Authority Draws Line on Municipal O&M Contracts: Only Pure Labour Gets Full GST Exemption

Shubhabrata Chowdhury, engaged in providing operation and maintenance services to municipal corporations and municipalities in West Bengal, approached the West Bengal Authority for Advance Ruling seeking clarity on GST exemption. The applicant rendered services across solid waste management, sewerage and drainage, and public health departments, including operation and maintenance of vehicles and machinery, engagement of drivers and unskilled labour, sanitation activities, and upkeep of municipal infrastructure for Howrah Municipal Corporation, Baranagar Municipality and Uttarpara-Kotrung Municipality.

The applicant contended that these services were essential public functions entrusted to municipalities under Article 243W of the Constitution and were rendered directly to local authorities. It was argued that the services were non-commercial in nature, aligned with public health and sanitation mandates, and therefore eligible for exemption.

Main Issue: Whether operation and maintenance services provided to municipal corporations and municipalities qualify for GST exemption as pure services or composite supplies under Entry 3 or Entry 3A of Notification No. 12/2017-Central Tax (Rate).

AAR Held: The Authority examined the nature of activities performed under various municipal work orders and held that only those services involving exclusive supply of manpower, such as engagement of unskilled labour and drivers for special cleanliness drives, manpower for cleaning and maintenance of municipal offices, and manpower for regular sweeping and park maintenance, constitute pure services. These activities were held to be directly related to municipal functions under Articles 243G and 243W and were therefore exempt under Entry 3 of Notification No. 12/2017.

The Authority held that activities involving operation and maintenance of vehicles and machinery used in solid waste management, drainage, sanitation and public health involve supply of goods in the form of spare parts and other consumables and thus constitute composite supplies. These services would qualify for exemption under Entry 3A only if the value of goods does not exceed 25% of the total value of supply. Where the value of goods exceeds 25%, the services would be taxable under SAC 9987 at the rate of 9% CGST and 9% SGST.

To Read Full Judgment, Download PDF Given Below