GST Payable on subscription received by Banking Institute from RBI for improvement in banking operations

By Editor Goods and Services Tax Judiciary June 25, 2019

TaxGuru Citation: 2019 taxguru.in 1263
Case Name: In re M/s. National Institute of Bank Management (GST AAR Maharashtra)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Advance Rulings, Maharashtra AAR/AAAR

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In re M/s. National Institute of Bank Management (GST AAR Maharashtra)

Question 1:-Whether consideration paid as subscription or contribution towards recurring or capital expenses or reimbursement or by whatever name called to National Institute of Bank Management (NIBM); a society registered under Societies Registration Act, 1860 by its members (being Banks) for its recurring and non-recurring expenses is leviable to GST?

Contributions received by the applicant from the RBI and other Public Sector Banks is nothing but consideration for the entire gamut of services supplied by them and GST is payable on such contributions received.

FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, MAHARASHTRA

The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by NATIONAL INSTITUTE OF BANK MANAGEMENT, the applicant, seeking an advance ruling in respect of the following question.

1. Whether consideration paid as subscription or contribution towards recurring or capital expenses or reimbursement or by whatever name called to National Institute of Bank Management (NIBM); a society registered under Societies Registration Act, 1860 by its members (being Banks) for its recurring and non-recurring expenses is leviable to GST?

At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression `GST Act’ would mean CGST Act and MGST Act.

2. FACTS AND CONTENTION — AS PER THE APPLICANT

“The National Institute of Bank Management a premier Academic cum Training Institute was established in 1969 by Reserve Bank of India (RBI) in constitution with Government of India as an autonomous Apex Institute, with the mandate of playing a pro-active role of “Think Tank” of the banking system.

NIBM is registered as a society under the Indian Society Registration Act (XXI) of 1860. RBI, State Bank of India (SBI) & Other Public Sector Banks were the first members of Governing Board of this society to which, by rules of the society, the management of its affairs was entrusted. Copy of Memorandum is attached for reference.

As per Memorandum of Association, the objects for which the society is established are as under:

1. to plan, promote and provide for education and training in operations and management of banking and financial institutions and to undertake, organize, and facilitate Conferences,
Seminars, Study Courses, Lectures and similar other activities for the purpose;

2. to promote and conduct research in matters pertaining to:

(a) the improvement of banking operations,

(b) the education, training and development of personnel of banking and financial Institutions,

(c) the maximum augmentation and effective deployment of banks’ resources including analytical and perspective studies of various sectors of the economy with a view to promoting national development;

3. to assist banking and financial institutions in matters such as designing measurement tests for employee selection, appraisal programs, conducting morale and productivity_studies, streamlining organizational structure and to review, from time to time, the impact of educational, training and research activities and offer suggestions for filling the gaps in the banking and financial systems;

4. to promote and undertake faculty development programs to assure an adequate supply of competent trainers to institutions conducting training programs for the personnel of banking and financial institutions;

5. to maintain liaison with banking and financial institutions.

RBI, SBI and other Public sector banks in capacity of promoters of the Institute contribute annually an amount of Rs. 100.00 lakh as subscriptions towards recurring expenses. The entire CAPEX is also contributed at actuals by RBI SBI & Other Public Sector Banks in ratio of RBI 40%, SBI 20% & Other Public Sector Banks 40%. This annual contribution of the promoters is for ensuring that we are not in deficit as regards our operations.

3b. Statement containing the applicant’s interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant’s view point and submissions on issues on which the advance ruling is sought)

RBI, SBI and other Public Sector Banks are contributing towards fixed amount of Rs. 100 lakh for recurring expenses and Capex at actuals in the capacity of Promoters without receiving any services in exchange.

NIBM runs different courses and training programs in their campus for which it collects fees and other charges from the participants. NIBM charges GST on the said fees and charges collected from the participants.

However, NIBM contends that the GST is not applicable on the contributions collected from the Public Sector Banks on following grounds:

i) it is a settled ‘legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to the tax;

ii) contribution, donation or grant-in-aid is not specifically meant for a person receiving such training or to the specific activity, but is in general meant for the charitable cause championed by the registered foundation;

iii) the contributions given by the Public Sector Banks are given freely in which the said banks do not receive any exclusive benefit in return;

iv) the contribution, received by NIBM from the Public Sector Banks shall not be treated as “consideration” received for training_or other taxable supplies;

v) the supply” is defined u/s 7(1) of the GST Act as follows: “For the purposes of this Act, the expression “supply” includes

a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration Thus, the three factors, namely, Goods or Service, Consideration and Business must exist simultaneously to complete the definition of supply

vi) Since, the contributions received / receivable by NIBM from the Public Sectors banks cannot be held as “consideration”, there is no “supply” and thus, GST should not become applicable on these amounts.

vii) NIBM relies on following decisions /circulars, wherein, it has been held / clarified that:

a, the amounts received as charitable donations out of free will and public/ Government grants for activities of society are not related to services provided by Society. These are excludible from taxable value for charging service tax – Cultural Society of Angamally v. CCE (2008) 13 STT 277 (CESTAT);

b. Donations and grants-in-aid received by charitable institution received from different sources for conducting training courses is not consideration received for coaching service provided – MF(DR) circular No. 127/9/2010-ST dated 16. 8.2010.

Additional submissions on 06.06.2019

a. Activities of NIBM

The Memorandum of Association of the NIBM (copy attached herewith) states its main objects as follows:-

1) To plan, promote and provide for education and training in operations and management of banking and financial institutions and to undertake, organize and facilitate Conferences, Seminars, Study Courses, Lectures and similar other activities for the purpose;

2) to promote and conduct research in matters pertaining to:

a) the improvement of banking operations,

b) the education, training and development of personnel of banking and financial institutions,

c) the maximum augmentation and effective deployment of banks’ resources including analytical and perspective studies of various sectors of the economy with a view to promoting national development;

3) to assist banking and financial institutions in matters such as designing measurement tests for employee selection, appraisal programmes, conducting morale and productivity studies, streamlining organizational structure and to review, from time to time, the impact of educational, training and research activities and offer suggestions for filling the gaps in the banking and financial systems;

4) to promote and undertake faculty development programmes to assure an adequate supply of competent trainers to institutions conducting training programmes for the personnel of banking and financial institutions;

c. Contributions collected from member banks:

RBI, SBI & other Public sector banks in capacity of promoters of the Institute contribute now annually an amount of Rs.100.00 lakh as subscriptions towards recurring expenses. The planned non-recurring expenses including the capital expenditure is also contributed based on the budget approved by the finance committee in their annual meeting.

The member banks contribute towards the recurring and non-recurring expenditure in the following proportion:

i) RBI 40% of – Rs.100 lakh and the budgeted expenditure;

ii) SBI 20% of – Rs.100 lakh and the budgeted expenditure;

iii) Other Public Sector Banks – 40% of 100 lakh and the budgeted expenditure in proportion to their deposits with RBI.

d. Source of income for NIBM

(i) Short term Training courses offered by NIBM to banks:

(ii) Consultancy related to specific needs of banks;

(iii) Research activities for banks

(iv) Post Graduate Diploma in Management (Banking and Financial Services) PGDM PGDM course offered by NIBM is recognised under AICTE & hence, exempt under GST. For all the other above revenue generating activities, GST is levied on the fees collected by NIBM

e. Question Raised

Whether amount paid as subscription or contribution towards recurring or capital expenses or reimbursement or by whatever name called to National Institute of Bank Management (NIBM); a society registered under Societies Registration Act, 1860 by its members (being Banks) for its recurring and non-recurring expenses is leviable to GST?

B) Provisions and Interpretation of Law

1. No “Consideration”

The term Consideration’ has been defined under Section 2 (31) of the GST Act as under:

“consideration” in relation to the supply of goods or services or both includes –

(a) any payment made or to be made, whether in money or otherwise, in respect of in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government:

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;”

From an analysis of the above definition of scope of the term “Supply”, it is essential that there has to be a supply of goods or services by a person and that too for a consideration.

As stated above in ‘facts of the case’, it is important to note that the members are required to contribute or subscribe not as per their will but as per the resolution passed by the Governing Board. The contribution by the members is regardless of any services offered by NIBM. As stated in point number 17 of the Object Clause of MoA, the said contribution is to meet the recurring and non-recurring expenses incurred or as deemed fit by the society. The unspent contribution of one year is treated as ‘income received in advance? and adjusted against the contribution of subsequent year. The contribution, therefore, cannot be said to be in the nature of consideration but it is more in the nature of aid / grant / subsidy received from the members to support functioning of the NIBM.

2. No “Business”

Section 2(17) of the GST Act defines Business as follows:

“business” includes

a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

b) any activity or transaction in connection with or incidental or ancillary to sub clause (a);

c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency; continuity or regularity of such transaction;

d) Supply or acquisition of goods including capital goods and services in connection with commencement or closure of business,

(e) provision by a club, association, society, or any such body (for a subscription or any
other consideration) of the facilities or benefits to its members;

D. admission, for a consideration, of persons to any premises;

g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club, and]

i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities,

With reference to the given definition, the applicant, who is registered under the Societies Registration Act, 1860 and can therefore be termed as a carrying on business if it provides facilities or benefits to its members for a subscription/ fees then that society is squarely covered under Section 2(17)(e) above.

In case of NIBM, no facilities are provided to the member banks against the subscription amount. The amount is collected for the recurring and non-recurring expenses of NIBM and thus no facilities are provided as such. As no facilities are provided by NIBM, there is no business and thus no furtherance of business, ultimately there is no supply:

3. No “Supply”

Section 7 of the GST Act defines the term “Supply” as under:

For the purposes of this Act, the expression “supply” includes —

a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,

b) import of services for a consideration whether or not in the course or furtherance of business;

c) the activities specified in Schedule 1, made or agreed to be made without a consideration, and

d) the activities to be treated as supply of goods or supply of services as referred to in Schedule. II.

Notwithstanding anything contained in sub-section (1),

a) activities or transactions specified in. Schedule III; of

b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.

Subject to the provisions of sub-sections (1) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

a) a supply of goods and not as a supply of services; or

b) a supply of services and not as a supply of goods.

Prusal of the above would reveal that there has to be a supply of goods or services for a consideration by a person in the course or furtherance of business to meet the definition of “supply”.

In ‘case of receipt of recurring and non-recurring contributions by NIBM from the member banks, there is no supply of goods or services neither there is any consideration nor business or furtherance of business thus the said receipts fall outside the scope of supply” and thus, shall not attract GST.

As a matter of fact, there is no direct nexus/linkage between the contribution received from members and services offered to them and thus, there is no supply as defined u’s 7 of the GST Act.

NIBM offers various services in the nature of training, coaching, research, consultancy to members for which separate fees are charged and the GST is levied on such services wherever specific exemption is not available under the GST law.

NIBM also relies on following decisions/circulars, wherein, it has been held/clarified that:

a) the amounts received as charitable donations out of free will and public /Government grants for activities of society are not related to services provided by Society. These are excludible from taxable value for charging service tax— Cultural Society of Angamally v. CCE (2008) 13 STT 277 (CESTAT);

b) Prima facie, there was no nexus between grants/donations from donors and medical professionals, who were provided training, thus it was held that in absence of such nexus, donations cannot be included in gross taxable value – Public Health Foundation of India vi Commissioner of Service-tax, Delhi

c) Donations and grants-in-aid received by charitable institution received from different sources for conducting training courses is not consideration received’ for coaching service provided — MF(DR) circular No. 127/9/2010 ST dated 16-8-2010.

Without prejudice to whatever stated in the foregoing, NIBM further contends that:

Even if assuming without conceding that the members, derive indirect benefit from the contribution paid by them, the contribution received from the member banks and the related activity conducted from the contribution would be covered under the Principle of Mutuality”: Often, there comes across certain situations where a group of people forms an association and pool in their surplus income in the association’s common fund. The fund so collected is then used for the benefit of the members when needed.

Hence, a question would arise whether the monies / contribution / subscription received from the members should be taxed, the answer would be in negative, as principle of mutuality would be applicable.

This doctrine rests on the principle that a person cannot make a profit from himself. An amount received from oneself is not regarded as income and is therefore not subject to tax. In short since there is no commercial element embedded in such transaction, they are exempted from being taxed. Even in circumstances where surplus money is raised than what is needed to be pursued for the common purpose it would simply mean an increase of the common fund and hence would neither be considered as income nor it would be taxable.

Principle of Mutuality is guided by the gospel that “No man can trade with himself; he cannot make, in what is its true sense or meaning, taxable profit by dealing with himself’. Mutuality principle offers a tax shelter, as long as its character of a mutual association is retained, with its income not tainted / derived by commerciality.

The ‘Principle of Mutuality’ has been held as a cogent ground for non-taxability of an activity across various taxes such as VAT, Sales Tax as well as Service Tax in several cases. The ‘Principle of Mutuality’ would, therefore, be applicable even in respect of applicability of Goods & Services Tax.

Principle of Mutuality was considered in CIT. v. Bankipur Club [1997] 92 Taxman 278 (SC). These principles are applicable and have been applied by the Calcutta High Court in Saturday Club Ltd. v. Asstt. CST [2005] IS’TT 64 (Cal.)) as concurred to in Dalhousie Institute v. Asstt. CST [2005] I STT 15 (Cal.))(EXHIBIT A-1 toA-3).2012 (26) S.T.R. 401 (Jhar.) In The High Court of Jharkhand At Ranchi, Prakash Tatia. CJ. & Aparesh Kumar Singh. J. Ranchi Club Ltd. v. Chief commr. of C. EX. & S.T., RANCHI ZONE [2012] 22 taxmann.com217/36 STT 64 (Mag.)

In case of NIBM, it is registered as a society under the Indian Society Registration Act (XXI) of 1860 wherein RBI, SBI & Other Public Sector Banks are the members. The contribution by the members is regardless of any services offered by NIBM. As stated in point number 17 of the Object Clause of MoA, the said contribution is to meet the recurring and non- recurring expenses incurred or as deemed fit by the society. The unspent contribution on one year is treated as ‘income received in advance and adjusted against the contribution of subsequent year. Thus, no profit accrues to NIBM in receipt of such contribution received from its members. There is no commercial element in the activities related to such contribution.

The essential conditions of the principle of mutuality are met in case of receipt of contributions by NIBM from the member banks towards recurring and non-recurring expenses as the members bank contributes the amounts under a mandate from the Memorandum of Association of the NIBM, the said contributions are utilized for activities of NIBM as per the terms mentioned in the MOA of NIBM and no profit is earned by the N1BM from such contributions.

Hence, NIBM contends that the activities undertaken from the receipt of the contributions from the member banks is squarely covered under the ‘Principle of Mutuality’ and thus, the receipt of the said contributions are not exigible to GST.

Points of Comparison between BCSBI and NIBM

Sr. No.

Point of comparison

Banking Codes

NIBM

Contribution by members.

Voluntary membership

Compulsion to contribute

Contribution
amount

Membership and subscription fees

Contribution towards recurring expense (fix, amount shared in defined ratio) and towards non- recurring and capital expenditure based on approved budget (after adjusting earlier year’s unspent amount)

Services received out of contribution collected

Developing, publishing and publicizing banking codes

No service

Benefit to members

Increased credibility of the banks, advertising, etc.

No benefit

Consideration for services offered

No separate consideration, annual membership fees are utilised for the same.

Separate fees are charged and GST is levied on the same.

Furtherance of business

advertising and publishing promotional literature in newspapers and are also organizing, teaching and training courses, conferences, seminars and lectures and also publishing journals, pamphlets, reports, books and booklets in this regard

No facilities are provided to members against the subscription amount, as the said amount is utilised for recurring and non- recurring expense. As there is no business, there is no furtherance of business.

Supply

– publishing and promotions