The West Bengal Authority for Advance Ruling (AAR) has recently ruled that GST exemption is not applicable for manpower services provided to Webel Technology Limited (WTL). This decision is a crucial clarification for businesses engaged in government-funded projects, particularly those offering manpower services. The ruling highlights that only direct services to government bodies qualify for exemptions, not services provided through intermediaries.
This blog will break down the case, explain the legal reasoning behind the ruling, and outline actionable steps for businesses to stay GST-compliant.
Case Background: Understanding the Jal Jeevan Mission Contract
The case involved Webel Support Multipurpose Service Cooperative Society Limited, which entered into an agreement with WTL, a government undertaking, to supply data entry operators and junior system engineers. These professionals were deployed for the Jal Jeevan Mission, a public welfare initiative led by the Public Health Engineering Department (PHED) of West Bengal, aimed at providing clean drinking water to rural households.
The applicant argued that their services should be GST-exempt under Notification No. 12/2017, as they indirectly contributed to a government initiative. However, the AAR denied the exemption, stating that such services must be directly provided to government entities to qualify.
Legal Framework: Why GST Exemption Was Denied?
GST exemptions for pure services (services provided without goods) are outlined in Notification No. 12/2017, but they are subject to specific conditions:
- The recipient must be a government body – Services must be provided directly to the central or state government, local authorities, or government-controlled institutions.
- Services must relate to constitutional functions – The services must align with Article 243G (functions of Panchayats like water supply) or Article 243W (Municipal functions like sanitation and waste management).
Key Findings from AAR’s Ruling
- The manpower service provider had a contract with WTL, not PHED, making it an indirect service.
- Manpower services like data entry and system engineering are administrative roles, not directly linked to constitutional functions like water supply or sanitation.
- Past rulings in similar cases confirm that only direct contractual relationships with government bodies qualify for exemption.
Major Reasons Why GST Exemption Was Denied
- WTL’s Role as an Intermediary
WTL, though involved in a government project, functioned as a service provider rather than a government entity. Since GST exemptions apply only to direct services to government authorities, the exemption was not applicable in this case.
2. Nature of Services Provided
The AAR distinguished between:
- Core public services (e.g., sanitation, waste management), which are eligible for exemptions.
- Administrative and technical roles (e.g., data entry, IT support), which are not considered as fulfilling constitutional functions directly.
3. Consistency with Previous Rulings
This ruling aligns with similar past decisions, such as:
- Karnataka AAR (Vinayaka Enterprises) – GST exemption was denied for IT professionals deployed at ISRO as their work was not a core constitutional function.
- Chhattisgarh AAR (Waste Management Services) – GST exemption was granted for waste management workers since sanitation is a direct municipal function.
These cases highlight a key principle: Only services fulfilling core governmental duties are eligible for GST exemption.
Key Takeaways for Businesses & Contractors
✅ Review Your Contracts Carefully
- Ensure that service contracts are directly with a government department and not through intermediaries like WTL.
- Subcontracted services will not qualify for GST exemption.
✅ Understand the Criteria for “Pure Services”
- Technical and IT-related roles are generally not exempt.
- Services must be clearly linked to Article 243G or Article 243W functions to qualify.
✅ Consider Regional Variations in AAR Rulings
- While this ruling applies in West Bengal, interpretations may vary across states.
- Businesses should track state-specific GST rulings for compliance.
| Comparing Similar AAR Rulings | ||
| Case | Exemption Status | Key Reason |
| Karnataka AAR (Vinayaka Enterprises) | ❌ Denied | IT staff at ISRO were not directly performing constitutional functions. |
| Chhattisgarh AAR (Waste Management Services) | ✅ Granted | Waste management is a direct municipal function under Article 243W. |
This table highlights the importance of role-specific alignment with government functions when seeking GST exemptions.
How to Ensure GST Compliance?
1️⃣ Structure Contracts to Engage Directly with Government Departments
If possible, avoid contracts through intermediaries and negotiate direct agreements with government bodies.
2️⃣ Clearly Define the Purpose of Services in Contracts
- Ensure that contracts specify how the service directly supports a constitutional function.
- Example: “Water supply infrastructure maintenance” instead of “IT support services.”
3️⃣ Seek Professional GST Consultation
Given the complexities of GST laws, consulting an experienced tax professional can help avoid compliance errors and tax liabilities.
Final Thoughts: Why This Ruling Matters
This AAR decision reinforces that GST exemptions are strictly governed by legal definitions, not just the intent of a project. Even if services benefit a government initiative, they must be directly contracted by a government body to qualify for exemptions.
For businesses working with government projects, this ruling is a reminder to carefully structure contracts, ensure compliance with GST regulations, and stay updated on evolving tax interpretations.
For expert guidance on GST compliance, tax strategies, and government contracts, feel free to reach out or drop your queries in the comments!
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