Karnataka AAR: GST Exemption for Panchayat and Municipality Services

Karnataka AAR Rules Manpower Services to Panchayats and Municipalities Exempt from GST

In a recent landmark ruling, the Karnataka Authority for Advance Ruling (AAR) addressed the issue of Goods and Services Tax (GST) applicability on manpower services provided to Panchayats and Municipalities under specific constitutional functions. This ruling, issued in the case of In Re. Manish Manpower Agency [KAR ADRG 03/2024 dated January 29, 2024], sheds light on the tax treatment of such services under the GST regime.

Background:

The case involved Manish Manpower Agency, a partnership firm specializing in supplying manpower services to various government bodies, including Zila Panchayats, Taluka Panchayats, and related entities. The firm sought an advance ruling to determine whether its manpower services provided to Zila and Taluka Panchayats, particularly to the Social Welfare Department, qualified for GST exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017.

Key Issue:

The central question before the Karnataka AAR was whether GST is leviable on manpower services supplied to Panchayats or Municipalities concerning functions entrusted under the Indian Constitution.

Ruling Highlights: In its ruling, the Karnataka AAR laid down two essential conditions for claiming exemption on manpower services under the GST regime:

1. Nature of Services: The services provided must qualify as pure services, excluding works contracts or other composite supplies involving goods. These services should be rendered to specific entities, including the Central Government, State Government, Union Territory, local authority, or a Governmental authority.
2. Relating to Constitutional Functions: The services rendered must pertain to activities entrusted by the Panchayats under Article 243G of the Constitution or by Municipalities under Article 243W.

Exemption Granted:

Based on the above conditions, the Karnataka AAR ruled that manpower services provided to the Social Welfare Department, concerning functions entrusted to Panchayats under Article 243G or to Municipalities under Article 243W of the Constitution, are exempt from GST levy. This exemption aligns with the provisions specified under Sl. No. 3 of the Exemption Notification dated June 28, 2017.

Implications:

The ruling carries significant implications for entities engaged in providing manpower services to Panchayats and Municipalities across India. It clarifies the tax treatment of such services and ensures compliance with GST regulations, providing clarity to taxpayers and enhancing transparency in the tax regime.

Conclusion:

The Karnataka AAR’s ruling in the case of In Re. Manish Manpower Agency establishes clear guidelines regarding the GST exemption applicable to manpower services provided to Panchayats and Municipalities for specific constitutional functions. This ruling sets a precedent for similar cases and contributes to the ongoing efforts to streamline tax administration in the country’s decentralized governance framework.