AAR: Health Services via Third-Party Contractors to Government Not Exempt from GST

The applicant, M/s Indovation Healthcare LLP, entered into a sub-contracting agreement with M/s Braithwaite & Co. Limited (the main contractor). The main contractor had an agreement with the Urban Development Directorate (UDD), Government of Uttarakhand, to provide healthcare services, including the setting up and operationalizing of health centers. The applicant was responsible for providing infrastructure, manpower, and operational support.

The applicant sought an advance ruling on whether their services were exempt under Entry No. 3 or 3A of Notification No. 12/2017-Central Tax (Rate), which provides exemptions for “pure services” or “composite supply” provided to Central/State Governments or Local Authorities in relation to functions entrusted to a Panchayat or Municipality.

Main Issue: Whether the healthcare services provided by a sub-contractor (the applicant) to a main contractor (a PSU), which are ultimately utilized by a Government Department (UDD), qualify for GST exemption as services provided “to” the Government.

AAR’s Ruling: The Authority for Advance Rulings (AAR), Uttarakhand, ruled that the applicant’s services are taxable and do not qualify for exemption. The Authority observed that taxability is determined by the “immediate recipient” of the service.

In this case, there are two distinct supplies:

(i) the applicant to the main contractor, and

(ii) the main contractor to the UDD.

Since the applicant’s immediate recipient is M/s Braithwaite & Co. Limited (a commercial entity/PSU) and not the Government of Uttarakhand directly, the condition of providing services “to” the Government as per the exemption notification is not met.

The AAR highlighted that the “ultimate beneficiary” (the Government/Public) is irrelevant for determining the GST liability of the sub-contractor.

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