Telangana AAR: GST must be paid on service charges received on behalf of the government

The Telangana Authority of Advance Rulings (AAR) has issued a new ruling earlier this month. It states that any agency working for a government is liable to pay GST on e-procurement transactions services. 

It is applicable whether as a service provided to the government or for charges collected on behalf of the government from any business entity. Hence, none of the services is exempt under the GST law. The agencies can be functioning either as a private or public sector. 

The Telangana AAR passed this ruling in the case of M/s Telangana State Technology Services Ltd (TSTSL). It is a Public Sector Undertaking (PSU) providing Information Technology (IT) and similar services to various Telangana government departments. The case pertains to the e-procurement process where TSTSL acted as a fund manager. It received total amounts as charges towards e-procurement transactions in a particular bank account.

Every month, TSTSL was depositing GST at 18% on the entire amount. Furthermore, out of the same amount, it paid 18% GST on its portion of service charges every month. The agency paid the balance amount to the government departments.

TSTSL claimed to act as a pure agent for the state government that floated online tenders with its help. Its transaction fee is included in the tender fee, which is collected for the e-procurement of goods or services for the government departments. 

TSTSL reasoned that it is not subject to GST. The PSU stated that this service falls under Entry 6 of the CGST notification number 12/2017 dated 28th June 2017. The notification provides a GST exemption on such services by the central or state governments subject to some exceptions.

The AAR countered that the entry provides an exemption from GST for services provided by the state or central governments and not for services provided to a government. Additionally, the AAR clarified that services provided by agencies on behalf of governments to any business entities are also not exempted from GST.

The ruling is straightforward, throwing light on the provisions of GST exemptions granted for government supplies. Since the agency was providing services to the government and not receiving any service in turn, it was not eligible for exemption.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in