Tamil Nadu AAR Ruling: Market Leasing by Panchayats Not Subject to GST
The Tamil Nadu Authority for Advance Ruling (AAR) has clarified that leasing weekly market rights by Panchayats to tender contractors for collecting entry fees is not a supply of goods or services under the GST framework. This ruling provides significant relief to local bodies, confirming that such activities are constitutional functions.
GstPanchayatMarket LeasingConstitutional FunctionsTamil Nadu AarReal EstateAug 30, 2025
The case originated from an application filed by the Kannivadi Town Panchayat in the Tiruppur District. The Panchayat had granted contractors the right to collect entry fees from vendors, farmers, and the public for the use of open spaces and temporary stalls on weekly market days. The Panchayat sought clarity on whether such leasing constituted a taxable service or if it could be considered a function entrusted to Panchayats under Article 243G read with the Eleventh Schedule of the Constitution of India.
The Eleventh Schedule of the Constitution specifies 29 functions of Panchayats, including “Markets and Fairs” (Item 22). The applicant argued that its activities directly related to this function and should therefore fall outside the ambit of GST under Notification No. 14/2017-CT(Rate) dated 28 June 2017. This notification exempts activities of local authorities when performed as public authorities in relation to functions under Article 243G.
After thoroughly examining the submissions, the AAR observed that the leasing arrangement did not involve the supply of goods. It further found that the service element was integrally linked to the constitutional mandate of establishing and regulating markets. The receipts issued for entry fees were in the name of the Panchayat, even though contractors carried out the collections. This demonstrated that the activity remained a public function of the Panchayat rather than a commercial service.
The authority bench, comprising Balakrishna S, Member (CGST) and B. Suseel Kumar, Member (SGST), ruled that the leasing activity constituted a function entrusted to a Panchayat under Article 243G. Accordingly, it held that such transactions fall within the scope of Notification 14/2017-CT(Rate), as amended, and are to be treated as activities that are “neither supply of goods nor supply of services.”
The ruling further noted that the exemption is also available to contractors where services are rendered back-to-back to the Panchayat, ensuring continuity of constitutional functions while removing unnecessary GST liability for both local bodies and their service providers. This decision provides clarity and reduces the administrative burden on Panchayats and contractors, aligning with the constitutional mandate of local self-governance.
Frequently Asked Questions
What is the main finding of the Tamil Nadu AAR ruling?
The main finding is that leasing weekly market rights by Panchayats to tender contractors for collecting entry fees is not a supply of goods or services under the GST framework. It is a constitutional function of Panchayats.
Why did the Kannivadi Town Panchayat file the application?
The Kannivadi Town Panchayat filed the application to seek clarity on whether leasing market rights for collecting entry fees constituted a taxable service or a function entrusted to Panchayats under Article 243G of the Constitution.
What is the significance of the Eleventh Schedule in this context?
The Eleventh Schedule of the Constitution specifies 29 functions of Panchayats, including 'Markets and Fairs' (Item 22). The Panchayat argued that its activities related to this function and should fall outside the ambit of GST.
How does the ruling benefit Panchayats and contractors?
The ruling benefits Panchayats and contractors by confirming that market leasing activities are constitutional functions, exempting them from GST liability and reducing administrative burdens.
What is the role of the AAR in this context?
The Authority for Advance Ruling (AAR) provides clarifications on tax-related issues. In this case, the AAR examined the submissions and ruled that market leasing by Panchayats is not subject to GST.
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