The Karnataka Authority for Advance Ruling (AAR) determined that rent received from the Department of Social Welfare, Government of Karnataka, is exempt from Goods and Services Tax (GST).
The applicant, M/s. K A Sujit Chandan, filed an application for an advance ruling. They rented out a building to the Department of Social Welfare, Government of Karnataka, which uses the building to run a hostel for Scheduled Tribe boys. The applicant contended that services provided to the Department of Social Welfare are exempt under Article 243W of the Constitution, as per Entry No. 3 of Notification 12/2017 Central Tax (Rate) dated 28.06.2017.
The primary issue was whether the rent received from the Department of Social Welfare for the building used as a hostel for Scheduled Tribe boys is taxable under the GST regime.
The applicant, represented by Vishwanath Bhat, argued that the services provided to the Department of Social Welfare are exempt from GST as they are covered under Article 243W of the Constitution.
The applicant provided a copy of the agreement stating that the building is taken on rent to run the Scheduled Tribe Welfare Department’s hostel, signed by the applicant and the Assistant Director, Department of Social Welfare, Bengaluru South Taluk. They emphasised that their services qualify as “Pure Services,” which are exempt under Entry No. 3 of Notification 12/2017 Central Tax (Rate).
The AAR observed that the service provided by the applicant qualifies for exemption based on two primary conditions. Firstly, the service is purely provided to the State Government. Secondly, the service is directly linked to a function assigned to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution.
The building rented by the applicant to the Scheduled Tribe Welfare Department is for running a hostel, which is a function listed under the 27th entry of the 11th Schedule, covering the welfare of weaker sections, including Scheduled Tribes.
The bench of M.P Ravi Prasad (State Tax Member) and Kiran Reddy. T (Central Tax Member) ruled that the pure services provided by the applicant to the State Government are exempt under Entry No. 3 of Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017, and hence, the rent received is not taxable.
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