of Panchayat or Municipality. Careful checking of contract terms and nature of service is very important before claiming this exemption.
PART II
Relevant Extract from Circular No. 245/02/2025-GST dated 28/01/2025.
Whether Delhi Development Authority (DDA) is a local authority as per section 2(69) of the CGST Act, 2017?
Representation has been received from DDA seeking clarification whether DDA is a ‘local authority’ as per section 2(69) of CGST Act, 2017.
As per entry at Sr. No. 5 of notification No. 13/2017-CTR dated 28.06.2017, services supplied by local authority to a business entity are taxable on Reverse Charge (RCM) basis.
Local authority under section 2(69) of the CGST Act, 2017 has been defined as a “Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund”
It means an authority which is similar to the elected self-governing body such as Municipal Committee and which is entrusted with the control and management of municipal or local fund can be termed as local authority.
It is seen that DDA does not meet the requirement of local authority as per section 2(69) of the CGST Act, 2017. Thus, as recommended by the 55th GST Council, it is hereby clarified that DDA cannot be treated as local authority under GST law.
PART III
This clarification issued by the Revenue Department states that Statutory Authority (like DDA, ADA, etc.), are not Local Authorities.
Does this mean that pure services provided to ADA and DDA are taxable or exempt under GST?
The correct answer is No – the clarification does not automatically make pure services provided to ADA or DDA taxable.
The taxability will depend on whether these bodies qualify as Governmental Authorities or Government Entities and whether all conditions of the relevant GST exemption entry are satisfied.
As per Notification No. 31/2017-Central Tax (Rate) New Delhi, the 13th October, 2017
“Governmental Authority” means 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 per cent or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 243 W of the Constitution or to a Panchayat under article 243 G of the Constitution.
“Government Entity” means 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 per cent 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 definition, an entity must satisfy the following three conditions to qualify as a Governmental Authority or Government Entity:
1. The entity should be established by the Central or State Government, either through a Government Act or by way of a Government Notification or Order. In simple terms, it must be created by the Government.
2. The Government must have at least 90% participation in the entity, either by way of ownership or control. This means the Government should hold 90% or more of the equity shares, or it should exercise dominant control by appointing key directors and controlling major decisions, finances, and policies. In essence, the entity should be substantially owned or controlled by the Government.
3. The entity must perform functions entrusted to a Municipality under Article 243W of the Constitution of India. These functions include urban planning, regulation of land use, water supply, roads and bridges, sanitation, slum improvement, street lighting, and other civic activities. Therefore, the organisation must be engaged in municipal-type public functions relating to city development and infrastructure.
Accordingly, a Development Authority such as ADA (established by a State Government) or DDA (established by the Central Government) may satisfy the above conditions, since it is constituted by the Government, its key officials are appointed by the Government, and it undertakes activities such as urban planning, land regulation, road development, and improvement of urban infrastructure, subject to fulfilment of the statutory requirements.
Circular No. 245/02/2025-GST does not withdraw exemption under Entry No. 3 for services provided to statutory authorities like ADA or DDA. It merely clarifies their status as not being Local Authorities.
Pure Services supplied to such authorities may still qualify for exemption under Entry No. 3 of Notification No. 12/2017–Central Tax (Rate), provided the recipient qualifies as a Governmental Authority or Government Entity and the service relates to functions under Article 243G or 243W. Taxability must be determined on a case-by-case basis after examining the statutory definitions and factual position.
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