No GST Exemption on Security Services to Government Entities such as FCI: AAR clarifies Scope of Central Tax Notification [Read Order]

In a recent ruling, the West Bengal Authority for Advance Ruling (WBAAR) has clarified that the Goods and Services Tax (GST) exemption under Notification No. 12/2017 –Central Tax (Rate) Dated 28.06.2017 does not extend to security services procured by Government Entities such as the Food Corporation of India (FCI).

This matter arises because the Food Corporation of India (FCI), West Bengal Region, sought clarification on whether the security services it procures for safeguarding its depots and offices are exempt from GST. It is a Government Entity that functions under the Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution, Government of India.

The issue gained traction after a Comptroller & Auditor General (C&AG) audit observation suggested that FCI was entitled to an exemption under the Notification. This created ambiguity, since FCI had been paying GST at 18% under reverse charge. To resolve the uncertainty, FCI approached the West Bengal Authority for Advance Ruling (WBAAR) for a formal decision.

The applicant said that its functions, procurement, storage, and distribution of food grains, are directly linked to the Public Distribution System (PDS), listed under Article 243G of the Constitution, and Security services are essential to safeguard depots, buffer stocks, and offices, making them integral to PDS functions.

So these services should be exempt as “pure services” provided to a Government Entity in relation to constitutional functions. They also cited a Gujarat AAR ruling that similar services to a state civil supplies corporation were exempt, and pointed to a Comptroller & Auditor General (C&AG) audit observation indicating that FCI was entitled to exemption.

On the other hand, revenue responded that FCI is indeed a Government Entity, but not a Governmental Authority, since it does not directly perform local‑level PDS functions like ration shop operations. They also mentioned that Security services fall under SAC 9985 and are taxable at 18%. After 1 January 2022, the law was amended to remove Government Entities from the exemption list, making such services taxable again.

After concerning all these matters, the authority noted that security services involve manpower only, no goods. Hence, they qualify as pure services, and FCI’s work relates to the Public Distribution System (PDS); the actual local functions (ration shops, beneficiary identification, last‑mile distribution) are carried out by Panchayats/Municipalities.

The bench of Shafeeq S and Jaydip Kumar Chakrabarti also observed that the Notification exempted pure services provided to Government Entities. But after 1 January 2022, the terms “Governmental Authority” and “Government Entity” were removed, meaning such services became taxable again.

Accordingly, the authority confirmed that security services for FCI are pure services but not exempt from GST, and that they attract 18% GST under reverse charge from 2022.

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