GST Rate for Sale of Space in Print Media: AAR Maharashtra Ruling

In re Lokmat Media Private Limited (GST AAR Maharashtra)

In a recent ruling by the Maharashtra Authority for Advance Ruling (AAR), the GST rate and classification for selling space in print media have been clarified. The case in question, In re Lokmat Media Private Limited, addresses key issues surrounding the applicability of GST rates and exemptions for services provided by a leading newspaper house, Lokmat Media Pvt Ltd.

Lokmat Media Private Limited, a prominent newspaper house in Maharashtra, provides services related to the sale of advertising space in newspapers and other print media, categorized under SAC Code 9986. The company supplied these services to Pune Municipal Corporation (PMC) and Pimpri Chinchwad Municipal Corporation (PCMC). The core issue was whether these services are subject to GST and, if so, at what rate.

Details of the Transactions:

1. PMC Transaction:
   • Invoice Date: 19-08-2017
   • Invoice Amount: ₹36,400 (Net) + ₹3,640 (CGST) + ₹3,640 (SGST)
   • Description: Selling of space for advertisement in print media.
2. PCMC Transaction:
   • Invoice Date: 16-06-2018
   • Invoice Amount: ₹2,11,200 (Net) + ₹5,280 (CGST) + ₹5,280 (SGST)
   • Description: Selling of space for advertisement in print media.

The PMC had claimed that GST should not apply to advertisements related to public functions, citing that such advertisements should be exempt under specific GST notifications.

GST Rate and Classification

The ruling revolved around the following critical issues:

1. Pure Service vs. Composite Supply:
   • Pure Service Classification: According to Entry No. 3 of Notification 12/2017-Central Tax (Rate), pure services provided to governmental authorities are exempt from GST. Lokmat Media Pvt Ltd argued that selling advertisement space in print media qualifies as a pure service.
   • Composite Supply: On the other hand, the contention that this supply could be a composite supply (i.e., involving both goods and services) was considered but ruled out. The ruling clarified that selling space for advertisements does not involve a significant supply of goods (such as paper and ink), thus it remains a pure service.
2. Local Authorities’ Status: Both PMC and PCMC are classified as local authorities under Section 2(69) of the GST Act. This classification affirms that they qualify for the exemptions available to local authorities.
3. Connection to Functions Entrusted to Local Authorities:
   • PMC’s Function: The advertisements in question were for recruitment purposes related to medical officers and professors for PMC’s hospital establishment.
   • PCMC’s Function: Similarly, PCMC’s advertisements were for recruitment related to its medical college.

   The key question was whether these advertisements are “in relation to” the functions entrusted to local authorities under Articles 243G and 243W of the Constitution. The ruling established that these advertisements, although not directly listed in the schedules, have a remote but relevant connection to the functions related to health and education.

Findings and Decision

1. Pure Service Status: The ruling affirmed that selling space for advertisements is a pure service. The space itself is sold without transferring any property in goods (i.e., paper and ink). The recipient only acquires the right to have their advertisement published.
2. Exemption Applicability: Since the service is deemed a pure service, it is not eligible for exemption under Entry No. 3 of Notification 12/2017-Central Tax (Rate) unless the service is directly related to the functions specified under Articles 243G and 243W. In this case, while the connection to these functions is remote, the service itself is not exempt.
3. Local Authorities’ Role: Both PMC and PCMC being local authorities does not automatically exempt the service from GST. The exemption is contingent upon the service being directly related to functions enumerated in the Constitution.
4. Relation to Constitutional Functions: The ruling concluded that the advertisements for recruitment, while necessary, do not directly relate to the functions under Articles 243G and 243W. Therefore, the exemptions provided for pure services in relation to these functions do not apply.

The AAR Maharashtra ruling in the case of Lokmat Media Private Limited provides clarity on the GST treatment for the sale of advertising space in print media. The decision underscores the distinction between pure services and composite supplies, the importance of the local authority status, and the nuanced interpretation of constitutional functions related to GST exemptions.

The ruling affirms that while selling space for advertisements in print media is a pure service, it does not qualify for GST exemption under the current provisions related to local authorities.

FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, MAHARASHTRA

The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act” respectively] by M/s. LOKMAT MEDIA PRIVATE LIMITED, the applicant, seeking an advance ruling in respect of the following question.

“Applicability of GST rate and classification of supply of goods/services in case of sale of space in print media.”

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 CGST Act and MGST Act.

1. FACTS AND CONTENTION – AS PER THE APPLICANT FACTS:

1.1 The applicant Lokmat Media Pvt Ltd. having GSTN 27AAACL1888J1Z6, is publisher of Maharashtra’s leading daily newspaper in Marathi, Hindi, and English languages. We provide advertisement services in print media to a diverse range of customers, including the Central Government, State Government, Local Bodies, and the private sector across Maharashtra.

1.2 Further we have two types of revenue one is Sales of Newspaper and others is selling of Space for Advertisement in Print Media both are interdepended on each other. The print media is newspaper on which advertisement in printed which is charged to the Customer i.e. PCMC or PMC and sales of newspaper is charged to reader of the newspaper. The cost of material is same is both the revenue transactions i.e. selling of space for advertisement in print media and Sales of newspaper.

1.3 PCMC or PMC, gives us the PO for publishing the Advertisement in newspapers. The Value of RO is determined on the basis of Government rates for the “setting of Space for Advertisement in Print Media”. Further we print Lakhs of copies of newspaper with the required Advertisement and submit our bills.

1.4 The Applicant is charging GST, as per the Notification No.11/2017 – Central Tax (Rate), under Chapter Heading 9983 “Selling of Space for advertisement in print media” GST rate applicable is 5% for the same. Whereas all its customers are releasing payment with GST except “Pune Municipal Corporation” and “Pimpri Chinchwad Municipal Corporation”.

1.5 PMC and PCMC on the other hand are of the view that GST will not be applicable on the advertisement services provided to the Municipal Corporation, under the reference of “Pure Services” provided to the Local Authority. As per the Notification No.12/2017-Central Tax (Rate), Under Chapter 99, “Pure Services”. PMC/PCMC are local authorities. Copy of letter from PCMC is submitted with the application.

2. STATEMENT CONTAINING APPLICANTS INTERPRETATION OF LAW

2.1 Notification No. 12/2017-Central tax (Rate) dated June 28, 2012

Sr. No. 3 of the said notification, “Pure Services” (excluding works contract service or other composite supplies involving the supply of any goods) provided to the Central Government, State Government, Union territory, local authority, or a governmental, authority by way of any activity related to any function entrusted to a Panchayat under Article 243G of the Constitution or to a Municipality under Article 243W of the Constitution are exempt from GST.

2.2 Sr. No.3A inserted by Notification No.02/2018-Central, Tax (Rate) dated 20.01.2018 Additionality, Sr. No. 3A of the said notification states that composite supplies of goods and services, where the value of the supply of goods does not exceed 25% of the total value of the said composite supply, provided to the Central Government, State Government or Union territory or Local authority 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 are exempt from GST.

2.3 Applicants Submission on interpretation of the exemption entry.

a. Applicant provides sale of advertisement space in print media service to Pune Municipal Corporation (PMC) and Pimpri Chinchwad Municipal Corporation (PCMC), which are local authorities. However, the material component (newspaper) forms a major part of the value of supply, which involves various raw materials used for such supply. Hence, the said notification is not applicable to the sale of space for advertisement in print media, as we are not engaged in providing pure services but in supplying both goods and services.

b. As per the definition of “pure services”, these services do not involve the supply of any goods. In our case, we are engaged in the supply of both goods and services both i.e. the Material used in printing of advertisement and sate of space for advertisement. Therefore, we do not fall under the definition of pure services, making entry 3 above inapplicable, and no exemption is allowed.

c. In the context of “sate of space for advertisement in print media,” it includes the sale of space in print media, which forms a material component of this supply. The material in the form of newspapers is also supplied for the unit space booked by the client. Hence, it cannot be considered as a pure service as there is both supply of goods and services as well.

d. Also, providing services in relation to sate of advertisement in print media is not covered under the scope of any entry being entrusted to any Municipality under Article 243W of the Constitution of India, therefore the said pure services of the applicant cannot be said to be an activity in relation to this function of the PMC and PCMC.

e. Also, selling of space for advertisement is not an essential service for the activity in relation to the function entrusted to Municipality under article 243W.

f. The definition of Relation as per the Cambridge Dictionary is the connection or similarity between two things. In our case there is no connection in relation to service provided and the functions entrusted under the said article.

g. Similar view was taken in Hrmilap Media Pvt. Ltd. (Advance Ruling No. 03/2019-20 Uttarakhand). (Copy of the Ruling is annexed herewith and referred as Annexure III)

h. Furthermore, as per entry no. 3A mentioned above, if the composite supply of goods and services involves the value of goods constituting not more than 25% of the total value, it qualifies for exemption. In our case, if the supply is considered a composite supply, then the value of goods exceeds 25% of the total value and this entry becomes inapplicable. The Applicant has submitted cost of Goods and service element in its business, which is available on record. It has submitted that the ratio of goods component in supply of services is exceeding the 25% threshold limit. Thus, the composite supply of goods and services in which the value of goods constitutes more than 25% of the value of the said composite supply provided to a local authority by way of an activity related to any function under Article 243G of 243W of the constitution does not qualify for exemption. The value of supply as per our financials is as mentioned in the above table.

i. Therefore, even when providing services to local authorities, we do not meet the definition and conditions laid down for the exemptions. Hence, those entries are not applicable to us, and we have rightfully charged the GST @5% as mentioned below.

SAC	Particulars	Rate
998363	Sale of Advertisement space in print media	5%

3. Submission of the Jurisdictional Officer-Officer made submission on 18-06-2024 and submitted that

The Selling of space for advertisement in Print Media by the applicant is (i) Pure service (ii) but such activity cannot be said to be related to the functions stated in the Entry No. 3 of the exemption Notification. The submissions are reproduced at dealt wherever applicable for decision.

4. HEARING

Preliminary hearing in the matter was held on 12.06.2024 Mr. Umesh Sharma, C.A. appeared, and requested for admission of the application. Jurisdictional Officer Mr. Yogesh Netankar, Deputy Commissioner of State Tax, AUR-VAT-E-005 Also appeared.

The application was admitted and called for final hearing on 26.06.2024. Mr. Umesh Sharma, C.A., Authorized Representative, appeared made oral and written submissions Mr. Yogesh Netankar, Deputy Commissioner of State Tax, AUR-VAT-E-005 Also appeared. We heard both the sides.

5. Findings of fact, observations, provisions of law and decisions on various issues.

5.1) Uncontroverted material facts necessary for decision are as under: –

5.1.1 The applicant M/s. Lokmat Media Private Limited, is a leading Newspaper house in Maharashtra. It is providing service of selling of space in newspaper and other print media, having SAC Code 9986.

5.1.2 Applicant has supplied these services to Pune Municipal Corporation (hereinafter referred to as PMC). The advertisement issued dated 18-08-2017 vide Advertisement No 1/298, was for recruitment of ‘Medical Officers’ Class 1 and Specialist Doctors for its hospital Establishment. Applicant has issued Tax Invoice vide Invoice No. NA17EBAZ2/ 6107 dated 19-08-2017 for Net value Rs 36400/- and CGST & SGST at rate of 2.5% each thereon, Gross Value at Rs 38220/-. Description of Service is stated as ‘Selling of space for advertisement in print media’.

5.1.3 Applicant has supplied these services to Pimpri Chinchwad Municipal Corporation ((hereinafter referred to as PCMC). The advertisement dated 13-06-2018 vide Advertisement No 1326/2018, was for recruitment of ‘Professors, Associate Professors and Assistant Professors from Specialist Doctors from Medical Profession for its ‘Yashwantrao Chavan Smrurti Hospital Establishment. Applicant has issued Invoice vide Invoice No. NA18CBLZ2/ 4330 dated 16-06-2018 for Ner value Rs 211,200/- and CGST & SGAT at rate of 2.5% thereon, Gross Value at Rs 221760/- Description of Service is stated as ‘Selling of space for advertisement in print media’.

5.1.4 The recipient of advertisement Pimpri Chinchwad Municipal Corporation, has vide its letter dated 12.03.2018 stated that in brief: “GST is not applicable on Pure Services of Advertisement’. Reasoning given by its Chartered Accountant of the PCMT is ‘any advertisement in relation to work mentioned in Article 243G or Article 243W will be exempt. Advertisement work other than in relation to Article 243W or Article 243G, GST will be applicable at 5%.’

5.2) In backdrop of these facts and relevant provisions of GST Laws and Notifications issued thereunder, Question raised by the applicant for decision is as under: –

“Applicability of GST rate and classification of supply of goods/services in case of sale of space in print media.”

a. Tax rate Schedule entry- Entry at Sr. No. 21 of notification 11/2017- Central Tax (Rate) dated 28th June 2017.

21

Heading 9983

(i) Selling of space for advertisement in print media.

2.5

–

b. Exemption Entry- Entry at Sr. No. 3 Of Notification 12/2017- Central Tax (Rate) dated 28th June 2017.- (Hereinafter referred as “Exemption Notification”)- As applicable till 31-12-2021.

3	Chapter 99	Pure services (excluding works contract services 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 Entry 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 243 W of constitution.	Nil	Nil
3A	Chapter 99	Composite supply of gods and services in which the value of supply of goods constitutes not more than 25 % of the value of the said composite supply 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 nay function entrusted to a Municipality under article 243 W of the Constitution.	Nil	Nil

c. Function entrusted to the panchayat under article 243G in the Eleventh Schedule – as applicable to this application are under: –

17. Education, including primary and secondary schools.

23. Health and sanitation, including hospital, Primary health centers and dispensaries. [Emphasis supplied)

d. Function entrusted to the municipalities under article 243w in the Twelfth Schedule – as applicable to this application are under: –

6. Public health, sanitation conservancy and solid waste management. /Emphasis supplied)

5.3) To answer the question raised by the applicant following issues need to be decided: –

5.3.1 Whether supply of selling space for advertisement in print media is pure service for the purpose of Entry at Sr. No.3 of the Exemption Notification?

5.3.2 Whether supply of selling space for advertisement in print media is composite supply of goods and services in which the value of supply of goods constitute not more than 25%, for the purpose of Entry at Sr. No.3A of the Exemption Notification?

5.3.3 Whether Pune Municipal Corporation and Pimpri Municipal corporation are local authorities for the purpose of entry at Sr no. 3 and 3 A referred above of the notification 12/2017?

5.3.4 Whether the content of advertisement has some connection either direct, indirect, remote etc. to the function entrusted to the panchayat that is to say:

17. Education, including primary and secondary schools.

23. Health and sanitation, including hospital, Primary health centers and dispensaries. (Emphasis supplied)

5.3.5 whether supply of service of selling space for advertisement for recruitment of doctors for the posts of ‘Medical Officers’ and ‘Professors’ required for hospital and medical college, having attached Hospital, run by the respective corporation can be said to be “in relation to the function entrusted to the Panchayat under Article 243G & 243W of the Constitution”

5.4) Issue No. 1: – Whether supply of selling space for advertisement in print media is pure service as referred in the said Entry No 3 of the Exemption Notification?

5.4.1 Submission of the applicant-The applicant has submitted that paper and ink are used for printing advertisement and hence its activity is not a pure service he relied upon decision of Advance Ruling Authority Uttarakhand M/s. Harmilap media (P) Limited in which it is decided:

“C.3 On perusal of record we find that applicant argued that “sale of space for advertisement in print media” includes invariably includes supply of material in the foam of newspaper and the material component forms a major part of the value of said supply. Thus, said supply does not fall in the category of ‘Pure Services”.

5.4.2 Officer Submission dated 11.06.2024-

On the analysis and study of above facts, it is submitted that-

a) Selling of space for advertisement is pure services supplied to Municipality. However, this service is not in relation to the functions entrusted to Municipality by Article 243W.

5.4.3 Findings, discussion & decision on the issue:

In supply of space for advertisement in print media, only the rights to publish advertisement are available to the recipient in specified publication, in which such advertisement is published. For printing of newspaper or printed material, Ink and papers are used and the property in such ink and papers get transferred in form of newspaper or print media, to customers who purchase or receive such of newspaper or print media. No property in goods in form of newspaper or print media, is transferred to the recipient of service of supply of selling space in print media. The recipient of such supply get only space in the newspaper, where content of its advertisement is printed. Therefore, it is decided that the supply of selling space in print media is supply of pure service as envisaged in Entry No. 3 of the Exemption Notification.

5.5) Issue No.2: – Whether supply of selling space for advertisement in print media is composite supply of goods and services in which the value of supply of goods constitute not more than 25% %, for the purpose of Entry at Sr. No.3Aof the Exemption Notification?

5.5.1 Findings, discussion & decision on the issue:

Decision on this issue become redundant as the services are held to be pure services as discussed & decided in Issue Nol.

5.6) Issue No. 3: Whether Pune Municipal Corporation and Pimpri Municipal corporation are local authorities for the purpose of entry at Sr no. 3 and 3 A referred above of the Exemption Notification?

5.6.1 The Applicant admitted & stated that both these Corporations are Local Authorities as per definition in S 2 (69) of the GST Act and as referred to Entry No 3 & 3A of the Exemption Notification.

5.6.2 The Jurisdictional Officer also admitted & stated that both these Corporations are Local Authorities as per definition in S 2 (69) of the GST Act and as referred to Entry No 3 & 3A of the Exemption Notification.

5.6.3 Findings, discussion & decision on the issue:

Both these Municipal Corporations are Constituted under the Maharashtra Municipal Corporations Act, 1949,

a. Definition in S 2 (69) of the GST Act is as under,-

(a) a “Panchayat” as defined in clause (d) of article 243 of the Constitution.

(b) a “Municipality” as defined in clause (e) of article 243P of the Constitution.

b. This issue is decided by Maharashtra Authority for Advance Ruling in M/s. City and Industrial Development Corporation of Maharashtra Limited dated 13.04.2019 in observation para no.4 as under: –

“we also are of the opinion that the NMMC and PMC are Municipal Corporations which satisfy the definition of a ‘Local Authority’ as defined in Section 2(69) of the GST Act.’ We agree with the earlier decision of Maharashtra ARA in CIDCO’s case.

5.7) Issue No. 4. Whether the content of advertisement has some connection to the function entrusted to a panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution?

5.7.1 Facts of the Service supplied- Whether the act of publication of advertisement and its content has some connection whether direct, proximate indirect or remote to the activities of education and health as stated in Eleventh Schedule under Article 243G?. As per the facts stated in both these advertisement are placed for recruitment of “Medical Officer and Specialist Doctors in Hospital run by PMC. In case of PCMT, the advertisement is for recruitment of various Classes of Professors from Specialist Doctors from Medical Profession for its ‘Yashwantrao Chavan Smrurti Hospital Establishment.

5.7.2 Recruitment rules of the respective PMC and PCMC manded that Recruitment of officials and staff (employee) of the corporation shall be done as per the Recruitment rules frame by those corporation and publication of advertisement for such post is mandatory. Both the Corporations have their own Recruitment Rules.

5.7.3 Pune Municipal Corporation Recruitment (Recruitment and Cadres of Services) Rules, 2014 came in force on 26-08-2014.

Rule 2- Classification of Services

Sub-rule 4- Medical services. For the appointment of a graduate in Medical Science from any recognized University, Post Graduate Degree holder / Diploma holder also from Medical Council of India, Ayush and similar Ayurvedic Council, Unani, Homoeopathic Council Registration shall prescribe the minimum educational qualification, such posts shall be termed “Medical Cadre” and the service of such posts shall be termed “Medical Cadre”. –

5.7.4 Procedure to be followed for service recruitment under Pune Municipal Corporation (Service Entry and Classification of Services) Rules, 2014

3. Mode of appointment and qualification-

‘(a) For appointment to a post, the application received in accordance with the advertisement in the newspaper or the notice on the notice board of the Municipal Corporation within the prescribed period or the names of such candidates from the Service Regulation Center or other organizations/offices as per the order of the Government will be considered.’

5.7.5 The Applicant agreed that such Recruitment Rules, are framed, but was unequivocal that such Advertisement is not in relation to the functions stated in Article 243G & 243W, and the connection if any is very remote.

5.7.6 The Jurisdictional Officer also agreed with the provisions of Recruitment Rules, but was unequivocal that such Advertisement is not in relation to the functions stated in Article 243G & 243W, and the connection if any is very remote.

5.7.7 Findings, discussion decision on the issue:

From the recruitment Rules framed by PMC and similar Rules framed by PCMC, Publication of Advertisement for Recruitment of Medical Officers etc. is mandatory to be published in the Newspaper or Notice Board of the Corporation. Therefore, we are of the opinion that “Activity of placing Advertisement for recruitment of Medical Officers and Professors from Medical Profession is mandatory on the Corporation and the content of advertisement has some connection, whether direct, indirect or remote, to the function entrusted to a panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution

5.8) Issue No. 5: whether supply of service of selling space for advertisement for recrement of doctors required for hospital and medical colleges run by the respective corporation can be said to be “in relation to the function entrusted to the Panchayat under Article 243G & 243W of the Constitution”

5.8.1 Submission of the applicant-The applicant submitted that

a. “Selling of space for advertisement in print media”- is not an activity covered in Eleventh & Twelfth Schedule of Article 243G and 243W, of the Constitution of India. Secondly, the applicant submitted that, there is no relation between placing of an Advertisement in Newspaper and the functions stated in Article 243G and 243W. Thirdly, the applicant submitted that these are not pure services. Lastly, he relied on order of Advance Ruling Authority, Uttarakhand in case of Harmilap Media Pvt. Ltd. (Advance Ruling No. 03/2019-20 Uttarakhand. Pointwise submission is as under,

b. Also, providing services in relation to sate of advertisement in print media is not covered under the scope of any entry being entrusted to any Municipality under Article 243W of the Constitution of India, therefore the said pure services of the applicant cannot be said to be an activity in relation to this function of the PMC and PCMC.

c. Also, selling of space for advertisement is not an essential service for the activity in relation to the function entrusted to Municipality under article 243W.

d. The definition of Relation as per the Cambridge Dictionary is the connection or similarity between two things. In our case there is no connection in relation to service provided and the functions entrusted under the said article.

e. submission to accept the ruling of ARA in Harmilap is also as under,

Para C.3 On perusal of record we find that applicant argued that “sale of space for advertisement in print media” includes invariably supply of material in the form of newspaper and the material component forms a major part of the value of said supply. Thus said supply does not fall in the category of “Pure Services”.

Ruling in Harmilap-(iii) Supply of service viz “Sale of Space for Advertisement in Print Media” is not a “Pure Service” and the exemption to said services are not admissible in terms of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended from time to time).

5.8.2 Officer Submission dated 11.06.2024- Officer has submitted as under,

On the analysis and study of above facts, it is submitted that-

a. Selling of space for advertisement’ is taxable at the rate of 2.5 percent CGST and SGST each

b. Selling of space for advertisement is pure services supplied to Municipality. However, this service is not in relation to the functions entrusted to Municipality by Article 243W.

c. The exemption as per CGST Notification No. 12/2017- Central Tax (Rate), serial no 3, chapter 99 is applicable only when the activity is pure service supplied 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.

d. It was submitted by the Officer, that the advertisement for recruitment of Medical Officers and Professors for Hospital of Medical College are not in relation to the said constitutional functions, and hence not eligible for exemption as per Entry at sr. No 3 of the Exemption Notification.

5.8.3 Findings, discussion decision on the issue:

The words “any activity in relation to any function” used in entry at Sr. no 3 are very broad and shall not be confused with the words “directly in relation to”, which are used for direct and proximate relationship.

a. Hon’ble Supreme court in case of M/S. Flex Engineering Ltd vs Commissioner Of Central Excise, U.P in Civil Appeal No 7152 of 2004 decided on 13 January, 2012, has explained the scope of words “in relation to” in paragraph 3.4 as under,

14. In our opinion, apart from the fact that the amended Rule itself contemplates that physical presence of the input, in respect of which Modvat credit is claimed, in the final product is not a pre-requisite for such a claim, even otherwise this issue is no longer res-integra. In Collector of Central Excise & Ors. Vs. Solaris Chemtech Ltd. & Ors.5, this Court while examining the scope and purport of the expression “in or in relation to the manufacture of the final products” observed that these words have been used to widen and expand the scope, meaning and content of the expression “inputs” so as to attract goods which do not enter into finished goods. Speaking for the Bench, S.H. Kapadia, J. (as his Lordship then was) held as follows:

11. Lastly, we may point out that in order to appreciate the arguments advanced on behalf of 5 (2007) 7 SCC 347 : 2007 (214) E.L.T. 481 (S.C.) the Department one needs to interpret the expression “in or in relation to the manufacture of final products”. The expression “in the manufacture of goods” indicates the use of the input in the manufacture of the final product. The said expression normally covers the entire process of converting raw materials into finished goods such as caustic soda, cement, etc. However, the matter does not end with the said expression. The expression also covers inputs “used in relation to the manufacture of final products”. It is interesting to note that the said expression, namely, “in relation to” also finds place in the extended definition of the word “manufacture” in Section 2(f) of the Central Excises and Salt Act, 1944 (for short “the said Act”). It is for this reason that this Court has repeatedly held that the expression “in relation to” must be given a wide connotation.

b. Hon’ble Supreme Court in case of M/S. J. K. Cotton Spinning & Weaving … vs Sales Tax Officer, Kanpur And Another in Civil Appeal No 857 of 1964 decided on 28 October 1964, has decided scope of words “Used in manufacture ” and “In relation to manufacture” as under in Para 9 & 10 of the judgment.

Para 9- “In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods “in1 connection with manufacture of or “in relation to” manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a Company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within. Rule 13. See Indian Copper Corporation Ltd v. Commissioner of Commercial Taxes, Bihar and Ors” (Emphasis supplied)

Para 10- “. The High Court has rightly pointed out that unless designs are prepared it would be “impossible for the workmen” to turn out goods for sale. If the process of designing is so intimately connected with the process of manufacture of cloth, we see no reason to regard the process of designing as not being a part of the process of manufacture within the meaning of Rule 13 read with Section 8(3)(b). The process of designing may be distinct from the actual process of turning out finished goods. But there is no warrant for limiting the meaning of the expression “in the manufacture of goods” to the process of production of goods only. The expression “in the manufacture” takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use as “equipment” in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use “in the manufacture of goods”. (Emphasissupplied)

c. Hon’ble Supreme court in case of M/s. Navin Chemical Mf. And Trading Compony versus Collector of Customs decided on 15 September 1993, in para 7 has held as under,

Para7- “7. The controversy, therefore, relates to the meaning to be given to the expression ‘determination of any question having a relation to the rate of duty of customs or to the value of goods for purposes of assessment’………

“The Phrase ‘relation to’ is, ordinarily, of wide import but, in the context of its use in the said expression in Section 129-C, it must be read as meaning a direct and proximate relationship to the rate of duty and to the value of goods for the purposes of assessment.”

Hence in order to decide whether word in relation to shall be interpreted as words of wide import or with reference to the context of use in the said expression used in the CGST & IGST Act, entry at sr. no 3 of the Exemption Notification and other Entries therein.

This view is supported by judgment of Hon’ble Supreme court-Constitution Bench in case of State Of Karnataka vs Azad Coach Builders Pvt. Ltd. & Anr in Civil Appeal No. 5616-5617 OF 2000, decided on 14 September, 2010. In paragraph 24 it is held that “…..The expression hn relation to1 are words of comprehensiveness, which might both have a direct significance as well as an indirect significance, depending on the context in which it is used and they are not words of restrictive content and ought not be so construed. (Emphasis supplied)

d. Now coming to next principle of finding out context of word in exemption notification-Entry at Sr No 3 is as under,

Sr No. 3- Pure services (excluding works contract services 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 243 W of constitution.

All these services are provided to the Government and Local Authorities, that too required for their Constitutional duties as stated in Article 243G & 243W. GST being indirect tax, burden of such tax falls on recipient of supply- here The Local Authorities. The burden will be paid through the grants received from the Central and State Governments, and taxes levied by Local authorities, through their limited power of taxation and resources to raise funds for work. The financial powers of Local authorities are limited. Thus the purpose of the notification is to reduce burden of tax on such authorities, so that they can use those resources for the development work as stated in Article 243G & 243W.

e. Scope of Similar Exemption Entry No 25 (a) of Notification 25/2012-Service Tax, dated 20-06-2012 in Service Tax era is explained by the CBIC through its Circular no 199/09/2016- Service tax, extract is as under,

Para 2.2.2 In the period 11-7-2014 onwards

25 (a) “Services provided to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation”, (emphasis supplied)

3. Thus, it follows that, among others, exemption is available to the following services provided to the Government, a local authority or a governmental authority, by way of-

(a) construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of pipeline, conduit or plant for (i) water supply (ii) water treatment, and

(b) water supply

4. The phrase “water supply” is a general phrase. Basically it will involve providing users, access to a source of water. The source may be natural or artificial like tanks, wells, tube wells etc. Providing users access to such a source will involve construction of the source (if artificial) and the transmission of water to the user. It will involve activities like drilling, laying of pipes, valves, gauges etc., fitting of motors, testing etc, so as to eventually result in the supply of water. Similarly, the word plant has to be understood and interpreted with reference to the context. A plant for water supply need not necessarily involve a huge assembly of machinery and apparatus, for the reasons explained earlier. (Emphasis supplied)

5. Thus the exemption under the entries at Serial No. 12(e) and 25(a) of notification 25/2012-Service Tax dated 20-6-2012, will cover a wide range of activities/services provided to a government, a local authority or governmental authority and will include the activity of construction of tube wells. (Emphasis supplied)

5.8.4 Decision- Considering the content of the Circular, we have no hesitation to hold that “the activity of publishing advertisement for recruitment of Doctors for various posts by the Corporations is “in relation” to its constitutional function stated in Article 243G and 243W.

6. Final Decision –Considering all the judgments, Circular etc. above and after having observed that it is mandatory to issue advertisement for recruitment, and therefore publication of such advertisement is ultimately mandatory for recruitment of doctors for constitutional functions, who in turn are necessary for providing health services. Government has used words “any activity” in the notification, also means that “the activity of Selling of space for advertisement in print media’ is also covered in the entry. The Activity of placing Advertisement in Print Media for recruitment of Doctors for post of Medical Officers and Professors for Hospital and Medical College, is mandatory as per Recruitment Rules of the Corporations and hence though it is not directly related to the constitutional function, it is held to be in relation to an activity in relation to the function stated in Article 243G and 243W, as the words used in the entry are “in relation to” not “directly in relation to”.

In view of the extensive deliberations as held hereinabove, we pass an order as follows:

ORDER

(Under Section 98 of the Central Goods and Services Tax Act, 2017 and
the Maharashtra Goods and Services Tax Act, 2017)

For reasons as discussed in the body of the order, the question is answered thus –

Question: Applicability of GST rate and classification of supply of goods/services in case of sale of space in print media.

Answer- As the content of advertisement is in relation to the function of Education, including primary and secondary schools and Health and sanitation, including hospital, Primary health centres and dispensaries; it is decided that being pure services provided to the Municipal Corporations are covered by Entry No. 3 of the Notification 12/2017- Central Tax (Rate) Dated 28th June 2017, and exempted from tax.