Pure Services Under GST-Detailed Analysis

Supply of Pure Service except Works Contract Service or composite supplies involving supply of any goods is exempted from GST Tax subject to such conditions stated under entry at Sr.No.3 of the Notification No.12/12017 Central Tax (Rate) dated 28-06-2017.

From 25-01-2018 the Legislature allowed composite supply in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply is exempted from GST Tax subject to such conditions stated under entry at Sr.No.3A of the Notification No.12/12017 Central Tax (Rate) dated 28-06-2017. The amendment has been made vide Notification No.2/2018-CT(R) dated 25-01-2018.

Entries 3 and 3A of the Notification No.12/12017 Central Tax (Rate) dated 28-06-2017 are reproduced as under:

Entry 3 – 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.

Entry 3A inserted with effect from 25-01-2018 vide Notification No.2/2018-CT(R) – Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent 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 any function entrusted to a Municipality under article 243W of the Constitution.

Omitted (or a Governmental authority or a Government Entity) w.e.f. 01-01-2022 vide notification no. 16/2021 – Central Tax (Rate) dated 18-11-2021

We can bi-furcate the above stated entries as under:-

1. Supply – Pure Services or Composite supply in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply.

2. Recipient Category – Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity.

3. Purpose of Supply of Service – The purpose of supply of service shall be to complete any of the functions stated under article 243G or 243W of the Constitution of India. Such function has been entrusted to the recipient (Government Authority or Entity) stated under the notification.

Pure Service – The phrase “pure service” has not been specifically defined in any of the notifications / circulars. However, in common parlance, “pure services” in this context would intend to cover all the contracts where there is no supply of goods i.e., to say any supply which is either deemed as services under Schedule II of CGST Act or which are not covered under the definition of goods shall be categorized as pure services. For example, supply of man power services for cleanliness work, security guard, architect services, consultancy services etc. not involving any supply of goods would be treated as supply of pure services.

To broaden this category the Government, from 25-01-2018, allowed supply of goods (not more than 25 per cent of total value of the composite supply) with principal supply of services. For example, the work order has been awarded for street light maintenance. Such work order mainly to restore lights which are not working including replacement of defunct lights. The value of goods in the work order has been determined less than 25 per cent of the total value of the work order awarded.

Recipient Category – Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity.

Definitions as stated in the Notification 12/2017 CT(R) –

Para 2(zf) – “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 90 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 or to a Panchayat under article 243G of the Constitution;

Para 2(zfa) –  “Government Entity” means an authority or a board or any other body including a society, trust, corporation,

(i) set up by an Act of Parliament or State Legislature; or

(ii) 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;

Vide notification no. 16/2021 – Central Tax (Rate) dated 18-11-2021 – the words “or a Governmental authority or a Government Entity” shall be omitted w.e.f 01-01-2022

Accordingly, from 01-01-2022 exemption on supply of pure services or composite supply shall be eligible if the same would have made to the Central Government, State Government or Union territory or local authority.

Functions entrusted under Article 243G and 243W of the Constitution –

Following functions are entrusted to Panchayats under Article 243G:

1. Agriculture, including agricultural extension.

2. Land improvement, implementation of land reforms, land consolidation and soil conservation.

3. Minor irrigation, water management and watershed development.

4. Animal husbandry, dairying and poultry.

5. Fisheries.

6. Social forestry and farm forestry.

7. Minor forest produce.

8. Small scale industries, including food processing industries.

9. Khadi, village and cottage industries.

10. Rural housing.

11. Drinking water.

12. Fuel and fodder.

13. Roads, culverts, bridges, ferries, waterways and other means of communication.

14. Rural electrification, including distribution of electricity.

15. Non-conventional energy sources.

16. Poverty alleviation programme.

17. Education, including primary and secondary schools.

18. Technical training and vocational education.

19. Adult and non-formal education

20. Libraries.

21. Cultural activities.

22. Markets and fairs.

23. Health and sanitation, including hospitals, primary health centres and dispensaries.

24. Family welfare.

25. Women and child development.

26. Social welfare, including welfare of the handicapped and mentally retarded.

27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes.

28. Public distribution system.

29. Maintenance of community assets.

Following functions are entrusted to Municipalities under Article 243W:

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, playgrounds.

13. Promotion of cultural, educational and aesthetic aspects.

14. Burials and burial grounds; cremations, cremation grounds and electric crematoriums.

15. Cattle pounds; 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.

ADVANCE RULINGS ON PURE SERVICES

The Gujrat Authority in the Advance Ruling “M/S A.B.Enterprise” 2020-VIL-155-AAR treated the manpower services as “Pure Services”. The Authority analyzed various work orders awarded to the Applicant. Such Work Orders are reproduced as under:

a. The Work Order no. Napuni/BK/mkm/outsourcing/computer operator/varg-4/seval agency nimnuk/ hukm/02/2018, dated 27-2-2018, has been awarded to the applicant by Gujarat State Nagarik Purvatha Nigam Limited, for providing personnel for computer data operator and watchmen at its godowns. Primary objective of the Civil Supply Corporation is procurement, storage, distribution of food grains, edible oils, sugar, pulses, refined iodised salt for the requirement of public distribution system. We find that the said service is provided by the applicant in relation of discharge of functions covered under Sr. No. 28 (Public Distribution System) of Article 243G of the Constitution of India.

b. The Tender No. PGVCL/Projects/Manpower/2016/58 was floated by M/s PGCVL to seek the services of Manpower (Engineers) & Manpower (Electrical Assistant) on contract basis to carry out RE related activities under various Sub-Divisions of PGVCL with detailed functioning of engineers and electrical assistants. We find that the said service is provided by the applicant in relation of discharge of functions covered under Sr. No. 14 [Rural electrification, including distribution of electricity] of Article 243G of the Constitution of India.

c. Similarly, the Work Order no. Ja. N. O. S./2016/2017-18 dated 29-8-2017 has been awarded to the applicant by Mehsana Municipality to provide manpower for security and maintenance of municipality owned assets. We find that the said service is provided by the applicant in relation of discharge of functions covered under Sr. No. 29 (Maintenance of community assets) of Article 243G of the Constitution of India and Sr. No. 12 (Provision of urban amenities and facilities such as parks, gardens, playgrounds) and Sr. No. 17 (Public amenities including street lighting, parking lots, bus stops and public conveniences) of Article 243W of the Constitution of India.

d. Likewise, Ahmedabad Municipal Corporation vide letter dated 8-10-2016 with reference to Standing Committee Resolution no. 798 dated 29-9-2016 awarded letter of acceptance for manual and mechanised housekeeping work at Kankaria Lake Front and Kids City. We find that the said service is provided by the applicant in relation of discharge of functions covered under Sr. No. 12 (Provision of urban amenities and facilities such as parks, gardens, playgrounds) of Article 243W of the Constitution of India.

e. The letter of acceptance no. NPCDn.4/5/AB/TC/Security & Operation of Gate- 2014/JBC/Distr/1670 dated 29-10-2014 has been awarded to the applicant by Sardar Sarovar Narmada Nigam Limited for providing service for security and operation of gates of on regulating structures of Branch Canal and distributory. We find that the said service is provided by the applicant in relation of discharge of functions covered under Article 243G [Minor irrigation, water management and watershed development, Drinking water] and Article 243W [Water supply for domestic, industrial and commercial purposes] of the Constitution of India.

f. Similarly, Bhavnagar Forest Department, Government of Gujarat issued letter no. Mhk/T- 10/outsource/2017 dated 29-7-2017, appointing the applicant as manpower outsource agency for the work of forest department. We find that the said service is provided by the applicant in relation of discharge of various responsibilities cast upon the forest department covered under Article 243G [Social forestry and farm forestry, Minor forest produce] and Article 243W [Urban forestry, protection of the environment and promotion of ecological aspects] of the Constitution of India.

g. Likewise, Bhavnagar Collector Office, issued letter no. Mkm-/vshi/Tender/2613/2017 dated 26-12-2017, appointing the applicant as manpower outsource agency for the work of pattawallah/driver/data entry operator to help in the fundamental works entrusted upon their offices. We find that the said service is provided by the applicant in relation to discharge of various responsibilities cast upon the collector’s office covered under Article 243G and Article 243W of the Constitution of India.

In the Advance Ruling “Star Creative” 2021-VIL-410-AAR the Karnatka Authority held that the applicant is providing services by way of producing documentary videos, picture of testimony to various State Government Departments, Local Authorities, Boards and Corporations. But these services are not provided 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. Hence provision of such services is liable to tax at 18% (9% CGST and 9% KGST).

In the Advance Ruling “M/s SREE VINAYAKA ENTERPRISES” 2021-VIL-414-AAR the Karnatka Authority held that manpower services like security guards, housekeeping staff and catering staff provided by the Applicant are not provided 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. Hence provision of such manpower services is liable to tax at 18% GST.

Conclusion

To come under the purview under the pure services or the composite supply stated under Sr.Nos.3 and 3A respectively of the Notification 12/2017 Central Tax(Rate), the services must be provided to the Government Authorities and such services must be in relation to discharge of functions covered under the Article 243G and 243W of the Constitution of India.

To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is [email protected].

(PARVEEN KUMAR MAHAJAN)

Advocate