GST Exemption on Project Consultancy Services Provided to Local Authorities
Madhya Pradesh AAR ruled that project management consultancy provided to local bodies for municipal schemes qualifies as exempt pure service under GST.
- Ruling
- Order No. 02/2018 dated 22.06.2018
- Dated
- 22 Jun 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Consultancy services under AMRUT and PMAY relate to municipal functions.
- Such consultancy qualifies for full GST exemption as pure services.
- Reimbursed office equipment purchased for clients does not add tax.
- Transfer or sale of assets at contract end may attract GST.
In short
The company asked the Madhya Pradesh Authority for Advance Ruling (AAR) whether its project consultancy services under government urban schemes like AMRUT and PMAY are exempt from Goods and Services Tax (GST). They also wanted to know if getting reimbursed for buying office equipment like laptops and furniture for the project would make their service taxable. The authority issued Order 02/2018 dated 22.06.2018 under Notification No. 12/2017-Central Tax (Rate) to answer these questions.
What has changed
How it worked before
Before this ruling, businesses providing government consultancy were unsure if buying office supplies and getting reimbursed would destroy their GST exemption. Many feared tax officers would treat the entire contract as a taxable composite supply or works contract because goods were involved.
What has changed
The authority decided that consultancy services for municipal functions like water supply and housing qualify as exempt pure services under Notification No. 12/2017-Central Tax (Rate). It clarified that purchasing office items reimbursed by the government client does not convert consultancy into a taxable contract. However, transferring or selling those assets at the end of the project may still attract GST depending on how they are disposed of.
Who this affects
Engineering advisory firms, project management consultants, and contractors who supply consulting services to government bodies or municipalities in India.
An example
A private engineering firm signs a contract with a city municipality to supervise a local water pipeline project. To set up a site office, the firm purchases laptops and desks, which the municipality reimburses and retains as municipal property. Based on ruling 02/2018 dated 22.06.2018, the firm can claim a GST exemption on its consultancy fees as a pure service. The reimbursed office goods do not convert the consulting agreement into a taxable supply.
What you should do
Check if your consulting work relates directly to constitutional functions listed for municipalities or panchayats. Remember that an advance ruling applies only to the company that requested it and its specific tax officer. If your contract has similar reimbursement clauses, consult a tax advisor or apply for your own ruling before claiming a GST exemption.
If you do nothing
If you assume this ruling covers your business automatically without checking your contract terms, your tax officer may reject your exemption. You could face unexpected GST demands along with interest and penalty charges if the officer decides your contract involves a supply of goods or non-exempt services.
The terms explained
- pure services
- Services provided to government or local authorities without involving any supply or transfer of goods.
- composite supply
- A business transaction that combines two or more naturally bundled goods or services supplied together.
- works contract
- A contract involving construction, repair, or maintenance work where both labor and building materials are supplied.
The ruling in detail
Authority for Advance Ruling
Egis India Consulting Engineers Private Limited
Order No. 02/2018 dated 22.06.2018 · Madhya Pradesh
Questions before the authority
- Whether the Project Development and Management Consultancy services ('PDMC') provided by Applicant to recipient under the Contract for AMRUT; and the Project Management Consultancy services ('PMC') under the Contract for PMAY would qualify as an activity in relation to function entrusted to Panchayat or Municipality under Article 243G or Article 243W respectively, of the Constitution of India?
- If answer to question 2.1 is in affirmative, would such services provided by the Applicant qualify as "Pure services (excluding works contract service or other composite supplies involving supply of any goods)" as provided in serial number 3of Notification No. 12/2017- Central Tax (Rate) dated 28 June, 2017[Notification No. FA -3-42/201711/v (53) dated 30 June 2017, as amended by Notification No. 2/2018- Central Tax (Rate) dated 25 January, 2018 issued under Central Goods and Services Tax Act, 2017 ('CGST') and corresponding notifications issued under Madhya Pradesh Goods and Services Tax Act, 2017 ('MPGST Act'), where the Project cost includes the cost of service rendered along with reimbursement of cost of procurement of goods for rendering such service, and, thus, be eligible for exemption from levy of CGST and MPGST, respectively.
Facts
The applicant was engaged as a Project Development and Management Consultant (PDMC) under the AMRUT scheme and a Project Management Consultant (PMC) under the Pradhan Mantri Awas Yojana (PMAY) for Urban Local Bodies in Madhya Pradesh. Under the contracts, the applicant deployed technical personnel and procured essential assets such as computers, office equipment, and furniture on a reimbursement basis, which remained the property of the employer. The applicant sought an advance ruling on whether these consultancy services qualify for GST exemption as pure services provided in relation to municipal and panchayat functions.
Ruling
| Question | What the authority ruled |
|---|---|
| Consultancy services (PDMC/PMC) under AMRUT and PMAY as activities related to Article 243G/243W functions | Qualifies as an activity in relation to functions under Article 243G or 243W Covers civic amenities, housing, drinking water, and sanitation entrusted to local authorities |
| Exemption as pure services under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) | Exempt from CGST and MPGST Reimbursement of office goods procured for contract execution does not make it a works contract or composite supply; disposal of goods at end of contract attracts GST as applicable |
The Authority held that the consultancy services provided under the AMRUT and PMAY schemes qualify as activities in relation to functions entrusted to Panchayats and Municipalities under Articles 243G and 243W of the Constitution. Consequently, the services qualify as exempt **pure services** under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), despite the reimbursement of goods procured for rendering the service. However, the subsequent disposal or transfer of tangible assets at contract end remains subject to GST depending on the manner of disposal.
Reasoning
The Authority examined the scope of the AMRUT and PMAY schemes and confirmed that their objectives—such as water supply, urban transport, sewerage, and affordable housing—align with the Eleventh and Twelfth Schedules under Articles 243G and 243W of the Constitution. On the issue of goods procurement, the Authority found that items like laptops, air conditioners, and furniture procured on behalf of the employer were not naturally bundled with consultancy services to form a composite supply or works contract. Therefore, the contract remains a supply of **pure services** eligible for exemption under Serial No. 3 of Notification No. 12/2017-Central Tax (Rate), as amended.
Provisions relied on
- Article 243G, Constitution of India
- Article 243W, Constitution of India
- Eleventh Schedule, Constitution of India
- Twelfth Schedule, Constitution of India
- Serial No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017
- Notification No. 2/2018-Central Tax (Rate) dated 25.01.2018
- Notification No. FA -3-42/201711/v (53) dated 30.06.2017
For the practitioner
This ruling clarifies that project management consultancy provided to local authorities for constitutional municipal functions qualifies as exempt **pure service**. It confirms that incidental pass-through procurement of office goods reimbursed on actuals does not convert consultancy into a taxable composite supply or works contract. Practitioners should caution clients that GST implications may still arise upon final transfer or disposal of capital equipment at contract completion.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/order_egis_india_consulting_engineers_private_limited.pdf
Legibility of the scan, as read: high.
Prepared 19-10-2026.
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