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GST on Government Related Activities

Table of Contents

Government is considered as a “person” under the GST act. Therefore, any supply of goods or services by or to government is subject to GST unless exempted.

Activities or transactions undertaken by the Central Government or State Government or Union Territory or Local Authority in which they are engaged as public authority i.e. services by way of any activity in relation to a function entrusted to a Panchayat under Article 243G of Constitution or to a Municipality under Article 243W of the Constitution of India, are neither supply of goods nor supply of services – Notification No. 14/2017-CT (Rate) and No. 11/2017-IT (Rate) both dated 28-6-2017 [words in italics inserted w.e.f. 27-7-2018].

Government company is not “Government” or “Government Department”. Even if 100% of the shares are owned by the government, the company cannot be considered as a department of government. A corporation formed under an Act is also not Government.

Functions entrusted to a municipality under Article 243W of Constitution of India have been listed in Para 7.3.2 of CBE&C’s ‘Taxation of Services: An Education Guide’ published on 20-6-2012. These cover services like urban planning, regulation of land use, roads and bridges, water supply, public health, fire services, slum improvement, public amenities, functions entrusted to them by Government etc.

The detailed list is as follows –

TWELFTH SCHEDULE (Article 243W)

1. Urban planning including town planning.
2. Regulation of land-use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial purposes.
6. Public health, sanitation conservancy and solid waste management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
10. Slum improvement and upgradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.
15. Cattle pounds; prevention of cruelty to animals.
16. Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus stops and public conveniences.
18. Regulation of slaughterhouses and tanneries.

Functions under Article 243G relate to (a) preparation of plans for economic development and (b) implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to matters listed in Eleventh Schedule.

The eleventh schedule covers 29 items, as follows —

1. Agriculture, including agricultural extension.
2. Land improvement, implementation of land reforms, land consolidation and soil conservation.
3. Minor irrigation, water management and watershed development.
4. Animal husbandry, dairying and poultry.
5. Fisheries.
6. Social forestry and farm forestry.
7. Minor forest produces.
8. Small scale industries, including food processing industries.
9. Khadi, village and cottage industries.
10. Rural housing.
11. Drinking water.
12. Fuel and fodder.
13. Roads, culverts, bridges, ferries, waterways and other means of communication.
14. Rural electrification, including distribution of electricity.
15. Non-conventional energy sources.
16. Poverty alleviation programme.
17. Education, including primary and secondary schools.
18. Technical training and vocational education.
19. Adult and non-formal education.
20. Libraries.
21. Cultural activities.
22. Markets and fairs.
23. Health and sanitation, including hospitals, primary health centres and dispensaries.
24. Family welfare.
25. Women and child development.
26. Social welfare, including welfare of the handicapped and mentally retarded.
27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes.
28. Public distribution system.
29. Maintenance of community assets.

Services by the Central Government, State Government, Union territory or local authority excluding the following services are exempt from GST —

(a) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, State Government, Union territory

(b) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport

(c) transport of goods or passengers

(d) any service, other than services covered under entries (a) to (c) above, provided to business entities

Services by Government to Business-Entities

Services provided by the Central Government, State Government, Union territory or local authority to a business entity with an aggregate turnover of up to twenty lakh rupees (ten lakh rupees in case of a special category state) in the preceding financial year are exempt from GST.

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This exemption is not applicable to services supplied by post, railways, renting of immovable property and in relation to aircraft or vessel. In case of these services, the Government or local authority providing these services is itself liable to pay GST under forward charge.

In the case where turnover exceeds the specified limits, the Business Entity is liable to pay GST under reverse charge. (in cases other than covered in points a,b,c above)

Services up to Rs. 5,000 supplied by Government

Services provided by Central Government, State Government, Union territory or a local authority where the consideration for such services does not exceed five thousand rupees are exempt from GST – Sr No. 9 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.

In such cases, reverse charge will not apply to business entities receiving these services.

This exemption is not applicable to services supplied by post, railways, renting of immovable property and in relation to aircraft or vessel. In case of these services, the Government or local authority providing these services is itself liable to pay GST under forward charge.

If it is continuous supply service, then the exemption applies only if the amount does not exceed Rs. 5,000 in a year.

Services by one Government to another Government

Services provided by the Central Government, State Government, Union territory or local authority to another Central Government, State Government, Union territory or local authority are exempt from GST.

This exemption is not applicable to services supplied by post, railways, renting of immovable property and in relation to aircraft or vessel. In case of these services, the Government or local authority providing these services is itself liable to pay GST under forward charge.

Other Exempt Services

  1. Services provided by the Central Government, State Government, Union territory or local authority by way of issuance of passport, visa, driving licence, birth certificate or death certificate are exempt from GST – Sr No. 61 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017.
  2. Services provided by way of 1) registration required under any law  2) testing, safety check or certification relating to protection or safety of workers, consumers or public at large, including fire license, are exempt from GST.
  3. Fine and penalty is imposed for breaking the law. It is not consideration for an activity. Hence, it is not supply of service
  4. Services provided by the Central Government, State Government, Union territory or local authority by way of assignment of right to use natural resources to an individual farmer for cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products are exempt from GST
  5. Services by an old age home run by Central Government, State Government or entity under section 12AA of Income-tax Act, to its residents (aged 60 years or more) against consideration up to Rs. 25,000 per month (inclusive of charges for boarding, lodging and maintenance) are exempt from GST
  6. Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a governmental authority or a Governmental entity, 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 are exempt from GST
  7. Supply of water supply through tankers is exempt
  8. Plots given on lease by Govt. entity to Municipal Corporation for construction of public amenities exempt from GST
  9. Conservancy/solid waste management service to Conservancy Department of Municipal Corporation is a function mentioned under Sl. No. 6 of the Twelfth Schedule, i.e., public health, sanitation, conservancy and solid waste management and is exempt from payment of GST
  10. Service of maintenance of park provided to Government is exempt from GST.

Related Circulars

Circular No. 34/8/2018-GST

The service provided by Central Government/State Government to any business entity including PSUs by way of guaranteeing the loans taken by them from financial institutions against consideration in any form including Guarantee Commission is taxable.

Related Case Laws

Reliance Infrastructure Ltd. [Authority for Advance Ruling, Maharashtra][21-03-2018]

Company is engaged in business of generation, transmission and distribution of electricity. The company is required to digging trenches on roads and pay reinstatement charges to municipality authorities for restoring patches. A ruling is sought whether these charges are liable to GST or not. The applicant claimed that such recovery of charges amounts to service activity in relation to sovereign function entrusted to Municipality under article 243W of Constitution and hence, exempt from GST. It is ruled that restoration work could be equated neither to construction work nor to maintenance work as suo motu undertaken by Municipal Authorities and thus GST is payable on such charges at rate of 18%.

NBCC (India) Ltd. [Authority for Advance Ruling, New Delhi][05-10-2018]

Ministry of Housing and Urban Affairs (MoHUA), Government of India has appointed NBCC Ltd. as an agent for the redevelopment of certain colonies in Delhi. NBCC Ltd. has to reconstruct dwelling units, commercial spaces, supporting infrastructure and has to do maintenance. The applicant sought ruling whether the applicant is liable to pay GST.

It is ruled that the MoHUA, Government of India, is not exempted from payment of GST on sale of commercial built-up space, as it does not relate to any function entrusted to a municipality under Article 243W of the Constitution. Hence, the exemption under S. No. 4 of Notification No. 12/2017 – Central Tax (Rate) and parallel notifications under SGST and IGST are not admissible.

Prateek Agarwal

Prateek Agarwal is a Practicing Chartered Accountant from Jaipur and been in practice for more than 7 years. He writes mainly about GST and Finance.

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