Supply of services by Sub contractor to contractor for supply of services to Govt. in relation to function of Panchayat/Muncipality under Article 243G/W liable to GST

May 10, 2020


  • Nurserymen Co-Operative Society Ltd. (Appellant) is an Association of Persons
  • They are in the business of maintaining the gardens and landscape development for State and Central Governments, local bodies and government undertakings.
  • The work involves removing old and existing unwanted weeds and plants, digging the soil and levelling of ground and planning small shrubs, flowering plants and grass etc
  • The Appellant states that he is sub-contracting this work to the sub-contractors.
  • The Karnataka Authority for Advance Ruling vide ruling No KAR ADRG NO 81/2019 dated 25-09-2019 held as follows:
  • “The supply by the sub-contractor to the applicant of execution of the sub-contract work of the said activity would not be exempt as it is not covered either in entry no.3 or entry no.3A of the Nonfiction No.12/2017- Central Tax (Rate) dated 28.06.2017 (as amended), as the applicant is the recipient of such service is not covered under the class of recipients enumerated in the said entries.”
  • They submitted that they provide the above services to the Government organisations like BBMP, KSRTC, etc through sub-contractors.
  • They submitted that if the sub-contractor charges GST, the Appellant is not in a position to avail input tax credit as the outward supply is exempt and it would become a cost to the Appellant.
  • They contended that when the outward supply is exempt, inward supply should be exempted; that the main intention of the Government is the cost of the service rendered to the Government agencies should not be taxed.

Issue before the AAR

  • Whether the landscape development and maintenance of garden work for State and Central Government Departments, all government local bodies (Municipalities and Corporations) etc. and other government undertakings through a contract from sub-contracts attract GST as inward supplies from those vendors?

Discussion and Finding of AAR

  • An Analysis of the two entries 3 and 3A of Noficaon 12/2017- Central Tax(Rate) shows that exemption is available in the following circumstances:
    • The services supplied should be either pure services or composite supply of goods and services where the value of goods supplied is not more than 25% of the total value of supply
    • The supply should be to the Government (Central/State/UT) or local authority or governmental authority or a Government Entity
    • The services supplied should be by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the constitution or in relaon to any funcon entrusted to a
      Municipality under Article 243W of the constitution
  • The entries under S1.No 3 and 3A above will apply only if the recipient of services is a Government (Central/State/UT) or local authority or a Governmental authority or eGovernment Entry. In this case, the Appellant who is the recipient of the supply from the sub-contractor is a Co-operative Society and not an entity specified in SI.No 3 and 3A
  • It is a well-settled law that exemption notifications are to be interpreted strictly as to their eligibility
  • Therefore, on a strict interpretation of the entry Sl.No 3 and 3A, we hold that the supply of services by the sub-contractors to the Appellant is not eligible for the benefit of exemption under either SL.No 3 or 3A of Noficaon No 12/2017 CT (R) dated 28-06-2017.

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