Supply of services for publishing advertisements in print media by Municipalities to be classified as pure services, exempted under GST

Facts of the case: – The applicant publishes newspapers in Marathi, Hindi, and English and provides advertisement services in print media to various customers, including government bodies. Revenue sources include sales of newspapers and selling space for advertisements in print media. The applicant charges GST on the sale of advertisement space in print media as per Notification No. 11/2017-Central Tax (Rate), which prescribes a 5% GST rate under Chapter Heading 9983. The applicant supplied these services to Pune Municipal Corporation (PMC) for recruitment advertisements of ‘Medical Officers' and ‘Specialist Doctors'. The applicant issued a tax invoice dated 19-08-2017 charging GST at 5%. Pune Municipal Corporation (PMC) and Pimpri Chinchwad Municipal Corporation (PCMC) contend that the advertisement services provided to them are exempt from GST under Notification No. 12/2017-Central Tax (Rate), which covers “pure services” provided to local authorities. 

Issue:-

• Whether supply of selling space for advertisement in print media is pure service for the purpose of Entry at Sr. No.3 of the Exemption Notification. 
• Whether supply of selling space for advertisement in print media is a composite supply of goods and services for Entry at Sr. No.3A of the Exemption Notification
• Whether the content of advertisement has some connection to the functions under Article 243G or 243W of the Constitution
• Whether selling space for advertisement for recruitment can be considered “in relation to the functions entrusted to Panchayat under Article 243G & 243W”.

Contentions of the Applicant:- The Applicant contended as under:

• Supply involves both goods (newspaper) and services (advertisement space), making it a composite supply and not a pure service.
• The term “pure services” excludes any supply involving goods. Since the sale of space for advertisements involves printing material, it does not qualify as pure services.
• Advertisement services are not related to the functions entrusted to municipalities under Article 243W of the Constitution. Even if considered a composite supply, the value of goods exceeds 25% of the total supply value, disqualifying it from the exemption under entry 3A of the Notification No. 12/2017-Central Tax (Rate).

Observations of AAR:-  

• Pure Services : Selling space for advertisement involves transferring only the right to publish the advertisement. The property in paper and ink is transferred to newspaper readers, not to the advertisement recipient. Therefore, this is a pure service.
• Composite Supply :  Since the service is determined to be a pure service, the decision on composite supply becomes redundant
• Connection to Functions:  The recruitment advertisements for medical officers and professors for hospitals run by the municipalities have a direct connection to the functions of health and sanitation under Article 243G and 243W.  Recruitment advertisements for doctors and professors are necessary for the functioning of hospitals and medical colleges, making it related to the health functions entrusted to municipalities.

Rulings of AAR:-  The AAR stated that the Supreme Court in many judgments  has consistently interpreted the phrase “in relation to” to have a broad scope. It is intended to cover not just direct activities but also those that are indirectly related to the specified functions. The phrase “in relation to” in Entry No. 3 of the GST exemption notification should be interpreted broadly to include activities indirectly contributing to the functions entrusted to Panchayats and Municipalities. Based on the extensive judicial interpretations and contextual analysis, the activity of selling space for advertisements in print media for recruitment purposes by Municipal Corporations qualifies for GST exemption under the specified entry.

The service of selling space for advertisements in print media provided by M/s. Lokmat Media Private Limited to PMC and PCMC is classified as pure service related to the health functions entrusted to municipalities. Therefore, it is exempt from GST under Entry No. 3 of Notification 12/2017-Central Tax (Rate). The applicant's charges of 5% GST were incorrect as the exemption applies.