GST not leviable on handling charges of PDS distribution of Dhothies & Sarees/ School Uniforms to the state government

The AAR, Tamil Nadu in the matter of M/S. Handloom Weavers Cooperative Society Ltd. [Advance Ruling No. TN/47/ARA/2021 dated December 30, 2021] held that, the services rendered by the assessee towards handling of Dhothies & Sarees/ School Uniforms from Co-operative Societies to Public Distribution System / Revenue Department are exempted from payment of GST. Further held that, undertaking the activities of inspection, collection, storage, transportation, etc., are 'Pure Services' even if the supply is a composite supply.

Facts

M/S. Handloom Weavers Cooperative Society Ltd. (“the Applicant”) has been appointed and acting as a Nodal Agency to inspect and procure cost Free Distribution Sarees & Dhothies to the poor people living in rural and urban areas and cost Free School Uniform to the students under 'Noon Meal Scheme’ under Government Flagship Schemes, by the Government of Tamil Nadu. In 2021, 167.39 Lakh Sarees and 167.29 Lakh Dhothies were procured from the Applicant at a cost of INR 484.25 crore and dispatched for onward distribution to the beneficiaries, for which Handling Charges were paid to the Applicant for undertaking the activities of services of inspection, collection, storage, transportation, etc., as fixed by the Committee set up by the State Government.

Issue

Whether the claim of expenses incurred to handle the Cost Free Distribution Sarees & Dhothies and Cost Free School Uniform Scheme and supply to Revenue Department/Social Welfare Department will attract GST?

Held

The AAR, Tamil Nadu in Advance Ruling No. TN/47/ARA/2021 dated December 30, 2021] held as under:

• Noted that, the activities undertaken by the Applicant are 'composite supply' and are not 'Pure service', therefore the Applicant is not eligible for the benefit of the exemption under SI. No. 3 of Notification No. 12/2017 - Central Tax (Rate) dated June 28, 2017 (“the Exemption Notification”).
• Observed that, 'Pure Service' is not per-se defined under the Central Goods and Services Tax Act, 2017 (“the CGST Act”), and the same can be constituted in general term as any supply which is either deemed as service under Schedule II of CGST Act or which are not covered under the definition of ‘Goods’ shall be categorized as pure services.
• Further observed that the activity of supply of various services under the gamut of 'Handling' by the Applicant without any involvement of goods either as supply or consumed while undertaking such services are 'Pure Services' even if the supply is a composite supply of such services made to the Departments of Tamilnadu i.e. to the State Government.
• Held that, the activities of 'Handling' carried out by the Applicant in respect of Free distribution of Sarees and Dhothies and the School Uniform to the students are activities in relation to the functions entrusted to Panchayats/Municipality in the Article 243 G/243W of the Constitution of India. Further, the Applicant supplies such services to the State Government and therefore, exempted under the Exemption Notification and leviable to GST.