In re Odisha State Medical Corporation Limited (GST AAR Odisha)

FULL TEXT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING, ODISHA

(At the outset we would like to make it clear that the provisions of Central Goods & Service Tax Act, 2017 and Odisha Goods and Service Tax Act, 2017 are in pari materia and have same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the OGST Act.)

1.0. The present appeal has been filed, under section 100 of the Central Goods and Service tax Act, 2017 and Orissa Goods & Services Tax Act 2017 [hereinafter referred to as the CGST Act and OGST Act] by M/s. Odisha State Medical Corporation Limited having Principal Place of Business at Infront Of Ram Mandir, Convent Square, Bhubaneswar, Khordha, Odisha, 751007 bearing GSTIN 21AAI3C09370P1Z1 (herein after referred to as the ‘Appellant’) against the Advance Ruling ORDER No. 4/ODISHA-AAR/2025-26 dated 10.07.2025 pronounced by the Odisha Authority for Advance Ruling (AAR). The date of receipt of the physical appeal application is 17.10.2025.

2.0. In the instant case, the Appellant M/s. Odisha State Medical Corporation Limited having GSTIN No. 21AABC09370P1Z1 is a Government Company formed under Resolution of Department of Health & Family Welfare under Govt. of Odisha, filed an application for Advance Ruling on 18.02.2025. The Appellant submitted that the Corporation/Appellant was formed for procurement of quality medicines, surgical and EIF (Equipment, Instrument and Furniture) centrally through a fair competitive tendering process; managing central drug warehouses to ensure smooth supply of medicines to the health facilities up to the CHC level located at different places; monitoring centrally the Drug Distribution counters to be set up across health facilities and track prescription practices and disease pattern and procurement and maintenance of medical equipment across the health facilities.

2.1 The initial paid up capital of the applicant is Rs. 10 Crore which has been fully funded by State Budget and the cost of setting up the Drug Distribution Counters has been met from the budget of 01-ISP (Odisha Health Services Project) and thus qualifies as a Government Authority in terms of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017and matching Notification issued under Section 11 by the Odisha Goods & Service Tax Act, 2017 having been established as the procurement entity of the State of Odisha for rendering the procurement service as detailed above for smooth dispensation of free medicines and diagnostic services under “Nirmalya Scheme” of the Government.

2.2 That, .if for any reason, the applicant is not considered as a “Government Authority” through any narrow interpretation of the explanation in para 2(zf) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, it would definitely qualify as a “Government Entity” since the entire bundle of services rendered by the applicant doesn’t provide any other service or to any other person.

2.3 For sutenance of the applicant corporation and as a consideration for procurement services rendered to the State Government, the applicant company is paid Service Charge up to 5% of the procurement value (now it is 2.5%) and also allowed to charge 1.5% of the purchase order value (For medicine & Medical consumables) from the suppliers on account of handling and testing charges. Service Charge of 5% accrues to the Appellant on the cost of goods which pass the quality test and are finally accepted by the Corporation and not before that. The Corporation reimburses the cost incurred on account of testing charges @ 1.5% of the purchase order value from the respective suppliers strictly as per the authorization in the Government Resolution.

2.4 The ‘applicant thus, renders the mandated service as a package comprising tendering, selecting vendors, receiving supplies, causing quality testing wiehousing at the pre-designed location, distribution of drugs Health Facilities and management of inventory, indents and inventory. For efficient service delivery, the applicant makes use of some software i.e. “E-Nirmalya” 86″E-Upakaran”.

2.5 As evident from the Annual Financial Statement, the main expenses comprise salary and other establishment expenses, tendering expense, testing expense, storage and handling expenses and freight charges thus, implying that, there is no purchase of any goods for eventual supply to the Government for supplying the mandated service of procuring and distributing medicines to the health care facilities free of cost and procuring, installing as well as maintaining the medical equipment at different Health facilities. The services so supplied are pure service only integrally connected with the targeted improvement in the status of public health. The services being pure service supplied health department of the Government and being internally connected with the “medicines free distribution scheme of the State Government” to achieve improvement in status of public health would qualify for exemption from the levy of GST in terms of SI.No. 3 of Notification 12/2017-Central Tax (Rate) dated 28.06.2017 and matching Notification issued under Section 11 by the State Goods and Services Tax Act, 2017 in the capacity of the applicant being a “Government Authority” or a “Government Entity.

2.6 In view of the statutory exemption available in SI. No. 3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 the Corporation resolved to seek a ruling from the State Advance Ruling Authority on the applicability of SI. No. 3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017.

2.7 The AAR-Odisha State vide Order dated 14.07.2025 has passed the following Rulings:

Q.1 Whether the applicant Corporation is a Government Authority in terms of explanation in Para 2(zf) of Notification No. 12/2017-CT (Rate) dated 28.06.2017?

Ans: Negative.

Q.2 Whether the applicant Corporation is a Government Entity in terms of the explanation in Para 2(zfa) of Notification No. 12/2017-CT (Rate) dated 28.06.2017?

Ans: Affirmative.

Q.3 If the Service provided are pure services?

Ans: Negative.

Q.4 If the answer to the above questions are in affirmative, whether the services provided by the applicant are entitled to the exemption notified at Sl. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017 and similar matching Notification issued by the state Government under Section 11 of the State Act.

Ans: Negative.

4.0 Submissions of the Appellant: The Appellant submitted that the AAR passed the Ruling by selective use of some of the provisions of law and facts which considered suitable to the interest of revenue and also by travelling beyond the issues raised in the application. Undeniably, the ruling has been awarded placing sole reliance on the definition of “pure agent” as explained in Rule-33, which relates to determination of the “taxable value” in case of supply by a pure agent. Indisputably, there is no dispute on the determination of taxable value and it was not the case of the Appellant in its application seeking an advance ruling. Thus, the impugned order has travelled beyond substantive issue of exemption under Section 11 of the Act to determine taxable value of the pure agent under Section 15 read with Rule 33 of the Rules. Thus, reliance placed on Rule 33 of the Rules is thoroughly misplaced and irrelevant to the material issue of exemption.

4.1 In adjudicating on the qualifying conditions of a Pure Agent in term of the Explanation and the illustration in Rule 33, the impugned order has miserably erred in holding that the Appellant fails to fulfill the condition in clause (d) of the Explanation in Rule-33 for the reason that, the consideration amount charged by the Appellant is inclusive of the value of goods. Such interpretation of the condition in clause (d) of the Explanation in Rule 33 is grossly erroneous and incorrect.

4.2 The Appellant submitted that the very objective of Rule 33 is to address the peculier issue of determining the taxable value of the services in case of pure agent who charges the principal both for the agency services rendered by him as well as the cost incurred on account of the goods/services procured from the third parties for and on behalf of the principal. This being a special provision, it begins with a non-obstante clause to provide the required overriding effect. Nowhere, it defines Pure Services, which was core issue for determination in the impugned proceeding. Besides, clause (d) of the Explanation doesn’t prohibit the pure agent from charging the principal for the actual cost of goods and services procured for the principal in addition to the service charge of the pure agent. Clause (d) simply puts a restrictive condition on the pure agent to charge “the actual amount incurred to procure such goods and services” in addition to its own service charge. In the impugned order, there is no observation or any finding on the appellant having charged even a rupee more than the actual amount paid to the third-party supplier or having over charged the pre-determined amount allowed as service charge. The only observation in that regard centers round issue of Utilization Certificate for the gross amount which includes the actual amount paid to the third-party supplier and the amount allowed to be retained and appropriated by the appellant towards its service charge. Utilization certificates are mandatorily issued in the prescribed template in the prescribed manner to monitor utilization and progress of the deposit works. Such practice is very much in sync with the mandate in Clause (d) of the Explanation in Rule 33 of the rules. Thus, there is no violation of the condition in clause (d) of the Explanation in rule 33 so as to be disqualified as a pure agent, as alleged in the impugned order.

4.3 Also, there is also no denying the fact that, the functions entrusted to the appellant at Si. 3 of Government Resolution No. Sch-l-ed-264/13(Pt)/8844 dated 26.06.2013 and relied upon in the impugned order are for supply of a bundle of services, which inter alia includes procurement of quality medicines, surgical and EIF (Equipment, Instrument and Furniture) centrally through a fair competitive tendering process. The entrusted function is not for supply of medicine and equipment but rather for procurement of those items for the Government. The impugned order failed to appreciate the distinction between procurement and supply. Indisputably, procurement of anything for the principal is a supply of service while supply of medicine and equipment are supply of goods which is not within the mandated function. The impugned order, after having analyzed and accepted the mandated functions entrusted to the appellant at SI. 3 of Government Resolution No. Sch- 1-ed-264/13(Pt)/8844 dated 26.06.2013, went on to contradict its own finding while disqualifying the appellant as a pure agent by banking on the utilization Certificates which are issued for the gross amount comprising the amount paid to the third-party suppliers and the commission of the appellant at the approved rate. There is no finding on any overcharging by the appellant either on account of the amount paid to the third-party supplier, or on account of the commission amount retained and appropriated by the appellant. In fact, there is no possibility of any overcharging on either account for the strict internal and external control mechanism including audit by the CAG. Thus, the finding on non-fulfilment of the conditions in clause (d) of the Explanation in rule-33 is further nullified in the absence of concrete finding on any amount having been overcharged by the appellant in excess of the amount paid to the third-party supplier.

4.4. The bundle of functions entrusted to the appellant in the Government Resolution No. Sch-l-ed-264/ 13(Pt)/8844 dated 26.06.2013 are, in fact, a natural bundle of services, each integrally connected with the other. There is absolutely no indication in the Government Resolution for supply of any goods by the appellant for the simple reason that the objective behind setting up the corporation was only to facilitate procurement of quality medicine for and on behalf of the Government and to facilitate smooth distribution of the medicines so procured, by maintaining warehouses up to the CHC level located at different places for eventual free dispensation to the patients under the Government Scheme.

4.5 On plain reading of the functions entrusted to the appellant in the G.R dated 26.06.2013, there ought not be doubt that each of the functions entrusted to appellant by the Government is a pure service and the services are naturally bundled. None of the function is for supply of any goods. Accordingly, the appellant appropriates the service charge strictly at the rate allowed by the Government and books the same as revenue receipt in the books of accounts. The Annual Statement of Accounts including the notes of the Auditor for the relevant year substantiate the contention that the Appellant retain and appropriates only that amount which represents the service charge and accounts the same as revenue receipts in the books. The amount paid to the third-party suppliers being not revenue/expense of the appellant, has never been included in the revenue receipts of the appellant company right since its inception. No objection has ever been raised by either the internal auditor or the statutory auditor or the AG audit team. Such acceptance by the Government auditors as well as the internal auditors reinforces the contention of the Appellant that the amount paid to the third-party suppliers, on account of supply of goods do not form part of the revenue receipts or expenditure of the Appellant, even though included in the Utilization Certificate. Also, it reinforces the contention that the appellant is in to supply of pure services to the Government of Odisha and retains only the service charge determined strictly as per the rate allowed by the Government. Thus, there ought not be any doubt on the nature of supply being undertaken by the appellant and the amount retained and appropriated by it on account of the supply of the services so entrusted.

4.6. Furthermore, there is also no denying the fact that, in the impugned order, the question as to the applicability of 51.3 of Notification No. 12/2017-CT (Rate) dt. 28.06.2017 has been replied in negative only after holding that, the supplies undertaken by the Appellant were not “pure service?, which in turn, was further based on the analysis of the Utilization Certificates which were issued for the gross amount comprising the amount paid to the third-party supplier and the amount retained by the appellant on account of the service charge. In the considered opinion of the AAR, such inclusion of the amount paid to the third-party supplier in addition to the service charge allowed to the Appellant fails to fulfill the qualifying condition in clause (d) of the explanation in Rule 33, thus failing the Appellant to qualify as a pure agent and the supplies as pure services. Such erroneous interpretation of the qualifying condition in clause (d) of the explanation in Rule 33 have been convincingly countered by placing reliance on (1) on the interpretation of clause (d) of the Explanation in Rule 33, (ii) the standard accounting procedure, and (iii) the government procedure for issue of UC in the prescribed template and in the prescribed manner. It has also been convincingly explained that clause (d) of the Explanation in Rule 33 doesn’t prohibit charging of the actual amount paid the thi d-party supplier along with the charge relatable to the pure agent. Therefore Appellant very well qualifies as a pure agent of the Government for supply of the entrusted services including procurement of medicines and equipment. In fact, the Appellant has been functioning as a pure agent right since the inception and the accounts of the company has been maintained accordingly by taking in to account the amount of commission only allowed to the Appellant, which have been audited by both the internal and external Auditors without any objection. The amount paid to the third-party suppliers has never been taken in to account either as revenue receipt or as expenditure, even while iasuing UCs for the gross amount by following the Government rules and procedure. Procurement of medicines and equipment is a pure service undertaken by the appellant and supply of medicines and equipment by the appellant is neither envisaged in the Government resolution while setting up the appellant company nor ever undertaken by the appellant. Thus, the appellant is only in to supply of a bundle of pure services as enumerated at Sl. 3 of the Government Notification resolution and there ought not to be any doubt or biguity on that account.

4.7 The Appellant reiterates its reliance on the precedent ruling awarded by the AAAR of the State of Andhra Pradesh in the case of M/s. Andhra Pradesh Medical Service and Infrastructure Development Corporation (AAAR/AP/09(GST)/2022). The impugned AAR has observed that while the Andhra Pradesh Corporation was charging only the establishment expenses from the Government of Andhra Pradesh, the Appellant company of Odisha has charged for both goods and services for which the ruling of Andhra Pradesh AAAR is n t applicable to the case of the applicant. It has already been explained that charging the actual amount paid to the third-party supplier from the principal doesn’t alter the nature of supply or the status of the pure agent. Besides, observation in the impugned order seems to be a case of pure presumption in as much as no investigation seems to have been made in to the procedure followed in the State of Andhra Pradesh for paying the bills raised by the third-party suppliers. Besides, whether payment to the third-party suppliers is made by the Corporation or by the Government, it doesn’t make any material difference impacting the liability of the pure agent or the corporation, in this case. Rule 33 very well recognizes such payment by the pure agent and it has been clearly illustrated in the illustration appearing below the explanation.

4.8 Travelling beyond the questions raised in the original application under section 97, the appellant having been held as a Government entity and having supplied health related services to the Government of Odisha, exemption provided at SL.3A of Notification No. 12/2017-CT (Rate) dated 28.06.2017, as amended, becomes applicable entitling the Appellant for exemption of the services supplied to the Government from the levy of GST. Admittedly, this is a new question not raised earlier, but having flowed from the core issue raised earlier, merits consideration now

4.9 To sum up, the issue of the test of a pure agent has been brought in to the proceeding by travelling beyond the moot question on applicability of SL. 3 of Notification No.12/2017-CT(Rate) dt.28.06.2017,as amended, exempting pure services provided to Government from the levy of GST. Even while examining the qualification condition in clause (d) of the Explanation in rule 33 of the Rule, the impugned order failed to take note of the permissibility of charging the actual amount paid to the third-party suppliers and erroneously concluded the appellant as not being a pure agent and not .a supplier of pure services, notwithstanding a clear and unambiguous mandate in the GR for supply of services only which has also been examined and accepted in the impugned order. As convincingly explained above by negating the averments in the impugned order, the Appellant is, in fact, a pure agent of the Government of Odisha established by the Government for supply of the services entrusted through the GR. In fact, supply of goods is nowhere envisaged in the GR and accordingly, the Appellant supplies only pure services to the Government and thus, becomes eligible for the exemption provided at SL.3 of Notification No. 12/2017-CT (Rate) dated 28.06.2017, as amended. The appellant is even otherwise eligible for exemption as per Si. 3A of the said notification also.

5. Personal Hearing:

The Appellant was called for personal hearing on 26.09.2025 through virtual mode. On the request of the Appellant, the hearing was adjourned on that date. A fresh hearing was fixed for 17.10.2025 and was represented by Shri Narendra Kumar Dash, Advocate, Authorized Representative of the Appellant. During the course of hearing, the Shri Dash, on behalf of the Appellant has submitted additional submission which is as below:

5.1 The Appellant has discussed about the background of the Scheme “free Medicine Distribution Scheme”, overall objectives of the Scheme and function of “Odisha State Medical Corporation”.

5.2 The Appellant receives annual procurement indents from the Government of Odisha and funds are allocated for the procurement of medicines and medical consumables through relevant government agencies such as the Directorate of Health Services (DHS) and the Directorate of Medical Education and Training (DMET). Based on these indents, the Appellant undertakes procurement throughout the year via a competitive tender process and disburses payments to suppliers from the funds placed by the Government. OSMCL operates on a no-profit, no-loss basis with regard to procurement transactions. Hence, the remuneration earned by corporation is for the pure services alone and same is also evidenced by the above-referred Government Resolution dated 26th June-2013. The Government as per Resolution at para 7 of Gazette No 1375 dated 11.07.2013(Resolution dated 26th June 2013 vide No.844) mentioned as follows:-

The Corporation shall be paid services of 5% on the procurement value by the Department to meet their recurring Expenditure.

Subsequently vide Resolution File No HFW-DC MA- MISC-0025-2018-34164/H&F.W dated 31/12/2019 the clause No 7 modified as follows:

The Corporation shall be paid services upto 5% on the procurement value by the Department to meet their recurring Expenditure.

5.3 The Appellant has also submitted that the Government of India, Ministry of Finance (Department of Revenue) released a notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 wherein as against Serial 3 and Chapter No. 99 the services of “Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution”, the rate of GST determined is NIL along with conditions being NIL too, making the aforementioned services exempted from GST. The Appellant is involved in inter alia procurement of medicines, medical consumables surgical and EIF (Equipment, Instrument and Furniture) through fair competitive tendering process and supply those medicines and are only involved in Procurement medicines for the Government of Odisha. The overall objective behind establishing the Appellant Company to improve the health status of the people of Odisha through the “Free Medicine Distribution Scheme”. Further, Serial 23 of Eleventh Schedule and Serial 6 of Twelfth Schedule, both referring to Article 243G and 243W respectively, provides clarity about the applicability of Serial No. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017.

5.4 The Appellant further submitted that as per the Memorandum of Understanding entered between OSMCL and the Government of Odisha, the Appellant is designated as the implementing agency for procurement, warehousing, and distribution of essential medicines and consumables to government health facilities for free distribution to patients under the “Niramaya Scheme”. The Appellant is also entrusted with the responsibility of procuring, installing, and maintaining medical equipment’s, instruments and furniture’s [1] Additionally, it plays a key role in executing the “KHUSI” Scheme, which involves the supply of beltless sanitary napkins to adolescent girls studying in classes VI to XII across the State.

5.5 The Appellant is acting solely as an implementing agency on behalf of the Government of Odisha which does not engage in any commercial or profit-making activities. In turn, to meet its recurring administrative and operational costs, the Corporation is entitled to receive a service charge of up to 5% of the procurement value from the Health and Family Welfare Department, Government of Odisha. Additionally, the Corporation derives limited revenues from ancillary sources such as 1.5% of the value of goods for handling and testing services provided to suppliers, bank interest accrued on own surplus funds, liquidated damages recovered from defaulting suppliers, and tender document fees collected from participating bidders. These sources of income are solely aimed at sustaining the Corporation’s operations and maintaining its service delivery capacity, without generating any profit.

5.6 Further, the Appellant humbly submitted that it only acts as an agency of Government of Odisha being a Government authority of Odisha and gets nominal service charges and ancillary revenues to sustain its operational costs, without any intent to engage in business or earn profit. Therefore, all three conditions required for exemption under Entry No. 3 of Notification No. 12/2017-CT (Rate) dated 28.06.20177, stand duly satisfied.

(i) The service provided is a pure service, i.e. service to Government of Odisha devoid of any commercial element.

(ii) The service is provided to the Government, specifically the Health and Family Welfare Department, Government of Odisha.

(iii) The service is in relation to public health functions, a core activity entrusted to Panchayats and Municipalities under Article 243G and Article 243W of the Constitution of India. Accordingly, the services rendered by Appellant are squarely covered under the scope of the above-stated exemption notification.

5.7 The Appellant further relied on the decision of the Appellate Authority for Advance Ruling in the case of Andhra Pradesh Medical Services and Infrastructure Development Corporation (Order No. AAAR/AP/09(GST)/2022 dated 20.12.2022), wherein the Hon’ble Authority held that establishment charges paid to APMSIDC by the State Government are exempt under Entry No. 3 of Notification No. 12/2017 – Central Tax (Rate). However, the said AAAR wrongly interpreted and stated that Andhra Pradesh corporation was charging only the establishment expenses from Government of Andhra Pradesh, the Appellant Company of Odisha has charged for both goods and services for which, the ruling of AP-AAAR is not applicable to the case of the Appellant. In this connection it is clarified that the both “service charge” and “establishment expenses” are modes of recovering cost, and do not indicate a profit motive. Therefore, the Andhra Pradesh AAAR ruling is applicable to OSMCL on the core principles of agency, public function, and non-commercial activity and the functional character of the activity remains the same in both the case.

5.8 During the course of personal hearing, Shri Narandra Dash, the Authorized Representative of the Appellant inter-alia stated the following:

• The Appellant company i.e M/s. Odisha State Medical Corporation Limited (OSMCL) has been incorporated under the Companies Act, 1956 with full participation of the Government of Odisha with sole objective for procurement of quality medicines, surgical EIF, managing central drug warehouses, monitoring drug distribution counters and related logistics.
• All the activities are carried only for Government and public interest. The issue is that whether the services provided by the Appellant are pure services and eligible for exemption under Notification No. 12/2017-CT (Rate) dated 28.06.2017.
• The Appellant Company was set up under a resolution No. 264/8844 dated 26.06.2013, passed by Govt. of Odisha, Department of Health 86 Family Welfare with primary objective to improve overall health status of the State under “Free Medicine Distribution Scheme” and set up an independent procurement entity in form of a Govt. Company in the name of “Odisha State Medical Corporation” and established 1102 Drug Distribution Counters at health facilities up to Community Health Centres (CHCs) for implementation of the Scheme.
• The objective of the “Free Medicine Distribution Scheme” is improved accessibility to essential medicines and health care, reduction of financial burden and reduction in morbidity and mortality, controlling both communicable and non-communicable diseases.
• Functions of the Appellant Company is timely procurement of quality medicines, surgical and EIF centrally adhering to a fair, transparent, competitive tendering process; manage central drug warehouses to ensure smooth flow of supply to health facilities through a centralized online inventory management system; monitor Drug Distribution Centre to be set up across health facilities centrally and tract prescription practices and disease pattern; procurement and maintenance of medical equipment across health facilities.
• It was decided in the resolution that Managing Director of the Corporation shall be an IAS officer on deputation from the State Government.
• The resolution has been passed for procurement of medicines and for distribution of the same to different to centres for which Govt. have to pay 5 % (now it is upto 2.5%) on the procurement value to the Appellant Company, for sustainability of the entity.
• Whatever purchase done by the corporation is neither entered in the books of accounts nor as purchase in records. The Appellant Company submits utilization certificate to the Govt. for the said purchases. The services provided by the Appellant are pure service provided to the Govt.
• In the AAR, it was discussed in pars 6.5 of the ruling that as the applicant is not fulfilling the condition (1) (which is the supply in question is not pure supply), exemption notified at Sl.No.. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017, the applicant is not eligible to avail the exemption and Appellant’s AAR application was rejected.
• For Pure Services’ the AAR has referred to Rule-33 which is not applicable to the Appellant. The Appellant has sought Ruling for exemption under the SI.No. 3 of the Notification No. 12/2017-CT (Rate) and Rule 33 is about valuation which is not applicable in the Appellant’s case
• To the Appellant’s citation on the ruling of the AAAR of the State of Andhra Pradesh in the case of M/s. Andhra Pradesh Medical Service and Infrastructure Development Corporation, the AAR ruling in the instant cases observed that M/s. Andhra Pradesh Medical Service and Infrastructure Development Corporation only charges ‘establishment expenses’ from the Govt. while the instant Appellant charges both goods and services which is not correct.

Further, The Member (Centre) wanted to know if the circumstances are similar in respect of cited case i.e M/s. Andhra Pradesh Medical Service and Infrastructure Development Corporation and the Appellant’s case, to which Shri Das stated that both the circumstances are same and the only difference is related to the nomenclature. Shri Das submitted that M/s. Andhra Pradesh Medical Service and Infrastructure Development Corporation receives 5% of the establishment expenses and the instant Appellant receives 5% (now 2.5%) of the procurement value.

The Member (State) asked regarding ruling/exemptions position of other State Medical Corporations to which Shri Das submitted that ruling has been ordered in favour of the Applicants where sought and in other cases, the entities are already availing exemptions. Further, Member (State) asked about the reduction in service charges to which Shri Das stated that earlier the services charge was 5% of the procurement value and subsequently w.e.f. 31/12/2019, the same was reduced to ‘upto 2.5% of the procurement value’. The Member (State) further asked whether the service charges are not the Appellant’s income to which Shri Das stated that in Balance Sheet only other income and interest income is reflected and no purchase or sale is reflected there in the Balance Sheet.

The Member (Centre) asked regarding the distribution system of medicine by the Appellant Company to which Shri Das stated that the medicines are distributed as per the indent raised by the centres. The medicines are purchased by the Corporation for the Government. The Member (Centre) asked as to how the amount received form Govt. is accounted in the Appellant’s financial records to which Shri Das submitted that the fund allocated by Govt. is shown as Govt. Budgetary Allocation in their records and the Appellant Company issues utilization certificates to the extent of expenses towards the purchase of medicines including handling, testing charges and service charges. Shri Das stated that the Appellant is not raising any bills to Govt. but issues utilization certificate by deducting the procurement value from the budget allocation.

DISCUSSION & FINDINGS

6.0. We have gone through the records of the case, the written submissions made by the Petitioner and submission made by the authorized representatives of the Petitioner during the personal hearing through virtual mode on 17.10.2025.

6.1 The issue before us is to decide on the following aspects:

(i) Whether the Appellant Company is a Govt. Authority/ Govt. Entity in terms of explanation in Para 2 (4/Para 2(zf) of Notification No. 12/2017-CT (Rate) dated 28.06.2017.

(ii) Whether the Service provided by the Appelicant are ” Pure Services”

(iii) Whether the services provided by the Appellant are entitled to exemption, notified at SI.No. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017.

6.2 Therefore, to decide whether the Appellant is a Govt. Authority or Govt. Entity in terms of explanation to Notification No. 12/2017-CT (Rate) dated 28.06.2017, as amended, we have to discuss about the provisions of the above explanation:

(zf) “Governmental Authority” means an authority or board or any other body,-

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by an any Government.

with 90 per cent or more participation by way of equity or control, to carry out function entrusted to Municipality under article 243W of the Constitution or to a Panchayat under article 243G of the Constitution.

(zfa) “Government Entity” means an authority or a board or any other body including a society, trust, corporation,

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by an any Government.

with 90 per cent or more participation by way of equity or control, to carry out function entrusted by the Central Government, State Government, Union Territory or a local authority.

6.3 On going through the Govt. Resolution No. Sch-I-Med-264/ 13 (Pt.)/8844 dated 26.06.2013 published in the Odisha Gazette (Extraordinary), it is noticed that the Resolution starts with subject-Setting up of the “Odisha State Medical Corporation” for implementation of “Free Medical Distribution Scheme”. The Government of Odisha has launched this scheme to provide quality essential medicines for all kinds of diseases to patients coming to Govt. Health facilities at free of cost. So, the scheme is launched by Govt. of Odisha and Odisha State Medical Corporation (the Appellant Company) was set up for implementation of the said scheme. So, it can be inferred that the obligation under article 243W and 243G of the Constitution is on the State Govt. of Odisha and the Appellant is just entrusted to carry out the following functions under the Scheme:

(i) Timely procurement of quality medicines, surgical and EIF (Equipment, Instrument and Furniture) centrally adhering to a fair, transparent, competitive tendering process

(ii) Managing central drug warehouses to ensure smooth supply of health facilities through a Centralized online inventory Management System.

(iii) Monitoring Drug Distribution Counters to be set up across health facilities centrally and track prescription practices and disease pattern

(v) Procurement and maintenance of medical equipment across the health facilities.

Further, the Appellant Company was incorporated with whole of equity and control of Government of Odisha to carry out specific function entrusted by the Govt. Therefore, the Appellant Company satisfies as “Government Entity” as per Para (zfa) of Explanation to Notification No. 12/2017-CT (Rate) dated 28.06.2017.

6.4 Now, it is to decide whether the services made by the Appellant are pure service or not. On going through the functions of the Appellant Company as discussed in the above Para, it is observed that the Appellant is entrusted with procurement of medicine, medical equipments, managing drug houses and monitoring Drug Distribution Counters etc.

Further, in as per G.R dated 26.06.2013 which was later amended vide Resolution dated 31.12.2019, the Appellant shall be paid service charges upto 5% (earlier it was service charge of 5%) on the procurement value by the Department to meet their recurring expenditure. From the Govt. Resolution and the documents submitted by the Appellant it transpires that funds are allocated by the Govt. of Odisha for procurement of medicines and other medical consumables. The Appellant company procures such items from the suppliers through competitive tenders and disburses payments to such suppliers from the fund allocated to them by the Govt. The amounts paid to such suppliers are not taken into account by the Appellant neither as revenue receipt nor as revenue expenditure. Out of the total funds received by the Appellant from the Govt. Allocation, the Appellant retains an amount of 5% (or upto 5% as amended) of the procurement value as service charges to meet their recurring expenditure. The same is also reflected as “service charges on procurement” under “Revenue from Operations” in the financial statement of the Appellant. So, it appears that there is no other supply of goods or services involved in the supply made by the Appellant to the Govt. of Odisha and therefore, the services supplied by the Appellant is pure service.

The AAR Authority has discussed about Rule 33 of CGST Rules, 2017, for the purpose of interpreting the expression “Pure Services”. However, on plain reading of Rules, it is observed that Rule 33 of the Rules, is prescribed under Chapter-IV of the said Rules which describes “Determination of Value of Supply”. Rule -33 of the Rules prescribes value of supply of services in case of pure agent. Accordingly, any inference drawn as to the meaning or ambit of “pure services” from a provision solely concerned with valuation of services rendered by a pure agent is misplaced and legally untenable.

6.5 Now, it is to decide whether the services provided by the Appellant are entitled to exemption, as Notified at Sl.No. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017.

For better understanding of Serial No. 3 of Notification 12/2017-CT (Rate) dated 28.06.2017, as amended, the same is reproduced below:

“Pure Services (excluding works contract service or other composite supplies involving supply of any goods) provided to Central Government, State Government or Union Territory or local authority by way of any activity in relation to any function entrusted to a Panchayat under article 234G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.”

The above are subject to Nil rate of tax as per the Notification.

Therefore, the pure services provided to State Government by way of any activity which are under 234G or 243W of the Constitution will attract nil rate of GST. As discussed above, the services provided by the Appellant are “pure services”. Now, it is to decide whether the services entrusted and provided by the Appellant to Govt. falls under article 243G or 243W of the Constitution. The main purpose of the creation of the Appellant Corporation is to procure, maintain and distribute medicines and medical equipment for providing better health services to the patients for implementation of “Free Medical Distribution Scheme” in respect of health facilities up to CHC level. Relevant portion of SI. No. 10 of Govt. Resolution No. Sch-I-Med-264/13 (13t.)/8844 dated 26.06.2013 (supra) is reproduced below: –

……………. Hon’ble Chief Minister have approved setting up of Odisha State Medical Corporation and establishment of 1102 Drug Distribution Cenre in respect of health facilities up to CHC level to implement Free Medical Distribution Scheme…..

[emphasis supplied]

Further, SI. No. 2 of the said Resolution is reproduced below: –

2. Oveull objectives of the Scheme

The Prime objective of the scheme this scheme of the Government of Odisha is to essential medicines to all visiting to Government Health facilities for timely and apporporiate helathcare with an objective to improve overall helath satus of the state………..

(emphasis supplied]

The scope of supply, objective of the Scheme, approval accorded by Honble Chief Minister of Odisha and nature of the activities undertaken by the appellant, Olearly demonstrates that timely procurement and assured supply of good quality medicine, which involves procurement as well as logistic management, constitutes an indispensable component of an effective public health syst m. The Government of Odisha has the mandate to ensure access to essential healthcare services, including the provision of quality medicines free of cost to patients attending Government health facilities through “Free Medical Distribution Scheme”. The Appellant functions as an implementing arm of the State in furtherance of this mandate. Accordingly, the activities undertaken by the Appellant are integrally and intrinsically linked to “Health and Sanitation, including hospitals, primary health centres and dispensaries”, which is specifically enumerated at Sl. No. 23 of the Eleventh Schedule (Article 243G) and Public health under Si. No. 6 of the Twelfth Schedule (Article 243W) of the Constitution of India.

In view of the foregoing, the services rendered by the Appellant squarely fall within the scope of functions entrusted to Panchayats and Municipalities under Articles 243G and 243W of the Constitution. Consequently, the Appellant is entitled to exemption under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as well as the corresponding notification issued by the Government of Odisha, as amended from time to time.

6.6 Given the observations stated above, the following issue wise rulings are passed:

RULING

7.0 Based on the above discussions and findings, the following ruling is passed by the AAAR Odisha State as per the questions raised by M/s.Odisha State Medical Corporation Ltd.

Q.1 Whether the applicant Corporation is a Government Authority in terms of explanation in Para 2(4) of Notification No. 12/ 2017-Central Tax (Rate) dated 28.06.2017?

Ans: Negative.

Q.2 Whether the applicant Corporation is a Government Entity in terms of the explanation in Para 2(zfa) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?

Ans: Affirmative.

Q.3 If the Service provided are pure services?

Ans: Affirmative.

Q.4 If the answer to the above questions are in affirmative, whether the services provided by the applicant are entitled to the exemption notified at Sl. 3 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and similar matching Notification issued by the state Government under Section 11 of the State Act.

Ans: Affirmative.