In re Akshara (GST AAR Kerala)
In the case of In re Akshara, the Kerala Authority for Advance Ruling (AAR) examined the applicability of Goods and Services Tax (GST) on the services provided by the applicant, a partnership firm engaged in the maintenance and repair of public street lighting infrastructure. The applicant entered into an agreement with Kayamkulam Municipality and sought an advance ruling on whether their services are exempt under Notification No. 12/2017-Central Tax (Rate), which pertains to “pure services” and certain composite supplies provided to government bodies. The applicant claimed that their work qualified for GST exemption since it involved the execution of a function assigned to Municipalities under Article 243W of the Constitution, namely public street lighting, and in some cases, included goods not exceeding 25% of the contract value.
The AAR reviewed the agreement between Akshara and the Municipality, which included services using ISO-certified materials and manpower for timely streetlight maintenance. While such services generally fall under Service Accounting Code (SAC) 9987 and attract 18% GST under Notification No. 11/2017, the AAR acknowledged the need to examine relevant exemptions. Entry 3 of Notification No. 12/2017 provides GST exemption for pure services related to functions listed in the Eleventh and Twelfth Schedules of the Constitution when provided to local authorities. Additionally, Entry 3A of the same notification (inserted via Notification No. 2/2018) extends exemption to composite supplies involving goods up to 25% of the total value. The AAR reaffirmed that a Municipality qualifies as a local authority under Section 2(69) of the CGST Act and that public street lighting is a listed municipal function under Entry 17 of the Twelfth Schedule.
Accordingly, the AAR ruled that Akshara’s maintenance services to Kayamkulam Municipality are exempt from GST under both Entry 3 and Entry 3A of Notification No. 12/2017, provided the goods component remains within the prescribed 25% threshold. Since the services were delivered to a constitutionally recognized local authority for a function listed in Article 243W, the exemption applies in full. The ruling clarified that in the absence of this exemption, the applicable GST rate would be 18% under SAC 9987. However, since exemption conditions are fulfilled, tax liability does not arise. The AAR also confirmed that maintenance services provided to various departments under the Municipality are covered under the same exemption.
In conclusion, the Kerala AAR held that the services rendered by Akshara for maintaining street lighting infrastructure qualify for GST exemption, either as pure services or composite supplies, under the conditions laid out in Notification No. 12/2017-Central Tax (Rate), as amended. This decision reiterates that services provided to local bodies for constitutionally mandated functions can benefit from tax relief, provided they align with the prescribed parameters.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA
1. The applicant entered into an agreement in the name of Partnership Firm Akshara for Electrical Maintenance contract with the Assistant Engineer, LID & EW of Kayamkulam Municipality on 28th day of April 2023. Kayamkulam Municipality duly deduct tax at the rate of one per cent from the made or credited to the supplier. The purpose of the Contract was to render pure services by providing repairs and maintenance of Public Street Lights Installed by the Local Authorities of Kayamkulam Municipality. The applicant has obtained necessary GST Registration Number from GST Department having GSTIN: 32ABJFA4188P1ZY for the purpose of providing such services.
2. In this Ruling, a reference hereinafter to the provisions of the CGST Act, Rules or the Notifications issued thereunder shall include a reference to the corresponding provisions of the KSGST Act, Rules or the Notifications issued thereunder.
3. The details of the questions on which advance ruling is sought are given above and are not being reproduced.
4. The contentions of the applicant:
4.1 The applicant is engaged in providing pure services to the Municipality. As per the terms of the agreement, the contractual value also includes a portion attributable to goods consumed by the applicant during the tenure of the contract. In their detailed submissions, the applicant has explained the applicability of Serial No. 3 of NotificationNo.12/2017-Central Tax (Rate), dated the 28th June, 2017and Serial No. 3A of the amended Notification No. 12/2017-Central Tax (Rate) dated 25.01.2018.
4.2 In support of their contention,. the applicant has relied upon the decision of the Appellate Authority for Advance Ruling, West Bengal, in the case of Shiv Flour Mill, In re [2022] 143 taxmann.com 187 (AAAR-WEST BENGAL) [dated 22-082022], wherein a similar issue was adjudicated and exemption was granted to the appellant under the said notifications. The applicant has annexed and submitted the relevant notifications and the aforementioned ruling along with their application, marked as Annexures B, C, and D.
5. Comments of the Judrisdictional Officer
The application was forwarded to the jurisdictional officer as per provisions of Section 98(1) of the CGST Act. The jurisdictional officer has not offered any comments and hence it is presumed that the jurisdictional officer has no specific comments to offer. It is also construed that there are no proceedings pending on the issue against the applicant.
6. Personal Hearing:
The applicant was granted an opportunity for a personal hearing on 16.04.2025. Shri.Harikumar, Advocate represented the applicant in personal hearing. In the hearing, the representative reiterated their contentions in the written application.
7. Discussion and Findings:
7.1 The applicant has submitted the facts of the issue and their contentions in this regard. The first question raised is whether the activity of the applicant, involving the provision of pure services for the repair and maintenance of public street lighting infrastructure and the supply of manpower based on the work order issued by the local authorities of Kayamkulam Municipality, is exigible to GST. The applicant has provided a copy of the agreement entered into with Kayamkulam Municipality, which stipulates that they are required to carry out maintenance of street lights in a time-bound manner using ISO-certified items. From the agreement, it is evident that the applicant is rendering services relating to the maintenance of street lights, which falls under 9987- [Maintenance, Repair and Installation (except construction) Services], and is liable to GST at the rate of 18% as per Sl. No. 29 of Notification No. 11/2017-Central Tax (Rate) dated 28-062017. Accordingly, the service involved is in the normal course exigible to GST. However, the exemptions available in this regard also need to be examined.
7.2 Entry No. 3 of Notification No. 12/2017-CT (Rate) dated 28-06-2017 exempts pure services (excluding works contract services or other composite supplies involving the supply of any goods oroide to the Central Government, State Government or Union, Territory or local authority or a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or to a Municipality under Article 243W. Further, Notification No. 2/2018-Central Tax (Rate) dated 25-012018 inserted Entry 3A, which exempts a composite supply of goods and services in which the value of supply of goods does not exceed 25% of the value of the composite supply, provided to the Central Government, State Government, Union Territory, local authority, governmental authority, or government entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W. In short, exemption requires: (a) supply to a Central Government, State Government, Union Territory, local authority, governmental authority, or government entity (b) supply of pure service (or composite with goods 25%); and (c) the service must relate to an activity in the 11 th/12th Schedule (List of 243G/243W) function.
7.3 Under the GST law, a Municipality is treated as a local authority by virtue of the definition provided under Section 2(69) of the CGST Act, 2017, which states that “local authority” includes a municipality as defined in clause (e) of Article 243P of the Constitution. Therefore, for the purposes of GST exemptions under Entry 3 of Notification No. 12/2017-Central Tax (Rate), a Municipality qualifies as a local authority, as it is a constitutionally recognized body entrusted with functions under Article 243W. Accordingly, services provided to a Municipality are eligible for exemption when they relate to such constitutional functions.
7.4 Street lighting is a function of the municipality as per the Kerala Municipality Act, 1994 and is a function entrusted to municipalities–under Article 243W of the Constitution. As per Article 243W of the Constitution read with the Twelfth Schedule, municipalities are entrusted with various functions, including the provision of public amenities. Specifically, Entry 17 of the Twelfth Schedule covers “public amenities including street lighting, parking lots, bus stops and public conveniences.” Accordingly, the maintenance public street lighting by a municipality falls squarely within the constitutional functions assigned to local authorities.
7.5 Therefore, we are of the opinion that the applicant’s pure services of repair and maintenance of public street lighting infrastructure and supply of manpower based on the work order issued by Kayamkulam Municipality are covered under the said exemption and are not exigible to GST. However, this exemption applies only to pure services or to a composite supply where the value of goods involved does not exceed 25% of the total value.
7.6 The second question pertains to the applicable SAC entry if the supply is taxable. While the nature of the supply is indeed taxable under GST as it falls under the category of services, it has been held to be exempt under Entry 3 and Entry 3A of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017. Therefore, the question of applicable tax rate does not arise. If the exemption under Notification No. 12/2017 is not applicable, the supply would be taxable under SAC Heading 9987- Maintenance, Repair and Installation (except construction) Services, based on the description provided by the applicant.
7.7 The third question is whether the supply of street light maintenance services to various departments under the local authority provided by the applicant, i.e., Kayamkulam Municipality, is eligible for exemption from GST as per Sr. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017, as amended, being pure services as per the definition and relating to the functions listed under Articles 243G and 243W of the Constitution. The legal provisions and analysis discussed in relation to Question No. 1 apply equally here and is not being reproduced. For the same reasons discussed earlier, we are of the view that the service is eligible for exemption under Entry No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017, provided it is categorised as pure services.
7.8 The last question is whether the services of street light maintenance provided Kayamkulam Municipality, where the value of goods consumed is less than 25% of the total contract value, are eligible for exemption from GST as provided under Sr. No. 3A of No.12/2017-Central Tax (Rate), dated the 28th June, 2017, as amended by Notification No. 16/2021-Central Tax (Rate) dated 18.11.2021 being pure services as per the definition and relating to the functions listed under Articles 243G and 243W of the Constitution. As discussed earlier, in cases where the value of goods involved does not exceed 25% of the total contract value, the supply falls under the NIL rate of tax as per No.12/2017-Central Tax (Rate), dated the 28th June, 2017, as amended by Notification No. 2/2018-Central Tax (Rate) dated 25-01-2018. Notification No. 16/2021-Central Tax (Rate) dated 18.11.2021 amended Entries 3 and 3A of Notification No. 12/2017-Central Tax (Rate) by omitting the words “or a Governmental authority or a Government Entity” from the list of eligible recipients. However, this amendment does not affect the exemption for supplies made to a “local authority”, which continues to be covered under both Entry 3 and Entry 3A, provided the supply is either of pure services or a composite supply involving goods not exceeding 25% of the total contract value, and the services relate to functions entrusted to Panchayats or Municipalities under Article 243G or Article 243W of the Constitution.
In the light of the facts and legal position as stated above, the following ruling is issued:
RULING
Question:l. Whether the activity of the applicant of providing pure services of repairs and maintenance of Public street lighting infrastructure and supply of manpower based on the work order issued by the Local authorities of Kayamkulam Municipality is exigible to GST?
Ruling- The said activity falls within the purview of GST. However, the same is exempted under Notification No.12/2017-Central Tax (Rate), dated the 28th June, 2017,
Question:2. What is the applicable SCA entry and rate of tax if the 1st point is affirmative.
Ruling- Not applicable since the supply is exempted.
Question:3. Whether the supply of Street Light Maintenance Services to various Departments under Local Authority provided by the applicant i.e., Kayamkulam Municipality is eligible for exemption from GST, as per Sr. 3 of Notification No.12/2017-Central Tax (Rate), dated the 28th June, 2017,as amended, being pure services as per the definition and the services rendered thereby being listed in article 243G and 243W of Constitution as functions pertaining to Panchayat and Municipality.
Ruling- The supply is eligible for exemption from GST, as per Sr. 3 of No.12/2017-Central Tax (Rate), dated the 28th June, 2017,
Question:4. Whether the services of Street Light Maintenance to various Government Authorities and Government Entities provided by the applicant, ie., Kayamkulam Municipality where the value of goods consumed is less than 25percentage of total contract value is eligible for exemption from GST, as provided under Sr. 3A of NotificationNo.12/2017-Central Tax (Rate), dated the 28th June, 2017 as amended vide notification 16/2021 – Central tax (rate) dated 18-11-2021 being pure services as per the definition and the services rendered thereby being listed in article 243G and 243W of Constitution as functions pertaining to Panchayat and Municipality.
Ruling- The services of Street Light Maintenance to various Government Authorities and Government Entities provided by the applicant, ie., Kayamkulam Municipality where the value of goods consumed is less than 25percentage of total contract value is eligible for exemption from GST, as provided under Sr. 3A of Notification Number 12/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 as amended vide notification No. 2/2018-Central Tax (Rate) dated 25-01-2018.
