GST Exemption for Sewerage Infrastructure Works Contracts
Civil contractors providing sewerage services to local authorities may claim GST exemption if the goods component stays under 25% of total value.
- Ruling
- Order No. GST-ARA-67/2021-22/B-53, dated 30.03.2026
- Dated
- 30 Mar 2026
- 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
- The project is a composite works contract, not a pure service.
- Exemption applies if goods value is 25% or less of total contract.
- The 25% threshold is calculated on an aggregate project basis.
- Exemption eligibility depends on the contract terms at the time of signing.
In short
The company asked if their sewerage project for a local authority qualifies for a GST exemption. The tax authority examined whether this was a 'pure service' or a 'composite supply' and how the value of materials used affects the tax status.
What has changed
How it worked before
Businesses were often unsure if civil works involving both materials and labor could qualify for the 'pure service' exemption, or how to calculate the 25% goods threshold across different project stages.
What has changed
The authority ruled that such projects are 'composite supplies' rather than 'pure services'. You can claim the exemption only if the value of goods used is 25% or less of the total contract value, calculated as a whole project rather than by individual parts.
Who this affects
Civil contractors and infrastructure firms working on government or municipal projects like sewerage or water supply schemes.
An example
A construction firm wins a contract to build a drainage system for a local municipality. They estimate the cost of pipes and cement will be 20% of the total contract price. Based on this ruling, they may be eligible for the GST exemption because their goods component is below the 25% limit.
What you should do
Review your specific contract to see if the goods component is 25% or less of the total value. Remember that an Advance Ruling only binds the company that asked and their specific tax officer; it is not a general law that automatically applies to your business.
If you do nothing
If you assume this ruling applies to you and stop collecting GST without a valid exemption, you risk a tax demand notice. If your tax officer disagrees with your calculation, you will be liable for the unpaid tax, interest, and potential penalties.
The terms explained
- Composite supply
- A package of goods and services provided together where one is the main service and the others are naturally bundled with it.
- Works contract
- A contract for building, construction, or repair of immovable property that involves both the transfer of goods and the provision of services.
- Aggregate basis
- Calculating a value by looking at the total of the entire project rather than breaking it down into smaller, separate parts.
The ruling in detail
Authority for Advance Ruling
M/s. ROCKLINE CONSTRUCTIONS
Order No. GST-ARA-67/2021-22/B-53, dated 30.03.2026 · Maharashtra
Questions before the authority
- Whether the supply being made is pure service or composite supply, where supply of goods does not exceed more than 25% of the value of the supply?
- Whether the recipient is Government, Local Authority, Governmental Authority or Government Entity?
- Whether supply is being made in relation to any function entrusted to a Panchayat or a Municipality under the Constitution?
- Whether the applicant is eligible for exemption of services being provided by way of pure service or composite supply based on Entry 3A w.e.f. 25.01.2018 vide Notification No. 2/2018-CT(R) which needs to be clarified by way of Advance Ruling?
Facts
The applicant is a civil contractor executing an Underground Sewerage Scheme for Katol Nagar Parishad under the Urban Infrastructural Development Scheme for Small and Medium Towns. The project involves the supply of services and goods, including pipes, pumps, and civil works, integrated into a single works contract. The applicant sought a ruling on whether this activity qualifies for GST exemption under specific notifications for services provided to local authorities.
Ruling
| Question | What the authority ruled |
|---|---|
| Nature of supply | Composite supply of goods and services in the nature of a works contract Not a pure service |
| Recipient status | Local Authority Katol Nagar Parishad qualifies under Section 2(69) of the CGST Act |
| Relation to constitutional function | Yes Relates to public health, sanitation conservancy and solid waste management under Entry 6 of the Twelfth Schedule |
| Eligibility for exemption | Eligible Subject to the condition that the value of goods does not exceed 25% of the total value on an aggregate basis at the time of contract conclusion |
The Authority held that the activity is a composite supply of goods and services in the nature of a works contract, not a pure service. It ruled that the applicant is eligible for the exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate), provided the value of goods supplied does not exceed 25% of the total value of the composite supply on an aggregate basis at the time of contract conclusion.
Reasoning
The Authority determined the activity is a works contract under Section 2(119) of the CGST Act because it involves the transfer of property in goods in the execution of immovable property. It analyzed the eligibility under Entry 3A of Notification No. 12/2017-Central Tax (Rate), noting that the exemption is cumulative and requires the supply to be a composite supply where the goods component does not exceed 25%. The Authority clarified that the 25% threshold must be calculated on an **aggregate basis** for the entire contract rather than sub-unit-wise. It emphasized that the exemption is subject to strict construction and the final entitlement depends on the actual ratio at the time of contract conclusion.
Provisions relied on
- Section 2(30) of the CGST Act
- Section 2(69) of the CGST Act
- Section 2(119) of the CGST Act
- Section 97(2) of the CGST Act
- Entry 3 and 3A of Notification No. 12/2017-Central Tax (Rate)
- Notification No. 2/2018-Central Tax (Rate)
- Article 243W of the Constitution of India
For the practitioner
This ruling confirms that civil works contracts for sewerage infrastructure provided to a local authority can qualify for exemption under Entry 3A, provided the **goods component remains below 25%** of the total contract value. Practitioners should note that the threshold is calculated on an aggregate basis for the entire project. However, the ruling cautions that this is an ongoing contract and the exemption remains contingent upon the final ratio of goods to services at the time of project 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/6-rockline_constructions_ara_order_compress.pdf
Legibility of the scan, as read: high.
Prepared 11-10-2026.
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