In re Tamil Nadu Textbook and Educational Services Corporation (GST AAR Tamilnadu)
1 & 2 Whether the supply of educational aids to students such as school bags, footwear, geometry box, wooden colour pencils, crayons, woollen sweater to government and government aided schools based on the State Government educational policy for which the consideration is paid to Tami Nadu Text Book and Educational Services Corporation by the State Government by means of a budgetary allocation constitutes a supply. If the answer to the above is in the affirmative then is Tamil Nadu Text Book and Educational Services Corporation is entitled to avail of corresponding input tax Credit on the procurement made.
The above activities of the applicant constitutes a supply; but exempt with effect from 13.10.2017, vide entry Sl.No.150 in the Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended by Notification No. 35/2017-C.T. (Rate) dated 13th October 2017 and therefore the applicant is not entitled to claim credit of tax paid on the related purchases of goods and services.
3 & 4. Whether the supply of Rain Coats, Ankle Boots and Socks to students without consideration to Government/Government Aided schools located in Hilly areas is a supply. If the answer to the above is in the affirmative then is Tamil Nadu Text Book and Educational Services Corporation is entitled to discharge its tax liability on such outward supplies at Cost +10% and avail of corresponding Input Tat Credit on the procurement made.
The above activities of the applicant constitutes a supply; but exempt with effect from 13.10.2017, vide entry SI.No.150 in the Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended by Notification No. 35/2017-C.T. (Rate) dated 13th October 2017 and therefore the applicant is not entitled to claim credit of tax paid on the related purchases of goods and services.
5.Whether Tamil Nadu Text Book and Educational Services Corporation is eligible for exemption from payment of GST in respect of services it receive from printers engaged by them for printing of text books?
Not answered for the reasons at Para 11 above
6.Whether the Tamil Nadu Text Book and Educational Services Corporation is required to pay GST on Penalty and Liquidated damages levied by them on suppliers due to violation of the contract terms for supply and if so the rate at which such GST is payable.
Not answered for the reasons at Para 12 above
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TAMILNADU
Note: Any appeal against the advance ruling order shall be filed before the Tamil Nadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
M/s. Tamil Nadu Textbook and Educational Services Corporation (hereinafter called as ‘Textbook Corporation’ or the Applicant) is a society registered under the provisions of the Societies Registration Act 1860 set out by the Government with the object to acquire and take over the business and other activities of Government of Tamil Nadu relating to Publication of text books and to promote the advancement of General and Technical Education. They are registered under GST Act with Registration No. 33AAATT0438P1ZA. They have sought ruling for the following questions:
1) Whether the supply of educational aids to students such as school bags, footwear, geometry box, wooden colour pencils, crayons, woollen sweater to government and government aided schools based on the State Government educational policy for which the consideration is paid to Tami Nadu Text Book and Educational Services Corporation by the State Government by means of a budgetary allocation constitutes a supply.
2) If the answer to the above is in the affirmative then is Tamil Nadu Text Book and Educational Services Corporation is entitled to avail of corresponding input tax Credit on the procurement made.
3) Whether the supply of Rain Coats, Ankle Boots and Socks to students without consideration to Government/Government Aided schools located in Hilly areas is a supply.
4) If the answer to the above is in the affirmative then is Tamil Nadu Text Book and Educational Services Corporation is entitled to discharge its tax liability on such outward supplies at Cost +10% and avail of corresponding Input Tat Credit on the procurement made.
5) Whether Tamil Nadu Text Book and Educational Services Corporation is eligible for exemption from payment of GST in respect of services it receive from printers engaged by them for printing of text books.
6) Whether the Tamil Nadu Text Book and Educational Services Corporation is required to pay GST on Penalty and Liquidated damages levied by them on suppliers due to violation of the contract terms for supply and if so the rate at which such GST is payable.
The applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST rules 2017 and TNGST Rules 2017.
2.1 The applicant has stated that the entire affairs of the Applicant is controlled by the Government of Tamil Nadu and therefore they are a government entity as defined in the explanation to notification 12/2017-Central Tax (Rate) dated 28th June 2017 as amended by Notification No. 31/2017- Central Tax (Rate)dated 13th October 2017. They have been entrusted with the responsibility by the Government for printing and distributing textbooks to students studying in government schools and government-aided schools, besides selling textbooks at a price fixed by the government to self-financing private schools. They are also entrusted with the responsibility of handling the procurement and distribution of free kits such as school bags, footwear, geometry box, wooden colour pencils, crayons and woollen sweater to government and government aided schools only based on the instructions from the Education Department, Government of Tamil Nadu. Apart from this they procure raincoat, ankle boots and socks for distribution to government and government aided schools in hilly areas based on the instructions received from the Education Department, Government of Tamil Nadu as a part of the State Government’s Education policy and the relevant extracts are produced below.
2.2 The Applicant has submitted that they procure school bags, footwear, and geometry box, wooden colour pencil, crayons, woollen sweater (collectively termed as Educational Kits) which is supplied to Government and Government aided schools based on the requirements which are provided by the Education Department, Government of Tamil Nadu. Based on the tender floated for procurement of the Educational kits from various suppliers they submit a claim to he Education Department of the State Government for allocating monies for the cost of Procurement of the Educational kits. In the claim so submitted apart from the cost of procurement of the Educational kits the Applicant also claims incidental expenses towards Procurement such as advertisement cost for floating tenders, field inspection Expenses and other related costs and administration charge which is at 1% of the Cost of procurement of the supplies. These claims made by them are scrutinized by the officials of the Education Department of the Government of Tamil Nadu, who after such scrutiny recommend the payment to be made to the applicant from the budgetary allocation made to the Education Department of the State Government in the State Budget and any amendments thereof which are placed before the State Assembly. After making the deduction towards administration charges from the total claim made by the Applicant, the monies are received directly into their nominated Bank Account from the state treasury. They do not avail of any Input Tax Credit on such supplies of school bags, footwear, geometry box, wooden colour pencils, crayons, woollen sweater which they receive from various Suppliers. The Applicant has submitted that by virtue of entry made in Serial No 150 in the Notification 2/2017 – Central Tax (Rate) dated 28th June 2017 and the corresponding notification under the Tamil Nadu state Goods and services Tax Ac as amended by Notification No. 35/2017 – Central Tax (Rate) dated 13th October 2017 the supply is Exempt.
2.3 The Applicant has submitted that they procure raincoats, boots and socks based on the requirement as provided by the Education Department, Government of Tamil Nadu and provide these items to the Government schools located in Hilly areas. There is no amount which is reimbursed or paid for such supplies either by the State Government or by the schools to the Applicant. They do not avail of Input Tax Credit on the Procurement of raincoat/boots and socks from various suppliers. They have submitted that as per Section 7 of the Central Goods and Services Tax Act 2017 and its corresponding provision under the Tamil Nadu goods and Services Tax Act to constitute a supply there has to be consideration. They have stated that for the supply of raincoats / boots and socks as there is no consideration paid, it cannot constitute a supply under Section 7. However, the provisions of Section 7(1) (c) of the Central Goods and Services Tax Act 2017 and its corresponding provision under the Tamil Nadu Goods and Services Tax Act treats certain activities specified in Schedule I made or agreed to made without a consideration as Supply. They have further stated that they are not availing any input tax credit on such supplies and the entry in Item No. 1 of Schedule I is attracted only in respect of supplies on which Input Tax Credit has been claimed. As the Applicant is not availing Input Tax Credit, they claim that supply of such goods which are made by them without consideration cannot fall under the entry in Item 1 of Schedule I of the Central Goods and Services Tax Act 2017 and its corresponding schedule under the Tamil Nadu Goods and Services Tax Act 2017. The Applicant has stated that the definition of “related party” is provided as an explanation in Section 15 of the CGST Act. They have further stated that as a case can be made out that as the Applicant and the State Government are related parties, supplies made without consideration can attract the entry made in item No. 2 of Schedule – I of Central Goods and Services Tax Act 2017 and its corresponding provision under the Tamil Nadu Goods and Services Tax Act 2017. They are of the view that the transactions covered under the entry made in item No. 2 of Schedule I of the CGST Act was made as an anti-avoidance measure. The entry was only made to ensure that the tax authorities are not denied GST Revenue in what may be a potentially less than arm’s length transaction between related parties. In the instant case the supply of the goods to the Government is only for achieving the means of improving literacy levels by encouraging children in the hilly areas to go to schools which is a social welfare measure and there is no commercial motive in the aforesaid supply to apply/attract invoking of the entry made in Item 2 of Schedule I of the CGST Act in the instant case. The Applicant has further submitted that when the object of the exemption notification vide entry No. 150 of Notification – 2/2017 was to exempt all supplies of goods made to the state Government where there is a consideration received, it is but only logical that the supply of Goods without consideration should also be put in the Same platform and get covered as such supplies are to the State Government and the value of the grant from the State Government is a sum equivalent to zero and hence the supplies are to be treated as an exempted supply. In case the above submissions do not find favour then the Applicant has submitted that they are entitled to avail Input Tax Credit for the Procurement of Raincoats/boots and socks and discharge the output tax liability on the basis of one hundred and ten percent of the Actual Cost of the acquisition of the Goods in accordance with Rule 30 of the Central Goods and Services Tax Rules and its corresponding rule under the State Goods and Services Tax.
2.4 The Applicant has stated that they engage printers for printing of text books on job work basis. The printer is provided the paper/board together with the contents by them and the printer carries out the job work of printing the contents by using ink/kraft paper and adhesive material and deliver the printed material to them. The material content in the amount paid to the printer is less than 25% of the value of the composite supply and a copy of a specimen e- purchase order issued in favour of one of the printers engaged by the Applicant is enclosed. Further, CBIC issued a circular no. 11/11/2017-GST dated 20th October, 2017 which clarified that:
Supply of books, pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name, address or other contents supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply.
They seek a clarification whether they are entitled for exemption of payment of GST by virtue of the entry made in Notification 12/2017 – Central Tax (Rate) dated 28th June 2017 as amended by Notification 2/2018 – Central Tax (Rate) dated 25th January 2018 and the corresponding notification under the Tami Nadu Goods and Services Tax which reads as under :
Composite supply of goods and services in which the value of supply of goods constitutes not more than 25% of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity 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.
Provision of education including primary and secondary schools is covered under Article 243G and the above activity of printing is in relation to education and hence should be considered as exempt.
2.5 The Applicant has stated that they being the nodal agency involved in the procurement also levies penalties and liquidated damages on the suppliers for failure to adhere to the tender Conditions which is on account of delay in supply as per the tender condition or non-Adherence to the quality parameters as set out for the items which are supplied.; mere levy of Penalty/Liquidated Damages cannot constitute a supply.; to attract the provisions of Section 7 of the Central Goods and Service Tax Act and its corresponding provision under Tamil Nadu Goods and Services Tax Act and to attract entry no. 5(e) of Schedule II there has to be an Obligation and there has to be an agreement to either:
