AAAR Goa refuses to rule on GST exemption due to parallel Section 73 proceedings
Background of the dispute
M/s. Vaibhavi Dredging, a registered assessee holding GSTIN 30AASFV7395M1Z9, is engaged in dredging, desilting and related support activities. The assessee executed desilting and dredging work in River Sal for the Captain of Ports Department, Government of Goa.
To obtain clarity on the GST implications of this activity, the assessee filed an application before the Goa Authority for Advance Ruling (AAR). The specific question placed before the AAR was:
“Applicability of Exemption under S 1. No. 3 (for Pure Services) or 3A (for composite supply where supply of goods does not constitute more than 25% of the value) of the Exemption Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, as amended.”
The issue essentially revolved around whether dredging/desilting services provided to the Captain of Ports Department qualify as:
- “Pure services” covered by Entry 3 of Notification No. 12/2017-Central Tax (Rate), or
- Composite supply with goods not exceeding 25% of value, covered by Entry 3A of the same notification.
The assessee’s position was that the work done was in connection with functions envisaged under Articles 243G and 243W of the Constitution, and hence fell within the exemption framework of the notification.
Assessee’s submissions before the AAR
Before the Goa AAR, the assessee broadly advanced the following contentions:
1. Services linked to constitutional functions
The assessee argued that dredging and desilting of River Sal undertaken for the Captain of Ports Department was in furtherance of functions entrusted under Articles 243G and 243W of the Constitution. According to the assessee, the work related to several public functions such as:
- Waterways and water transport
- Water management and minor irrigation
- Flood prevention and control
- Fisheries-related activities
- Public health and sanitation
- Environmental protection and conservation
On this basis, the assessee contended that the services satisfied the requirement of being “in relation to” functions covered under the Eleventh and Twelfth Schedules to the Constitution.
2. Characterisation as pure services under Entry 3
The assessee maintained that the contract was executed solely through its own machinery and manpower. There was:
- No transfer of property in goods to the Government, and
- No supply of material as part of the contract value.
As such, the assessee claimed that the entire activity was a pure service, squarely covered by Entry 3 of Notification No. 12/2017-Central Tax (Rate). A certificate from the Captain of Ports Department was relied upon to assert absence of any material transfer.
3. Alternative plea under Entry 3A – composite supply with goods less than 25%
Without prejudice to the above, the assessee alternatively submitted that even if the transaction were treated as a composite supply involving goods, the proportion of goods in the total contract value was well below 25%. Therefore, the exemption under Entry 3A would still apply.
4. Reliance on constitutional scheme, CBIC circulars and other AAR rulings
The assessee backed its position with:
- The constitutional framework under Articles 243G and 243W
- CBIC clarifications on exemption for services relating to functions in the Eleventh and Twelfth Schedules
- Advance rulings from other States (including dredging-related rulings) where similar services to government bodies were held exempt under Entries 3 or 3A of Notification No. 12/2017-Central Tax (Rate)
Findings of the Goa AAR
The Goa AAR rejected the exemption claim and ruled that GST was payable on the services. The core reasoning adopted by the AAR was as follows:
Requirement of actual devolution to Panchayats/Municipalities
The AAR interpreted Entries 3 and 3A of Notification No. 12/2017-Central Tax (Rate) to mean that exemption is available only if the activity is in relation to functions actually devolved to Panchayats or Municipalities under State legislation enacted under Articles 243G or 243W.No proof of devolution under Goa law
According to the AAR, the assessee did not demonstrate that the dredging and desilting of River Sal had been specifically devolved as a function to local bodies under any Goa State law. On this basis, the statutory requirement was considered not met.Dredging not a pure service
The AAR observed that dredging operations may intrinsically involve use of goods or other preparatory/construction activities. Hence, in its view, such work could not be straightaway treated as a purely service-oriented activity.
On these grounds, the AAR concluded that the services of desilting the water body provided to the Captain of Ports, a Government Department, were not eligible for exemption under serial no. 3 or 3A of Notification No. 12/2017-Central Tax (Rate).
Appeal before AAAR Goa
Dissatisfied with the AAR’s decision dated 25.11.2025 (Order No.