GST Not Applicable on Facility Management Contracts for DM&RHS Hospitals: TN AAR [Read Order]

The Tamil Nadu Authority for Advance Ruling (AAR) has exempted hospital facility management services from paying GST on comprehensive facility management services rendered to 54 government hospitals, classifying these as activities supporting constitutionally mandated public health functions.

Quality Property Management Services Pvt Ltd, the Chennai-based company provides integrated services including mechanized housekeeping, security, and technical support (electrical, plumbing, carpentry) to hospitals under the Directorate of Medical & Rural Health Services (DM&RHS). While the contract involved supplying some consumables (5-6% of contract value), the AAR stated these were tools for service delivery rather than independent goods supply.

Members B. Suseel Kumar and Balakrishna S analyzed the case through three key tests under Notification 12/2017: whether services were "pure" (not works contracts), provided to governmental authorities, and related to constitutional functions under Articles 243G/W.

The bench noted DM & RHS qualifies as a governmental authority under IGST Act definitions, being established by the state to discharge public health duties.

The bench extensively examined constitutional provisions, noting Article 243G(23) entrusts panchayats with "health and sanitation including hospitals," while Article 243W(6) assigns municipalities "public health, sanitation conservancy" functions.

The authority held that facility management services - though not direct healthcare - maintain hospital infrastructure essential for delivering these constitutional mandates, creating sufficient nexus for exemption.

This interpretation concurs with the AAR's ruling in the Padmavathi Hospitality (2021) case involving similar DM&RHS contracts. The authority rejected revenue department suggestions to treat these as composite supplies, observing that consumables like cleaning materials were consumed during service delivery rather than "supplied" to hospitals.

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The ruling provides clarity for thousands of service contracts supporting public health infrastructure across India. By distinguishing between consumables used in service delivery versus goods supplied to clients, it prevents procedural disputes over minor material costs (under 25% of contract value) disqualifying essential health support services from exemptions.

For Quality Property Management, this means continued GST-free operations for their ₹50+ crore annual contract covering 49 hospitals currently. The decision also benefits other vendors serving 300+ government healthcare facilities under Tamil Nadu's DM&RHS, ensuring cost savings are passed to the public health system.

The AAR's constitutional interpretation approach may influence pending disputes about GST applicability on ancillary services supporting government functions. However, the ruling remains limited to identical factual scenarios where services demonstrably support activities listed in Articles 243G/W, with minimal goods involvement.

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