In a welcome clarification for contractors and service providers to the public sector, the Authority for Advance Rulings (AAR), Tamil Nadu, in its recent ruling in the case of M/s. Quality Property Management Services Private Limited (Case No. TN/09/ARA/2025 dated 20.03.2025), held that comprehensive facility management services provided to Government hospitals constitute “pure services” and are thus exempt from GST under Entry No. 3 of Notification No. 12/2017 – Central Tax (Rate), dated 28.06.2017.
Background and Facts
The applicant, a private entity, was awarded a contract by the Directorate of Medical and Rural Health Services (DM&RHS), Tamil Nadu, to provide facility management services across 54 government hospitals. These services included:
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Housekeeping and sanitation
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Security personnel
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Plumbing and electrical maintenance
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Cooking services for patient care
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Gardening and campus upkeep
The scope also involved the use of consumables and equipment, which were not separately invoiced or supplied to the hospitals but were instead utilized internally by the applicant as part of delivering the contracted services.
Legal Issue for Determination
The central question before the AAR was:
Whether the services provided to the 54 hospitals under the DM&RHS are exempt from GST under Entry No. 3 of Notification No. 12/2017-CT (Rate), as amended?
Relevant Legal Provision: Entry No. 3 of Notification No. 12/2017-CT (Rate)
Entry No. 3 of the said notification reads:
“Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.”
Three conditions must therefore be satisfied for exemption:
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The supply must be a “pure service” (i.e., not involving any supply of goods).
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The recipient must be the Central or State Government, a local authority, or a Governmental authority.
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The service must be in relation to functions entrusted under Article 243G or 243W of the Constitution.
AAR’s Analysis and Ruling
The AAR observed the following:
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The DM&RHS is a Government department, and thus, qualifies as a “State Government” for the purposes of the exemption.
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The functions of hospital management and public health are covered under the Eleventh Schedule (relevant to Article 243G), which includes "health and sanitation, including hospitals, primary health centres and dispensaries".
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The services provided were not bundled with any supply of goods to the recipient. The use of consumables and equipment was incidental, internal to the service delivery, and not a separate or identifiable supply to the Government.
Relying on the principle laid out in earlier jurisprudence and CBIC clarifications, the AAR noted that use of consumables does not amount to supply of goods unless the goods are transferred or invoiced to the recipient.
Hence, the supply qualified as a “pure service”, and all three limbs of the exemption entry were satisfied.
Key Takeaways and Practical Impact
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Clarity on Scope of "Pure Services"
This ruling reaffirms that incidental use of consumables or equipment does not convert a service contract into a composite supply, provided there is no independent supply of goods. -
Eligibility for Exemption Under Entry No. 3
Contractors providing services to State Government departments under functions like healthcare, sanitation, public welfare, etc., may be eligible for GST exemption, even if some materials are used internally. -
Structuring Contracts Carefully
Service providers should ensure that contracts clearly separate service scope from any material supply, or expressly state that any materials used are not part of the supply to the recipient.
Conclusion
The ruling in the Quality Property Management Services Pvt. Ltd. case provides much-needed clarity for service contractors operating in the government sector. By emphasizing substance over form, and distinguishing internal use of materials from supply, the AAR has interpreted Entry No. 3 in a pragmatic and legally sound manner.
This is a useful precedent for entities engaged in public welfare services—especially those operating in healthcare, education, sanitation, and similar areas entrusted to local bodies under the Constitution. It also underscores the importance of proper contract drafting and invoicing practices to preserve exemption eligibility.
