In re Andhra Pradesh Medical Service and Infrastructure Development Corporation (GST AAAR Andhra Pradesh)
Question: 1. Whether the procurement and distribution of drugs, medicines and other surgical equipment by APMSIDC on behalf of government without any value addition, and without any profit or loss, without even the intent to do business in the same amounts to Supply under Section 7 of CGST/SGST Act.
Answer: Affirmative.
Since the Appellant is providing ‘service’ receiving ‘consideration’ despite not satisfying the parameter of ‘in the course or furthering of the business’ amount to Supply under Section 7 of CGST/SGST Act. However, the benefit of Notification NO.12/2017-CT (Rate) Dtd.28.06.2017 is available to this supply.
Question: 2. Whether the establishment charges received from the State Government as per G.O.Rt 672 dated 20-5-1998 and G.O.Rt 1357 dated 19-10-2009 by APMSIDC is eligible for exemption as per Entry 3 or 3A of Notification NO.12/2017-CT (Rate) Dtd.28.06.2017?
Answer: Affirmative.
The establishment charges received from the State Government as per G.O.Rt 672 dated 20-5-1998 and G.O.Rt 1357 dated 19-10-2009 by APMSIDC are eligible for exemption as per Entry 3 of Notification NO.12/2017-CT (Rate) Dtd.28.06.2017
Read AAR Order: GST on procurement/distribution of drugs, Medicines & other surgical equipment on behalf of govt
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH
(Under Section 101 of the Central Goods and Service Tax Act and the Andhra Pradesh Goods and Service Tax Act).
At the outset, we would like to make it clear that the provisions of both the CGST Act and the APGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the APGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and APGST Act”] by M/s. Andhra Pradesh Medical Services and Infrastructure Development Corporation (herein after referred to as the “Appellant”) against the Advance Ruling No. AAR No. 10/AP/GST/2022 dated 30.05.2022 issued by Authority for Advance Ruling, Andhra Pradesh.
1. Background of the Case:
1) APMSIDC had preferred an Advance ruling on the following questions.-
a. Whether the procurement and distribution of drugs, medicines and other surgical equipment by APMSIDC on behalf of government without any value addition, and without any profit or loss, without even the intent to do any business amounts to supply under section 7 of CGST/SGST Act.
b. Whether the establishment charges received from State Government as per G.O.RT 672 dated 20-05-1998 and G.O RT 1357 dated 19-10-2009 by APMSIDC is eligible for exemption as per Entry 3 or3A of Notification 12/2017 Central Tax (rate)?
2) The AAR, Andhra Pradesh had pronounced a ruling that the transaction under question 1 is supply and that the establishment charges based on the reasoning that these are ancillary to the principal supply they are also included in the supply as held above. Thus, in effect the ruling on second question is predominantly depended on the rationale and ruling of question 1. It appears that the Advance ruling authority had not considered the facts of the case and the ruling was hance not just and fair.
3) Aggrieved by the same the present appeal is now being preferred before the Appellate authority for advance Ruling as following. It is also submitted herewith on record that the order for AAR was uploaded on the portal, whereby the technical process of appeal is enabled, only on 5th of September and hence the appeal is being preferred following that.
Aggrieved by the impugned order, the appellant has filed the present appeal on the following grounds.
2. Grounds of Appeal:
1) That the Advance ruling authority has not considered the facts exactly. The appellant is procuring the goods from various vendors, which is no doubt a supply. Proper tax has been affected by the vendors and full taxes have been paid. The refence made of the tender documents etc., are in this regard only. However, the question in the Advance ruling is not about the procurement made by APMSIDC, which are any way, no doubt a supply. The question is whether the distribution effected by APMSIDC as per the instructions of Government are amounting to supply.
2) Making reference to the tender conditions of procurements made by APMSIDC and concluding there from that the transaction under question is supply, amply makes it clear that the AAR is referring to a different transaction which is not at all questioned. Full GST had already been made on those procurement. Post such procurement APMSIDC distributes drugs and surgical equipment’s as per the instructions of the DHO (district Health officers) and other government officials.
3) Important point that needs to be considered as per the pleading of the appellant before AAR area. APMSIDC gives drugs to PHCs and Hospitals as per the instructions of the DHO. The indents are finalized by the DHO based on the need. No charges are made from PHCs or Hospitals as they are government entities themselves. Thus, based on the instruction of government officers, Drugs are given to Government Doctors on no-charge.
b. APMSIDC have no right to choose how much drugs shall be given, to whom to be given at what time etc.,
c. APMSIDC is at best acting as a courier agency, analogically. Hence if at all anything is held as supply, it can at best be the commission or charges of the courier but not the commodity as such. Drawing a parallel. APMSIDC is only distributing (not selling, transferring, exchanging or bartering, relinquishing). Even in the extreme case what can be held as supply is the establishment charges of APMSIDC but not value of commodity.
d. Hence none of the elements of business are present in that. Viz., there is no buyer or choice of buyer or determination of quantity or determination of value etc.,
e. Moreover, even if the transaction is held as supply, there will not be any revenue to government as the transactions have already suffered tax and there is no value addition. There will only be a procedure of filing of returns to show the same amounts as outward supplies and claim same as Input tax.
4) However, the AAR had not considered or discussed the above factors submitted by the appellant.
5) The emphasis is made on that clause of definition of business which states that (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or similar activity, whether or not it is for a pecuniary benefit; and it is held that there need not be any pecuniary benefit. But there shall be some activity in the form of trade, commerce, manufacture etc., which is missing in this transaction. Having procured the goods after having paid the full taxes, the internal distribution by one instrumentality of Stage (APMSIDC) to another Instrumentality (PHCs and Hospitals) without any charge from the recipients of goods is not having any of the characteristics of trade, commerce etc., In fact it is not even a commercial or financial transaction.
6) In response to the second question if the establishment charges are eligible for the exemption under item 3or 3A of Notification 12/2017 it was held that as the transaction is only ancillary to the principal supply it shall be treated as part and parcel of the first supply. Hence the reasoning is heavily dependent on the determination of the nature of transaction under first question. Besides that, if the concept of concept supply shall be applied there shall be one of more taxable supplies, which are naturally bundled in the ordinary course of business. The AAR had not discussed any of these ingredients and had concluded on the taxability without having regard to the fact that Primary health is one of the constitutional functions under 243G of constitution and is eligible for exemption.
3. Virtual Hearing
The proceedings of hearing were conducted through video conference on 04.11. 2022. The authorized representative Sri. Siva Prasad attended and reiterated the submissions already made.
4. Discussion and Findings:
We have gone through the submissions made by the appellant in light of the ruling pronounced by the Authority for Advance Ruling. On perusal of the elaborate submissions made by the appellant at the time of hearing and taking into consideration of the facts of the case, the issues to be decided are as follows:-
a. Whether the procurement and distribution of drugs, medicines and other surgical equipment by APMSIDC
– on behalf of government without any value addition
– without any profit or loss
– without even the intent to do any business
– amounts to supply under section 7 of CGST/SGST Act.
A careful reading of the question preferred by the Appellant brings to light that there are two transactions involved in the issue in question. The first transaction is the transaction of procurement by the Andhra Pradesh Medical Services and Infrastructure Development Corporation hereafter referred to as APMSIDC. In order to understand the procurement transaction of the APMSIDC, it is necessary to understand the activities of the APMSIDC.
The establishment and activities of the APMSIDC are as follows:-
> The Andhra Pradesh Health & Medical Housing & Infrastructure Development corporation (APHMHIDC), which was renamed as Andhra Pradesh Medical Services & Infrastructure Development Corporation is registered under Public Society Act 1350 in the year 1987 and established vide G O.Ms.No.309, HM&FW (F1) Dt.22.05.1987 under the administrative control of Health Medical and Family Welfare Department.
> The Government vide G.O.Rt.No.672, HM & FW (Ml) Dept., Dt.20 05.1998 has notified the APHMHIDC as a nodal agency for procurement of medicines and subsequently the Government vide G.O.Ms.No.78, HM & Fw (M2) Dept., Dt.24.02.2001 has entrusted the job of procurement of equipment to the Corporation. Further, the Government vide G.O.Ms.No.99, HN4&FW (112) Dept., 05.05.2010 have entrusted the sanitation services to APMSIDC with a request to select the implementing agencies for each District adopting an open and transparent tender process.
As per G.O.Rt 672 dated 20-5-1998 and G.O.Rt 1357 dated 19-10-2009, the acquisition and distribution of drugs was undertaken by the organization.
> As per G.O.Rt 672 dated 20-5-1998 and other procurement procedures issued by the government on 13-01-2016, the organization started procurement of equipment and distribution of the same to Hospitals and PHCs.
> The Corporation is functioning with No Profit and No Loss basis.
> No grants-in-aid are provided to the Corporation and it is sustaining on its own resources by way of collection of supervision charges on the works executed.
> The revenue is generated by collecting supervision charges at the rate of 7% on the cost of construction and Maintenance works and 2% on the cost of procurement and distribution of drugs, consumables and equipment for Hospitals.
The procedure for procurement is enunciated at para (6) of G.O.Rt 1357 dated 19-10-2009.As per the procedure mentioned in the above said order, the APMSIDC procures medicines by adopting e-procurement process using the common platform already established by the Government of Andhra Pradesh.
An excerpt of a sample tender issued by the APMSIDC for procurement of medicines is as follows:-
TENDER NO 129 (2021/22) PROCUREMENT OF SURGICAL CONSUMABLES
APMSIDC :: DRUGS WING.
Purchaser/Tender Inviting Authority – Managing Director, APMSIDC, Mangalagiri 522503, Guntur District, Andhra Pradesh
(Hereinafter referred to as Tender Inviting Authority unless the context otherwise requires), (page 5).
All bills/Invoices should be raised in duplicate and the bills should be drawn as Per GST Rules in the name of MD, APITSIDC, Mangalagiri, Andhra Pradesh. (Page 18)
On examination of all the facts and procedures detailed above, it can be concluded that the process of procurement by the APMSIDC is GST compliant where there is a purchaser, supplier and consideration and GST is discharged on the consideration.
The second transaction involved in the issue in question is the transaction of distribution of medicines by the APMSIDC. The issue to be now decided is whether the process of distribution of medicines undertaken by the APMSIDC falls within the scope and definition of supply or deemed supply under Schedule 1 of the APGST Act 2017.-
Section 7 of the APGST Act 2017
Scope of supply: (1) 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;
The term supply has been inclusively defined in the Act. The following parameters should be adopted to characterize any transaction to be a supply.-
