No GST on Inter-Government Services, But Goods Are Taxed
The Uttarakhand AAR ruled that services provided between government entities are exempt from GST, but supply of goods remains taxable.
- Ruling
- Ruling No. 03/2018-19 Dated 29th May 2018
- Dated
- 29 May 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
- ITDA asked if services and materials from IIT Bombay are GST exempt.
- Services supplied between government entities are exempt from GST.
- Goods supplied between government entities are fully subject to GST.
- ITDA qualifies as a local authority and IIT Bombay as government.
In short
The IT Development Agency (ITDA), a government agency in Uttarakhand, wanted to know if buying services and materials from another government entity like IIT Bombay attracts Goods and Services Tax (GST). They asked the Uttarakhand Authority for Advance Ruling (AAR) in order 03/2018-19 to clarify if inter-governmental purchases are completely exempt from tax.
What has changed
How it worked before
Many government agencies assumed that all transactions between government bodies were tax-free, whether they involved services or physical goods.
What has changed
The authority clarified that services provided by one government body or local authority to another are exempt from GST under Chapter 99 of the GST tariff. However, this exemption does not cover physical goods or materials. Government agencies must pay regular GST when purchasing goods, even if the supplier is another government entity.
Who this affects
Government departments, state autonomous bodies, local authorities, and government institutions buying or selling goods and services from each other.
An example
Suppose a state water board hires a government engineering institute to design a filtration system and purchase specialized water meters for them. The institute issues an invoice listing both the engineering service fee and the meter equipment. Following the principles in this ruling, the design service fee is exempt from GST, but the water meters carry standard GST. The water board must pay GST on the meters while taking the tax exemption on the design services.
What you should do
Do not assume this decision applies to your organization automatically, as an advance ruling only binds the agency that applied for it. If your government agency buys both goods and services from another public body, ensure they are billed separately on invoices. Consult a tax professional to evaluate your specific contracts.
If you do nothing
If you assume all inter-governmental purchases are tax-free, tax officers can demand unpaid GST on physical goods during an audit. Your entity could be liable for interest and late penalties on the unpaid tax amount. Pointing to another agency's advance ruling will not protect you from tax demands during an assessment.
The terms explained
- advance ruling
- A formal decision given by tax authorities to a specific applicant clarifying how tax laws apply to their proposed or ongoing transaction.
- local authority
- A public body, municipal council, or government agency created under law to carry out public administration duties.
- input tax credit
- A system that allows businesses to subtract the GST paid on their purchases from the GST collected on their sales.
The ruling in detail
Authority for Advance Ruling
M/s IT Development Agency (ITDA), Govt. of Uttarakhand, Dehradun
Ruling No. 03/2018-19 Dated 29th May 2018 · Uttarakhand
Questions before the authority
- Whether the services or material procured by ITDA from Govt./Govt. Authority is exempt from GST.
Facts
The applicant, IT Development Agency (ITDA), is an autonomous body under the administrative control of the Information Technology Department of the Uttarakhand Government and functions as a local authority. ITDA entered into a Memorandum of Understanding (MOU) with IIT Mumbai for the design, development, and field testing of an 'Aerostat Based Last Mile Communication System'. ITDA filed an advance ruling application seeking clarity on whether services or materials procured from government authorities or entities like IIT Mumbai are exempt from GST.
Ruling
| Question | What the authority ruled |
|---|---|
| GST exemption on procurement of services from IIT Mumbai / Govt Authority | Exempted from GST Services provided by a Government/Authority to another Government/Authority are nil-rated/exempted under GST Tariff Services |
| GST exemption on procurement of goods/material from Govt / Govt Authority | Not exempt No GST exemption exists for supply of goods between government entities |
The AAR held that services provided by one Government or Government Authority to another Government or Government Authority are **exempt from GST**, thereby exempting the services received by ITDA from IIT Mumbai. However, with respect to the supply or procurement of goods or materials, the authority held that there is **no exemption from GST** available for supplies between government entities.
Reasoning
The authority determined that ITDA qualifies as a local authority under Section 2(69)(c) of the Uttarakhand Goods and Services Tax Act, 2017. It further observed that IIT Bombay, governed by the Institutes of Technology Act, 1961, falls within the definition of Government under Section 2(53) of the CGST/SGST Act, 2017. Referring to Part 3 of the GST Tariff-Services (Chapter 99), the authority noted that services provided by a Government/Authority to another Government/Authority are exempt from GST. In contrast, it found no statutory provision or notification granting a similar exemption for the supply of goods between government bodies.
Provisions relied on
- Section 2(53) of the CGST/SGST Act, 2017
- Section 2(69)(c) of the Uttarakhand Goods and Services Tax Act, 2017
- Section 97(2)(e) of the CGST/SGST Act, 2017
- Institutes of Technology Act, 1961
- GST Tariff- Services (Chapter 99)
For the practitioner
This ruling clarifies that **inter-governmental service supplies** are exempt from GST when both provider and recipient qualify as Government or local authorities. However, practitioners must note that this exemption applies strictly to services and **does not extend to goods** or materials procured between government entities.
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/uttarakhand_03-2018-19_dtd_29-05-18_itda.pdf
Legibility of the scan, as read: high.
Prepared 18-10-2026.
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