The Karnataka Authority of Advance Ruling passed an order that no GST shall be levied on the rent received from the ‘Backward Classes Welfare Department, Government of Karnataka’. The reason attributed for the aforesaid precedent is that the hostel (rented to the ‘Backward Classes Welfare Department, Government of Karnataka’) is working for the welfare of the girl students who hail from Backward classes. And so The aforesaid service comes within the purview of Article 243G of the Constitution.
As per Article 243G of the Constitution of India
“Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow the Panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Panchayats, at the appropriate level, subject to such conditions as may be specified therein, with respect to—
(a) the preparation of plans for economic development and social justice;
(b) the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule.”
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Recalling history in a hurry, The applicant, Sri Puttahalagaiah has rented out his property to the Extension Officer, Backward Classes Welfare Department, Government of Karnataka for the purpose of running the post metric Girl’s Hostel of 10,441 sq. ft building that consists of 7 rooms, 2 halls, 11 toilets, 10 bathrooms and bore well, for a rent of Rs. 1 per month.
And The applicant has submitted a magazine published by the Government of Karnataka that is related to the plan of action of the Backward Classes Welfare Department 2019-20. In the magazine, it is reported that the Backward Classes Welfare Department has been formed for the welfare of backward classes so that programs of overall development of backward classes can be implemented that have been notified by the Government of Karnataka. And the Backward Classes Welfare Department has been providing hostel facilities to the students who hail from backward classes and have been studying in Government/Government aided institutions after matriculation.
Applicant further submitted that since he is renting out his property to the Backward Classes Welfare Department which in turn is using it for the welfare of weaker section of the society of the backward classes students; consequently, the services facilitated by him to Backward Classes Welfare Department for running post metric Girl’s Hostel is an exempted service as it is covered under Article 243G of the Constitution of India.
The AAR ruled out that since the applicant has been providing pure services to the State Government by way of activity that is in relation to any function assigned to a Panchayat as per article 243G of the Constitution. And the aforesaid activity comes within the purview of entry number 3 of Notification No. 12/2017-Central Tax (Rate) that is dated June 28, 2017. Consequently, the service is exempted under the CGST Act, 2017. And For similar reasons, the activity is also exempted under the KGST Act, 2017.
