Market Leasing by Panchayat is a Constitutional Function, not Supply of Goods/Services under GST: AAR [Read Order]

The Tamil Nadu Authority for Advance Ruling (AAR) has clarified that leasing of weekly market rights by a Panchayat to tender contractors for collection of entry fees is neither a supply of goods nor a supply of services under the Goods and Services Tax (GST) framework. The ruling provides significant relief to local bodies engaged in market administration, confirming that such activities fall squarely within constitutional functions entrusted to Panchayats.

The case arose from an application filed by Kannivadi Town Panchayat, Tiruppur District, which had granted contractors the right to collect entry fees from vendors, farmers, and the public for the use of open spaces and temporary stalls on weekly market days. The Panchayat sought clarity on whether such leasing constituted a taxable service or could be considered a function entrusted to Panchayats under Article 243G read with the Eleventh Schedule of the Constitution of India.

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The Eleventh Schedule specifies 29 functions of Panchayats, including “Markets and Fairs” (Item 22). The applicant argued that its activities directly related to this function and should therefore fall outside the ambit of GST under Notification No. 14/2017-CT(Rate) dated 28 June 2017, which exempts activities of local authorities when performed as public authorities in relation to functions under Article 243G.

After examining submissions, the AAR observed that the leasing arrangement did not involve the supply of goods. It further found that the service element was integrally linked to the constitutional mandate of establishing and regulating markets. The receipts issued for entry fees were in the name of the Panchayat, even though contractors carried out the collections. This demonstrated that the activity remained a public function of the Panchayat rather than a commercial service.

The authority bench, comprising Balakrishna S, Member (CGST) and B. Suseel Kumar, Member (SGST), ruled that the leasing activity constituted a function entrusted to a Panchayat under Article 243G. Accordingly, it held that such transactions fall within the scope of Notification 14/2017-CT(Rate), as amended, and are to be treated as activities that are “neither supply of goods nor supply of services.”

The ruling further noted that the exemption is also available to contractors where services are rendered back-to-back to the Panchayat, ensuring continuity of constitutional functions while removing unnecessary GST liability for both local bodies and their service providers.

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