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2025 (4) TMI 417 - AAR - GSTExempt supplies under N/N. 12/2017 (as amended) or not - services to 54 hospitals under the control of DM RHS - HELD THAT - Public Health is covered as one of the functions of both the Articles 243G (clause 23) and 243W. (clause 6) of the Constitution. While clause 6 of Article 243W refers to Public Health clause 23 of Article 243G on the other hand cites Health and sanitation including hospitals primary health centres and dispensaries as its function. Accordingly it is clear that Public Health and Hospitals being State subject the respective Governments of State have the responsibility to carry out these functions either through a Panchayat under Article 243G or through a Municipality under Article 243W depending upon the location of the health facility. In the case of the state of Tamilnadu the said responsibility is entrusted to the Directorate of Medical and Rural Health Services which has been established for this purpose. As much as carrying out the said function of running the hospitals primary health centres dispensaries etc. it also becomes essential to carry out activities for the up-keep and maintenance of the said health facilities. The clause any activity in relation to the functions entrusted to in Entry No.3 of the impugned notification clearly establishes the fact that activities of any nature if they are in relation to the functions entrusted to a Panchayat or a Municipality gets covered under the said entry. As could be seen from the scope of work entrusted to the applicant by the Directorate of Medical and Rural Health Services Tamil Nadu i.e. Services in relation to housekeeping security providing assistance in Electrical/Plumbing works etc. are meant for the effective maintenance of the hospital facility - these services are nothing but activities in relation to the function i.e. operation and maintenance of hospitals primary health centres dispensaries etc. for Public Health which is entrusted to a Panchayat or a Municipality and therefore the exemption provided under Entry No.3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 as amended is applicable in respect of the scope of work to be carried out by the applicant to the 54 Government hospitals under the charge of the Directorate of Health and Rural Health Services Tamil Nadu. Conclusion - The proposed supply of services for housekeeping Security assistance in electrical plumbing etc. to the 54 Government hospitals under the charge of the Directorate of Medical and Rural Health Services Tamilnadu is exempt under Entry No.3 of N/N. 12/2017-CT (Rate) dated 28.06.2017 read with Entry No.3 of N/N. II(2)/CTR/532(d-14)/2017 vide G.O.(Ms) No.73 dated 29.06.2017.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Authority for Advance Ruling (AAR) were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of exemption under Entry No.3 or Entry No.3A of Notification No. 12/2017-C.T (Rate) Relevant legal framework and precedents: Entry No.3 exempts "pure services" provided to Government or Governmental Authorities by way of any activity related to functions entrusted to Panchayats (Article 243G) or Municipalities (Article 243W). Entry No.3A exempts "composite supply" of goods and services where goods constitute not more than 25% of the value, provided to such Government entities. Court's interpretation and reasoning: The applicant's services involve comprehensive facility management, including manpower supply for housekeeping, security, and assistance in various maintenance activities at Government hospitals. The AAR examined whether these services qualify as "pure services" or "composite supplies" involving goods. Key evidence and findings: The contract and Letter of Intent (LOI) showed that the applicant's scope includes supply of manpower and provision of consumables and equipment necessary for service delivery. The consumables and equipment constitute only 5-6% of the total billing. An invoice sample showed no separate charge for goods, indicating the supply is primarily service-based. Application of law to facts: The Authority found that consumables and equipment are used by the service provider in delivering services and are not separately supplied goods to the hospitals. Therefore, the supply is a "pure service" rather than a composite supply involving goods. Entry No.3A was held inapplicable because no distinct supply of goods took place. Treatment of competing arguments: The applicant argued that even if considered composite supply, the goods component is below 25%, thus exempt under Entry No.3A. The Authority rejected this, clarifying the distinction between goods supplied as part of composite supply and consumables used in service provision. Conclusions: The supply by the applicant is a "pure service" eligible for exemption under Entry No.3, not Entry No.3A. Issue 2: Whether the service recipient qualifies as a "Governmental Authority" or "Government Entity" Relevant legal framework and precedents: The IGST Act defines "Governmental Authority" as an authority or body set up by an Act of Parliament or State Legislature or established by Government with 90% or more participation to carry out functions entrusted to Panchayats or Municipalities under Articles 243G and 243W. Court's interpretation and reasoning: The Directorate of Medical & Rural Health Services (DM&RHS), Tamil Nadu, is an authority under the Health and Family Welfare Department of the State Government, responsible for managing Government hospitals. Key evidence and findings: The Directorate's website and statutory status confirm it is a Governmental Authority. The contract is directly between the applicant and DM&RHS, the implementing and paying authority. Application of law to facts: DM&RHS meets the definition of a Governmental Authority as it is established by the State Government to perform functions related to public health, a function entrusted to Panchayats and Municipalities. Treatment of competing arguments: No contrary submissions were noted. The Authority accepted the Governmental Authority status of DM&RHS. Conclusions: The second criterion for exemption-service provided to a Governmental Authority-is satisfied. Issue 3: Whether the services are "by way of any activity in relation to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W" Relevant legal framework and precedents: Articles 243G and 243W list functions entrusted to Panchayats and Municipalities respectively. Entry No.3 exempts services related to such functions. Public health and sanitation, including hospitals, are explicitly listed under these Articles. Court's interpretation and reasoning: The Authority examined the scope of work-housekeeping, security, and maintenance assistance in hospitals-which are activities in relation to the function of public health and sanitation entrusted to Panchayats and Municipalities. Key evidence and findings: The functions listed under Article 243G (Clause 23) and Article 243W (Clause 6) include health and sanitation, hospitals, primary health centres, dispensaries, and public health. The services provided by the applicant directly support these functions. Application of law to facts: The Authority interpreted "in relation to" broadly to cover any activity that supports the entrusted functions, including maintenance and housekeeping services in hospitals. Treatment of competing arguments: The applicant's reliance on the wide scope of "in relation to" was accepted. The Authority also relied on a prior ruling (Order No. 31/ARA/2021) on identical facts supporting exemption. Conclusions: The services rendered are activities related to functions entrusted to Panchayats and Municipalities, fulfilling the third criterion for exemption. 3. SIGNIFICANT HOLDINGS The Authority held:
Core principles established include:
Final determinations on each issue:
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