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2025 (4) TMI 419 - AAR - GSTExemption from GST - activity of leasing of 19 onion mandis (Shops/Godowns) to the tender contractor for the purpose of collection of fee on daily basis from the merchants/farmers/public for usage of shops for selling of onion on daily basis - activity covered under the function entrusted to Municipality under Article 243W of the Constitution/ Panchayat under Eleventh Schedule of Article 243G as a local authority in which they are engaged as a public authority or not - HELD THAT - By the notifications and subsequent amendment if the activities of transactions by the Central Government or State Government or Union Territory or any local authority if engaged as a public authority does the functions entrusted to municipality or panchayat under article 243W or 243G of the Constitution all such activity are out of the purview of the taxable net and shall be treated neither as supply of goods nor as supply of services. The Onion mandis for effecting sale of onions is a convenient facility provided to the public/farmers/merchants which will fall under Sl. No. 17 of the functions entrusted to a municipality. The activity of collection of entry fee for using Onion mandis by the vendors/farmers/public would fall within the ambit of functions entrusted under Article 243W of the Constitution. It cannot be said that the contractor is doing any other service or deviating from doing the contracted service not concerned with the functions indicated. The relationship between the Municipality and the contractor is very specific and has a direct correlation with the functions entrusted in the Article. The purpose of providing certain functions entrusted to the municipality will not change the essential characteristics envisaged under the Article irrespective of the person providing the services entrusted. Only for administrative and operational convenience the functions entrusted to a municipality under the Article are being provided. It is important to determine whether the activities provided by the contractor is the same function entrusted to a municipality in the Constitution and to ensure that the intention of the provisions contained in the Constitution is fulfilled. It is not the proportionality of the activity relating to the function entrusted but the implications of the legislative assessment of the terms in relation to is more tilted towards nexus inseparability and identity of the activities involved with the functions and not merely on other parameters. Hence the transaction between Corporation and Contractor is clearly an activity/transaction undertaken by the local authority engaged as public authority. Hence the requirement stated in Section 7 (2) (b) of the Act are clearly met. Hence the activity undertaken by the corporation is an activity covered under the Notification No. 14/2017-CT (Rate) dated 28-06-2017 as amended as neither a supply of goods nor a supply of services and out of purview of GST and the notification is available for the Contractor also provided the same are rendered as back to back services to the applicant. Conclusion - i) The activity of leasing to the tender contractor the right to collect entry fees on a daily basis from merchants/farmers/public for 19 constructed onion mandis (shops/Godowns) would be covered under the function entrusted to Municipality under Article 243W of the Constitution as a local authority engaged as a public authority. ii) N/N. 14/2017-CT(Rate) dated 28-06-2017 as amended by N/N. 16/2018-CT(Rate) dated 26th July 2018 issued in terms of Section 7 (2) (b) of CGST/TNGST Act 2017 is very much available to claim as the activity is neither supply of goods nor supply of services .
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework involves the Central Goods and Services Tax Act, 2017, specifically Section 7(2) and Notifications No. 14/2017-CT(Rate) and No. 16/2018-CT(Rate). These provisions and notifications exempt certain activities undertaken by local authorities from being treated as supply of goods or services, thus exempting them from GST. Article 243W of the Constitution lists the functions entrusted to municipalities, which are relevant for determining the applicability of the exemption. Court's Interpretation and Reasoning The Tribunal considered whether the activity of collecting entry fees for onion mandis falls under the functions entrusted to a municipality. It examined the notifications and constitutional provisions to determine if the activity is exempt from GST as a function of a public authority. Key Evidence and Findings The Tribunal noted that the applicant, Tiruppur City Municipal Corporation, is a municipality under Article 243P of the Constitution and is engaged in activities such as renting immovable property and mandap keeper services. The activity in question involves granting the right to collect entry fees for onion markets to a contractor, with fees prescribed by the municipality and receipts issued in the municipality's name. Application of Law to Facts The Tribunal applied Section 7(2) of the CGST Act, which states that certain activities undertaken by local authorities are neither supply of goods nor services. It also considered Notification No. 14/2017-CT(Rate), which exempts services related to functions entrusted to municipalities under Article 243W. Treatment of Competing Arguments The Assistant Commissioner argued that the contractor, as a non-government body, is liable for GST. However, the Tribunal, referencing previous appellate authority rulings, concluded that the exemption applies to the contractor as long as the services are rendered as back-to-back services to the municipality. Conclusions The Tribunal concluded that the activity of leasing onion mandis for fee collection is a function entrusted to the municipality under Article 243W. Thus, it is exempt from GST under Notification No. 14/2017-CT(Rate) as amended. SIGNIFICANT HOLDINGS Core Principles Established The Tribunal established that activities related to functions entrusted to municipalities under Article 243W are exempt from GST if they meet the criteria outlined in the relevant notifications. Final Determinations on Each Issue
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