Advance Ruling Authority Defines Taxability of Operation and Maintenance Services for Municipalities
In a significant decision, the Authority for Advance Rulings (AAR) in West Bengal has provided clarity on the Goods and Services Tax (GST) exemptions applicable to services provided to municipalities and municipal corporations. The ruling, delivered on December 10, 2025, pertains to the application made by Shubhabrata Chowdhury concerning the taxability of operation and maintenance services offered to municipal bodies under various government notifications.
The bench, comprising Shafeeq S, Joint Commissioner, CGST & CX, and Jaydip Kumar Chakrabarti, Senior Joint Commissioner, SGST, addressed the applicant's query on whether the services provided are exempt from GST under Notification No. 12/2017 - Central Tax (Rate), Entry No. 3 or 3A.
The ruling distinguished between 'pure services' and 'composite supplies,' which are pivotal in determining the applicability of GST exemptions. Pure services, which exclude works contract services or other composite supplies involving goods, qualify for exemption under Entry No. 3. The AAR noted that certain activities, such as supplying unskilled labor and drivers for cleaning Ganga ghats, maintaining municipality offices, and engaging manpower for regular sweeping and cleaning in parks, are pure services and thus exempt from GST.
Conversely, operation and maintenance services involving machinery and vehicles, which may include the supply of goods such as spare parts, are considered composite supplies. These are exempt under Entry No. 3A only if the value of goods does not exceed 25% of the total value of the composite supply. If the value of goods surpasses this threshold, the services are taxable under SAC 9987 at a rate of 9% CGST plus 9% SGST, as stipulated by Notification No. 11/2017 - Central Tax (Rate).
The decision elucidates the conditions under which municipal services can benefit from GST exemptions, emphasizing the need for providers to carefully assess the nature of their services and the composition of goods involved. This ruling is expected to impact service contracts across municipalities, ensuring compliance and proper tax treatment under the GST framework.
Bottom Line:
GST Exemption for operation and maintenance services provided to Municipalities and Municipal Corporations depends on the nature of services and value of goods supplied in composite services.
Statutory provision(s): Notification No. 12/2017 - Central Tax (Rate), Entry No. 3, Entry No. 3A, Notification No. 02/2018 - Central Tax (Rate), Notification No. 11/2017 - Central Tax (Rate), Section 97 of the CGST Act, Article 243G, Article 243W of the Constitution of India.
Shubhabrata Chowdhury, (AAR)(West Bengal) : Law Finder Doc id # 2822517
