In re Choice Foundation (GST AAR Kerala)
Liability of GST of share in revenue from the Educational Institution as per Notification No. 11/2017- Central Tax (Rate) dated 28/06/2017 and S.R.O. 370/2017 dated 30/06/2017 and the exemption of GST of interest free refundable deposit as per Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017 and S.R.O. No. 371/2017 dated 30/06/2017.
AAR held that the liability of GST on the share in revenue from an educational institution depends on the nature of the transaction and the provisions of the CGST/KSGST Act. The ruling by GST AAR Kerala clarifies that the service provided by the applicant to the educational institution is subject to GST. However, the interest-free refundable deposit proposed by the applicant with CECPL is exempt from GST.
Question 4. Whether the applicant’s share in revenue from the educational institution would be liable to GST?
Ruling Yes, the service supplied by the applicant to the educational institution i.e., the joint venture is liable to Goods and Services Tax as per Notification No. 11/2017-Central Tax (Rate) dated 28/06/2017 and S.R.O 370/2017 dated 30/06/2017 of Government of Kerala.
Question 6. Whether the interest free refundable deposit proposed to be made by the applicant with Choice Estate and Constructions Private Ltd., (CECPL) would be liable to GST?
Ruling It constitutes a supply under the CGST/KSGST Act, 2017 but exempted from GST as per Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017and S. R. O. No. 371/2017 dated 30/06/2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KERALA
1. M/s. Choice Foundation (hereinafter referred to as the applicant) is a society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 possessing the expertise and experience in operating premier educational institutions in the State of Kerala.
2. At the outset, it is clarified that the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act) and the Kerala State Goods and Services Tax Act, 2017 (hereinafter referred to as KSGST Act) are same except for certain provisions. Accordingly, a reference made hereinafter to the provisions of the CGST Act, Rules and the notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued there under.
3. M/s. Choice Estates and Constructions Pvt. Ltd. (hereinafter referred to as “CECPL”) is a private limited company engaged in the business of construction, development and maintenance of infrastructure. CECPL is the owner of property consisting of land and building situated in Thiruvalla, Kerala, India (hereinafter referred to as the ‘Property’).
4. The applicant proposes to enter into a joint venture agreement with CECPL, with the intention to combine the individual expertise of the applicant and CECPL for the joint operation of an educational institution on the Property.
5. As per the proposed terms of the joint venture, each of the parties, i.e., the applicant and CECPL shall be individually responsible for areas within their expertise and shall be jointly responsible for the operation of the educational institution. The proposed terms of the joint venture are brief as follows:
5.1. The applicant shall be responsible for the academic operations of the educational institution and undertake the day-to-day administration and operation of the educational institution purely from an academic perspective.
5.2. CECPL would be responsible for the entire infrastructural requirements of the educational institution.
5.3. A four-member strategic committee consisting of equal representatives of the applicant and CECPL would be responsible for taking strategic and operative ? decisions pertaining to the running and operation of the educational institution. All decisions relating to the educational institution including the quantum of fees to be collected from the students of the educational institution shall be decided by the strategic committee.
5.4. The revenue generated from the operation of the educational institution shall be shared between the applicant and CECPL in a fixed ratio to be decided subsequently.
5.5. The applicant and CECPL shall open and maintain a joint bank account with any nationalized, bank or other banks as mutually agreed which shall be jointly operated by the authorized signatories of the applicant and CECPL.
5.6. All revenue accruing relating to the educational institution shall be deposited into the joint account maintained by the applicant and CECPL and shall be shared in the agreed revenue snare ratio.
5.7. The applicant and CECPL may draw revenue from the joint account on a monthly/quarterly basis for meeting their respective expenses incurred for carrying out their responsibilities towards the educational institution, subject to approval in writing by the strategic committee.
5.8. Drawings from the joint account shall be permitted only with the prior written approval of the strategic committee.
5.9. Considering that CECPL has made the entire initial investment towards the property and infrastructure of the educational institution proposed to be operated by the applicant and CECPL, the applicant shall towards such investment pay to CECPL an interest free refundable deposit of a mutually agreed fixed amount which shall be held by CECPL during the term of the proposed agreement. The said deposit shall be repayable by CECPL to the applicant upon expiry or termination of the proposed agreement, whichever is earlier.
5.10. The applicant and CECPL shall work towards the common objective of successfully operating the educational institution and in furtherance of mutual benefit and interest.
6. In light of the evolving provisions of GST, the applicant has certain queries regarding the implication of GST under the CGST Act, 2017 and Kerala SGST Act, 2017 on the joint venture arrangement proposed to be entered into with CECPL for the operation of an educational institution.
7. The applicant requested an advance ruling on the following:
1. Vis-a-viz the applicant, who would be the recipient of service in the proposed joint venture?
2. Vis-a-viz Choice Estates and Constructions Private Limited, who would be the recipient of service in the proposed joint venture?
3. Whether the amount which would be paid by the students to the educational institution proposed to be jointly operated by the applicant and Choice Estates and Constructions Pvt Ltd by way of the proposed joint venture would be liable to GST?
4. Whether the applicant’s share in revenue from the educational institution would be liable to GST?
5. Whether Choice Estates and Constructions Pvt Ltd.’s share in revenue from the educational institution would be liable to GST?
6. Whether the interest free refundable deposit proposed to be made by the applicant with Choice Estates and Constructions Private Ltd (CECPL) would be liable to GST?
8. Contentions of the Applicant:
8.1. Regarding questions 1 and 2, the applicant and CECPL propose to combine their individual areas of expertise in the form of a joint venture to jointly operate an educational institution in the Property for rendering of educational service. In the proposed transaction, the applicant and CECPL would be the service providers who jointly render education services to the students enrolled with the Educational institution jointly operated by the applicant and CECPL.
8.2. Section 2(93) of the CGST Act defines “recipient” of supply of goods or services or both as follows:
“Section 2(93) “recipient” of supply of goods or services or both, means, –
(a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
(b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
(c) Where no consideration is payable for the supply of a service, the person to whom the service is rendered and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.”
8.3. It may be understood from the emphasised portion of the above extracted definition of ‘recipient’ that in the case where consideration is payable for the supply of goods or services or both, the recipient of goods or services shall be the person who is liable to pay that consideration.
8.4. In the proposed transaction, the applicant and CECPL would jointly render services by operation of an educational institution in consideration for a fee payable by the students enrolled in such educational institution. Therefore, by virtue of the definition of ‘recipient’ as per Section 2(93) of the CGST Act, the applicant is of the understanding that the recipient of service vis-a-viz the applicant and vis-a-viz CECPL in the instant case would be the student who is liable to pay such fee.
8.5. Regarding question 3, the proposed transaction involves the applicant and CECPL jointly operating an educational institution by which they would jointly render education service to the service recipient, who in the instant scenario would be the student enrolled in the educational institution.
8.6. The service in question would be a service rendered by an educational institution to the students enrolled with it, which for the purpose of determining GST liability is covered under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The relevant portion of the said notification is extracted below:
