WBAAR Rules Security Services to Food Corporation of India Taxable

An illustration featuring the 'Food Corporation of India' logo, with a truck and bags representing security services. The text states that security services provided to the Food Corporation of India are taxable under GST, with icons for tax and GST.

The West Bengal Authority for Advance Ruling (WBAAR) has held that security services provided to the Food Corporation of India (FCI), West Bengal Region, are taxable under GST and do not qualify for exemption as “pure services” supplied to a Government Entity.

Background of the Applicant

The Food Corporation of India (FCI) is a statutory body constituted under the Food Corporations Act, 1964. It functions under the Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution, Government of India.

To safeguard its depots, godowns and offices, FCI engages security agencies for deployment of security personnel.

After the implementation of GST, FCI has been discharging GST under the Reverse Charge Mechanism (RCM) at 18% on the gross value of security service bills.

Question Before the Authority

The applicant sought an advance ruling by filing an application under sub-section (1) of Section 97 of the CGST Act, 2017 before the West Bengal Authority for Advance Ruling (AAR) on the following question:

“Whether the security services provided by the Security Agencies to Food Corporation of India, West Bengal Region, qualify as ‘pure services’ provided to a Government Entity in relation to functions entrusted under Article 243G/243W of the Constitution of India, and are therefore exempt from GST under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (as amended)?”

Relevant Legal Framework

Levy of GST

Under Section 9(1) of the CGST Act, 2017, GST is levied on all intra-State supplies of goods or services except those specifically exempted.

Reverse Charge Mechanism

As per Section 9(3) of the CGST Act, 2017, the Government may notify categories of services on which tax shall be paid by the recipient.

In terms of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017, security services (supply of security personnel) provided by a person other than a body corporate to a registered person are liable to GST under reverse charge by the recipient.

Exemption Claimed – “Pure Services”

The exemption relied upon by the applicant falls under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which exempts:

Pure services (excluding works contract service or other composite supplies involving supply of goods) provided to Government, Governmental Authority or Government Entity by way of any activity in relation to functions entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W of the Constitution.

Analysis by WBAAR

The Authority examined three critical aspects:

Whether FCI qualifies as a Government Entity

Even assuming FCI qualifies as a Government Entity, the exemption is available only if the services are:

  • Pure services; and
  • Provided in relation to functions entrusted under Article 243G or 243W.

Whether security services qualify as “pure services”

Security services may qualify as pure services (since no goods are supplied), but that alone is insufficient.

Whether the activity relates to constitutional functions under Article 243G/243W

Articles 243G and 243W relate to functions entrusted to Panchayats and Municipalities such as:

  • Public health
  • Sanitation
  • Water supply
  • Urban planning
  • Roads, etc.

The Authority observed that providing security services to FCI depots and offices does not relate to functions entrusted to Panchayats or Municipalities under the Constitution.

Therefore, the essential condition for exemption was not satisfied.

Ruling of WBAAR

The West Bengal AAR held that:

  • Security services provided to FCI do not qualify for exemption under Notification No. 12/2017-CT (Rate).
  • The services are taxable under GST.
  • Where applicable, GST is payable under Reverse Charge Mechanism in terms of Section 9(3) of the CGST Act, 2017 read with Notification No. 13/2017-Central Tax (Rate).
  • The applicable rate is 18%.