Understanding meaning of ‘Pure Services’ for GST exemption

As per Notification No. 12/2017 –Central Tax (Rate) dated 28.06.2017 and similar Notifications issued under other GST Act(s) one of the exemption from levy of GST prescribed, is in regard to the pure services provided to the Central / State Govt. or Union Territory or local authority or a Governmental Authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.  

As per article 243G the legislature of a State may, by law, endow the Panchayats with powers in regard to the preparation of plans for economic development and social justice and implementation of schemes for economic development and social justice as may be entrusted including matters listed in the Eleventh Schedule i.e. Agriculture, land improvement, irrigation. drinking water, rural electrification, roads etc.

Further as per Article 243W the legislature of State may endow powers to carry out the responsibilities including matters listed in Twelfth Schedule i.e. urban planning, roads and bridges, water supply, public health, fire services etc.

For ready reference the relevant extract of the exemption Notification No. 12/2017 –Central Tax (Rate) dated 28.06.2017 (as amended) is given below:

Meaning of Pure Services

For applying the above exemption , we need to know as to what exactly constitute ‘pure services’.

The expression Pure Services’ referred in notification has nowhere been defined in the Act, Rules or notification themselves. They also do not provide any mechanism to determine particular service as “Pure Services”.

However guidance in this regard has been provided in the answer to Q.No.25 of FAQs issued by CBEC (CBIC) which is reproduced as under for ready reference:-

“In the context of the language used in the Notification, supply of services without involving any supply of goods would be treated as supply of pure services‘. For example, supply of man power for cleanliness of roads, public places, architect services, consulting engineering services, advisory services and like services provided by business entities not involving any supply of goods would be treated as supply of pure services. On the other hand, let us take the example of governmental authorities awarding the work of maintenance of street lights in a municipal area to agency which involve apart from maintenance, replacement of defunct lights and other spares. In this case, the scope of the service involves maintenance work and supply of goods, which falls under the works contract services. The exemption is provided to services involves only supply of services and not for work contract services”.

Ruling of Gujarat AAR

In regard to regulating of exemption as above to pure services the decision of Gujarat AAR in the application filed by Shri Jayesh Anilkumar Dalal is relevant.

The applicant in this case was providing consultancy services for Architectural design and Project management Consultancy for Housing project to Gandhinagar Urban Development Authority and Rajkot Municipality.

The Gujarat AAR vide its order dated 01.05.2019 adjudged as under:

The services provided by the Applicant may be termed as ‘Pure Services’ provided they fulfill the following conditions:
i) It excludes works contract service
ii) It excludes other composite supplies involving supply of any goods
iii) It is supply of services without involving any supply of goods.

The services provided by the applicant is eligible for the exemption from Goods and Service Tax as per Sl. No. 3 – (Chapter 99) of Table mentioned in Notification No. 12/2017 –Central Tax (Rate) dated 28.06.2017 and as per Sl. No. 3 – (Chapter 99) of Table mentioned in Notification No. 12/2017 – (Gujarat) State Tax (Rate) dated 30/06/2017 if they are pure services and are provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity to a Panchayat under article in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

For ready reference of our readers the order of Gujarat AAR is as under:-

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TW Editorial Team

TW Editorial Team comprises of team of experienced Chartered Accountants and Advocates devoted to spread the knowledge of GST amongst the various stakeholders.