The West Bengal Authority for Advance Ruling (WB AAR) in Order No. 24/WBAAR/2025-26 dated 10.12.2025 has delivered an important ruling clarifying the GST applicability on operation and maintenance (O&M) services provided to Municipalities and Municipal Corporations.
The ruling decisively settles that O&M contracts involving municipal machinery, vehicles and equipment do not qualify as “pure services”, and therefore do not enjoy GST exemption under Entry No. 3 of Notification No. 12/2017 – Central Tax (Rate). The Authority also examined Entry No. 3A and denied exemption due to failure to satisfy statutory conditions.
This decision is critical for contractors engaged in solid waste management, sanitation, sewerage, public health and urban civic services.
Facts of the Case
The applicant, Shubhabrata Chowdhury, is registered under GST and engaged in operation and maintenance of machinery including operators and manpower for various Municipalities and Municipal Corporations in West Bengal.
As recorded by the AAR, the applicant executed contracts for the following activities:
- Annual operation and maintenance of movable compactors
- Maintenance of Baxy SWM vehicles
- Repairing, running and preventive servicing of four-wheeled box tippers and auto tippers
- Operation and maintenance of Jetting-cum-Suction machines
- Operation and preventive maintenance of Rope Bucket Machines, Deep Suction Vehicles and De-silt machines
- Running and preventive maintenance of ambulance and hearse vans
- Preventive maintenance of hydraulic ladders and movable toilets
- Operation and maintenance of sanitising machines, compost units and weigh bridges
- Engagement of manpower for sweeping, park maintenance, ghat cleaning and municipal office cleaning
The services were provided to Howrah Municipal Corporation, Uttarpara-Kotrung Municipality and Baranagar Municipality.
Question Raised Before the AAR
The applicant sought advance ruling on the following question:
Whether the operation and maintenance services provided to Municipalities and Municipal Corporations are exempt from GST under Notification No. 12/2017-Central Tax (Rate) vide Entry No. 3 or Entry No. 3A?
The question was admitted under Section 97(2)(b) of the CGST Act 2017
Statutory Framework Examined
Entry No. 3 – Notification No. 12/2017-CT (Rate)
Exempts:
“Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government, Union Territory or local authority by way of any activity in relation to any function entrusted to a Municipality under Article 243W of the Constitution.”
Entry No. 3A – Inserted vide Notification No. 02/2018-CT (Rate)
Exempts:
“Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply, provided to the Government or local authority in relation to Article 243W functions.”
Constitutional Functions Under Article 243W
The AAR reproduced Article 243W and the Twelfth Schedule, noting that Municipalities are entrusted with functions such as:
- Public health, sanitation and solid waste management
- Sewerage and drainage
- Fire services
- Environmental protection
- Burial and cremation services
- Public amenities including parks and public conveniences
The Authority did not dispute that the applicant’s services were in relation to Article 243W functions.
Key Legal Issue: Whether the Services Are “Pure Services”
The Authority observed that:
- The term “pure service” is not defined under the GST Act
- Entry No. 3 specifically excludes:
- Works contract services
- Composite supplies involving supply of goods
On examination of work orders, the AAR found that the applicant’s contracts involved:
- Repairing and preventive maintenance
- Running and operation of machinery
- Use and replacement of parts, consumables and equipment
- Deployment of manpower along with machinery
Accordingly, the AAR held that:
“The operation and maintenance services are not pure services but are composite supplies involving supply of goods.”
Ruling on Entry No. 3 – Exemption Denied
The Authority reiterated that all three conditions of Entry No. 3 must be fulfilled simultaneously, namely:
- Supply must be a pure service
- Recipient must be Government or local authority
- Service must relate to Article 243W functions
Since the first condition was not satisfied, the AAR held that:
Exemption under Entry No. 3 of Notification No. 12/2017-CT (Rate) is not available.
Examination of Entry No. 3A – Composite Supply
The AAR examined whether the applicant could claim exemption under Entry No. 3A, applicable to composite supplies where the value of goods does not exceed 25%.
However, the Authority recorded that:
- No documentary evidence was produced to establish the value of goods component
- No contract-wise or invoice-wise break-up was furnished
Accordingly, the AAR held that:
The applicant has failed to substantiate compliance with the condition prescribed under Entry No. 3A.
Therefore, exemption under Entry No. 3A was also denied.
Final Ruling of the West Bengal AAR
The Authority conclusively ruled that:
- Operation and maintenance services provided to Municipalities and Municipal Corporations are not pure services
- Such services constitute composite supplies involving goods
- GST exemption under Entry No. 3 is not available
- GST exemption under Entry No. 3A is also not admissible due to failure to meet statutory conditions
- The services are taxable under GST
Key Takeaways for Municipal Contractors
- Merely providing services to a Municipality does not ensure GST exemption
- O&M contracts involving machinery and maintenance are generally composite supplies
- Entry No. 3 exemption is strictly limited to pure labour-only services
- Entry No. 3A requires clear valuation evidence proving goods ≤ 25%
- Proper contract structuring and documentation is essential to claim any exemption
Conclusion
The West Bengal AAR ruling reinforces a settled principle under GST law: the nature of supply is determinative, not the public character of the recipient.
Operation and maintenance contracts involving municipal machinery, vehicles and equipment are taxable supplies, notwithstanding their connection with constitutional municipal functions. This ruling will have far-reaching implications for contractors engaged in urban local body projects across India.
Citation
Based entirely on West Bengal AAR Order No. 24/WBAAR/2025-26 dated 10.12.2025