Q1. Whether Goods and Services Tax shall be leviable / chargeable on the transaction / agreement as per provisions of Central Goods and Service Tax Act, 2017.
. The amount received by the applicant from AICL is not in the nature of grant-in aid and is covered in the definition of “consideration” for the supply of goods or services under Section 2(31) of the CGST Act, 2017 in respect of the MoU dated 16.01.2017. Hence, they are liable to pay GST under Section 9(1) of the CGST Act, 2017.
Q2. If t he answer to above question is Yes, Whether the transaction can be exempted in whole or in parts, referring to specific provisions enumerated in exemption notification.
The said supply of goods or services are not exempted from the payment of GST under S. No. 1 or S. No. 76 of the Notification No. 12/2017 — Central Tax (Rate) dated 28.06.2017 and parallel notifications under SGST and IGST. Hence. the applicant is liable to pay GST on the supply of goods or services under the MOU dated 16.01.2017 entered by them with AICL.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, DELHI
Statement of Facts:
1. The Indian Institute of Corporate Affairs (“IICA”), the applicant, is a society registered under the Societies Registration Act, 1860. The applicant has the following registrations and exemptions available:
(i) An exemption under Section 10 (23C) (iv) and (v) of the Income Tax Act, 1961 for AY 2017-18 onwards.
(ii) Registration under Section 12A/12AA of the Income Tax Act, 1961 vide registration no. 12A/2009-10/i-1290/593 dated 19.08.2009.
2. The applicant is primarily engaged In:-
(i) Induction and in-service training to Indian Corporate Law Service (10.S) officers;
(ii) Capacity building and training programs in the field of competition law, –market–regulations, finance, corporate governance and public pollcies
(iii) Policy advisory functions, public outreach and stakeholder consultations through seminars, conferences and forums.
3. The applicant has the following network of schools and centres through which it executes the above stated functions:
(i) Indian Corporate Law Services Academy
(ii) School of Competition Law and Market Regulation
(iii) School of Corporate Governance & Public Policy
(iv) School of Finance
(v) School of Corporate Law
(vi) Centre for E-governance
(vii) Centre for Responsible Corporate Govern ante
(viii) Centre for Micro Small & Medium Enterprises
(ix) Centre for Business Innovation
(x) Centre for Institutional Partnerships & Corporate Communications
(xi) Knowledge Resource Centre
4. For the purposes of learning and development, providing metadata and implementation of projects in the field of corporate social responsibility, a body called National Foundation for Corporate Social Responsibility (NFCSR) was established at IICA in 2012 to be the apex national institution that aims to build an enabling environment for the corporate sector to work in partnership with the government, non-government and civil society organizations for effective contribution towards sustainable growth and development. It has been provided an initial corpus fund by the Ministry of Corporate Affairs, enabling India to take a leadership position in the area of CSR. The IICA has a specific mandate for the National Foundation on Corporate Social Responsibility (NFCSR) to be the CSR enabler, and to evolve as the apex national level Institution that can effectively enable and Inform the implementation of the CSR laws and parameters of the country. In order to fulfill this mandate, the NFCSR offers the following facilitation services:-
(i) Learning & Development (People) through CSR training services and BSE IICA CSR Index
(ii) Metadata on CSR (Information)
(iii) CSR Implementing Agency Hub (Partners)
(iv) Documentation, Assessment & Evaluation, Advocacy & Dissemination & Research (Projects & Implementation)
(v) Centre of Excellence for Sustainable Development (CESD)
5. The applicant has entered into Memorandum of Understanding (MoU) dated 16.01.2017 with the Agriculture Insurance Company of India Limited (“AICL”), wherein, MCL in order to discharge its corporate social responsibility (‘CSR’) for the financial year 2016-17, awarded an social welfare assignment on:
“Implementation of Integrated Village development programme – improving infrastructure facilities in SO villages In the states of Bihar, Jharkhand, Madhya Pradesh, Maharashtra and Uttar Pradesh as per the study done by the Applicant”
6. The sequence of facts and other relevant details are enumerated below:-
(a) The IICA had entered into Mot) with Ala on 03.08.2016 and conducted a comprehensive baseline and need assessment survey with regard to 50 villages in S states mentioned above and as a result, IICA submitted a detailed project report (DPR) to the MCL for the following broad activities to be executed towards discharge of its Corporate Social Responsibility (CSR) fu, the financial year 2016-17 through IICA, as:
(i) Installation, transportation, maintenance and upkeep of Solar Street lights.
(ii) Installation, transportation, maintenance and upkeep of Solar Water pumps.
(iii) Construction of household toilets as per government’s Swachh Bharat Gramin design, with comprehensive awareness building and training of community for use and maintenance of toilets.
(iv) Healthcare encompassing doctor’s consultancy and basic medicine supplies for 1 year.
(b) Consequently, AICL gave its consent for implementation as per the following details from the detailed project report:
(i) installation of solar water pumps – 122 in Nos;
(ii) Installation of solar lights -1230 in Nos;
(iii) Sanitation (construction of toilets) – 3670 In Nos.
7. The relevant extracts from the MOU is produced below:
(a) “SCOPE OF THE WORK”
(i) The project seeks to develop and improve village level facilities and infrastructure to make significant difference in quality of life of the rural area. The specific objectives of the project are:
a. Provision of drinking water facility in covered villages
b. To provide solar street lights in villages
c. To improve village sanitation by building household toilets and creating awareness
(ii) Proposed project components:
a. Provide one solar water lifting pump for a population of 1000 villagers
b. Installing need-based solar street lights in selected villages
c. Building household toilets and running community awareness camps for sanitation
(iii) Expected outcomes:
a. The project would bring improvement in lives of 1,26,327 rural population in 50 villages in 5 states of India.
(b) The duration of the MOU shall be 1 year which commence from the date of execution and shall expire on 15th January 2018 or until both the parties have fulfilled all its obligations and responsibilities under the MOU, whichever is later.
(c) The project amount of Rs. 20,35,76,800 shall be paid by AICL in four to five installments based on the timelines for the execution of the project. The total amount includes actual cost and additional compensation to RCA for management of the project.
Details of Questions on which Advance Ruling is requested:
8. Whether Goods and Services Tax shall be leviable / chargeable on the transaction / agreement as per provisions of Central Goods and Service Tax Act, 2017.
9. If t he answer to above question is Yes, Whether the transaction can be exempted in whole or in parts, referring to specific provisions enumerated in exemption notification.
Views of the Applicant:
10. The whole activity can be divided into two parts, viz. transaction between AICL and IICA (Part-A) and transaction between IICA and ultimate recipients or beneficiaries (part-B).
11. The amount given by AICL to IICA is in the nature of grant, whereby IICA upon receipt of grant will use the funds for any of the following three activities:
(i) Installation of solar water pumps;
(ii) installation of solar lights;
(iii) Sanitation (construction of toilets)
12. This activity only involves movement of money from MCI to IICA and money has been specifically been excluded from the definition of “Goods” under section 2(52) of the CGST Act, 2017. This movement of money cannot be construed as consideration as IICA is not making any supply to AICL in return as all the facilities/structures/benefits arising out of the above mentioned three activities would be used and owned by the beneficiaries and not by AICL.
13. The amount received by IICA is In the nature of grant as per pars 2 of the Circular No. 127/09/2010, which states that “Between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest.” In such a situation, service tax is not leviable, since the donation or grant-in-aid is not linked to specific trainee or training.
14. Similarly, in the arrangement between AICL and IICA, there is no relationship, other than universal humanitarian interest, between the amount given by AICL and the charitable work done by IICA, as IICA carries full authority and decision making powers to decide as to who would be the recipient of the above mentioned services.
15. The activity done by IICA for the ultimate beneficiaries is a social activity without any consideration, therefore this would not fall under the definition of “Supply” given in Section 7 of the CGST Act, 2017, and therefore, would not attract the provisions of GST Law.
16. However, if the transaction between AICL and IICA is treated as a supply from IICA to AICL as per the provisions of Section 9 of CGST Act, 2017, then the following questions would arise to determine its chargeability to GST provisions:
(i) Whether the supply is of goods or services or both.
(ii) Whether the supply is an exempt or taxable supply.
17. Regarding, whether the supply is of goods or services or both, the following activities of:
(i) Installation of solar water pumps;
(ii) Installation of solar lights;
(iii) Construction of toilets;
are works contract in relation to immovable property and as per clause 6(a) of Schedule II of the CGST Act, 2017, the said activity performed by IICA will fall under “supply of services.”
18. Regarding, whether it Is an exempt or taxable supply, these three activities of supply of services are covered in S. No. 1 and 76 of the Notification No. 12/2017 dated 28.06.2017.
19. The following activities of IICA, being an entity registered under Section 12AA of the Income Tax Act, 1961, would come under clause (i) (B) and (iv) of definition of charitable activities:
20. Therefore, the above mentioned activities are exempt under S. No. 1 of the Notification No. 12/2017 dated 28.06.2017.
21. Further, the following activity of IICA may be exempt under S. No. 76 of Notification No. 12/2017 dated 28.06.2017.
(i) Construction of toilets for public conveniences
22. Hence, the services provided by the applicant as part of the agreement / transaction referred above is not supply and hence not chargeable to GST. Even, if the transaction is a supply, then it is exempted under notification no. 12/2017 dated 28.06.2017.
23.. “Charitable activities” as defined in clause (r) to the notification no. 12/2017 Central Tax (Rate) dated 28.06.2017 Includes:
(i) public health by way of
(B) public awareness of preventive health, family planning or prevention of HIV infection;
(iv) Preservation of environment including watershed, forests and wildlife.
24. Preservation as defined in Black law dictionary:-
“Keeping safe from harm; avoiding injury, destruction, or decay. This term always presupposes o real or existing danger.”
25. Preservation as defined in Oxford dictionary:-
“The action of preserving something.”
26. Preservation as defined in Cambridge dictionary:-
“The act of keeping something the some or of preventing it from being damaged.”
27. Environment as defiled in Environment (Protection) Act, 1986:-
“Environment” Includes water, air and land and the inter-relationship which exists among and between water, air and land, and human beings, other living creatures, plants, micro-organism and property.
28. From the definitions of preservation and environment, any activity which maintains the environment (water, air and land) in the present state or prevents it from further damage or destruction can be called as an “activity relating to preservation of environment.”
29. The activities of installation of solar water pumps and solar street lights through use of LED technology.
I. Traditional use of fossil fuels such as coal, oil and natural gas to generate electricity requires burning of fossil fuels which emits a number of air pollutants that are harmful to environment and is major source of global warming. For instance, burning of coal emits sulphur-di-oxide, nitrogen oxides, mercury and other harmful gases.
II. Use of LED (Light Emitting Diode) used as lighting technology is superior to use of Compact Fluorescent Lamps (CFL) as it does not contain hazardous substances such as mercury as against CFL bulb and also emits significantly lower amount of Carbon dioxide (CO2) as compared to CFL bulb.
III. The use of solar energy to generate electricity is an effective way of preventing damage to environment against the harmful effects of burning fossil fuels as mentioned above.
IV. This can be evident from the programmes and schemes launched by Government of India and other State Governments to promote use of solar energy. For instance, Jawaharlal Nehru National Solar Mission was launched on June 30, 2008 by the Ministry of New & Renewable Energy, Government of India with an agenda to fight against issue of climate change. This mission envisages preservation of environment as one of the key benefits that shall arise from the promotion and use of solar energy to generate electricity.
V. Also Ministry of Environment and Forest, Government of India has included the use of solar energy in its initiative to promote use of “Green Technology” to preserve environment.
VI. Therefore, the activities of Installation of solar water pumps and solar street–lights are directly related to preservation of environment, as per the broad objectives of preservation of environment amongst other and should be exempted accordingly.
30. The construction of toilets for public conveniences:
The activity of construction of toilets for public conveniences is covered in S. No. 76 of Exemption notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 which provides exemption to:-
“Services by way of public conveniences such as provision of facilities of bathroom, washroom, lavoratories, urinal or toilets”
31. Also, this activity can be covered in the S. No. 1 of Notification No. 12/2017, Central Tax (Rate) dated 28.06.2017.
(i) As services provided by entity registered under Section 12AA of Income Tax Act, 1961 of charitable nature relating to public health by way of public awareness of preventive health, family planning or prevention of HIV infection. The activity of construction of toilets shall be succeeded by creating mass awareness on hygiene and health and therefore should be exempted to the extent of creating public awareness of preventive health.
(ii) As services provided by entity registered under Section 12AA of Income Tax Act, 1961 of charitable nature relating to preservation of environment Including watershed, forest and wildlife.
32. In order to substantiate the importance of toilets in preservation of environment, it is pertinent to realise how open defecation impacts the environment and measures required to deal with this menace. Open defecation in its general sense refers to the practice whereby people go out in fields, bushes, forests, open bodies of water, or other open spaces rather than using the toilet to defecate. The environment suffers as a result of open defecation because it introduces toxins and bacteria into the ecosystem in amounts that it cannot handle or break down at a time. Further, it is an important cause of water pollution and causes various waterborne diseases such as diarrhea, typhoid, cholera and hepatitis. In order to eradicate the problem of open defecation, Ministry of Drinking Water and Sanitation, Government of India under its flagship “Swatch Bharat Mission” has vowed to achieve a clean and open defecation free India by October, 2019
33. Op en defecation free is defined as per Ministry of Drinking Water and Sanitation, Government of India as:
“ODF is the termination of fecal-oral transmission, defined by:
(a) No visible feces found in the environment/villages; and
(b) Every house as well os public/ community institutions using safe technology option for disposal of “
34. Safe technology option means no contamination of surface soil, groundwater or surface water excreta inaccessible to flies or animals; no handling of fresh excreta; and freedom from odor and unsightly condition.
35. Construction of toilets (public and household) has been identified as one of the key actions by the Government of India to achieve the target of open free defecation in India. This can be established from various policy documents issued in this regard.
36. United Nations General Assembly while declaring 2008 as the International Year of Sanitation came out with study “Sanitiation protects the environment” in which it has highlighted the harmful consequences of open defecation on land, water and marine life and how use of toilets can prevent damage to environment.
37. Besides these, there are several studies that substantiate the role of toilets in discouraging open defecation and thereby preserving environment.
Relevant Provisions and Notifications:
38. Section 2(31) of the CGST Act, 2017 reads as follows:
“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;
39. Section 2(52) of the COST Act, 2017 reads as follows:
“goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, gross and things attached to or forming part of the land which are agreed to be severed before supply or under o contract of supply;
40. Section 2(102) of the COST Act, 2017 reads as follows:
“services” means anything other than goods, money and securities but Includes activities relating to the use of money or its conversion by cosh or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
41. Section 2(119) of the CGST Act, 2017 reads as follows:
‘works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property In goods (whether as goods or in some other form) is involved in the execution of such contract
42. Section 7 of the CGST Act, 2017 reads as follows:
(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;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, mode or agreed to be mode without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule U.
(2) Notwithstanding anything contained in sub-section (1),—
(a) activities or transactions specified in Schedule ill; or
(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.
(3) Subject to the provisions of sub-sections (2) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that ore to be treated as—
(a) o supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.
43. As per GST provisions, the chargeability is contained In Section 9 of the CGST Act, 2017 which reads as follows:
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intro-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(5) The government may, on the recommendations of the Council, by notification specify categories of services the tax on intro-State supplies of which shall be paid by the electronic commerce operator if such services ore supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where. on electronic commerce. operator does not have physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where on electronic commerce operator does not have a physical presence in the taxable territory and also he does not hove a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
44. The Circular No. 127/09/2010-ST dated 16.08.2010 regarding Service Tax on commercial training and coaching – clarification whether ‘donation’ is ‘consideration’, read as follows:
1. A representation has been received seeking clarification whether donations and grants-in-aid received from different sources by a charitable Foundation imparting free livelihood training to the poor and marginalized youth, will be treated as ‘consideration’ received for such training and subjected to service tax under ‘commercial training or coaching service’.
2. The matter has been examined. The important point here is regarding the presence or absence of a link between ‘consideration’ and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity con be established, the amount cannot be subjected to service tax. 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. Between the provider of donation/grant and the trainee there is no relationship other than universal humanitarian interest. In such a situation, service tax is not leviable, since the donation or grant-In aid is not linked to specific trainee or training.
Comments of the Jurisdictional Officer (CGST)
45. Activities of Installation of solar water pumps, solar lights and construction of toilets in the instant case are covered under charitable activities as M/s AICL would not be charging any consideration for uses of these facilities by rural people. So, the actual cost incurred by M/s AICL towards construction/ installation of public activities would be Nil rated supply as per Notification No. 12/2017 dated 28.06.2017 CGST (Rate). However, as per 1.3.1 (d) of the “statement of relevant facts from the transaction” submitted by applicant, it is dear that M/s IICA will be charging additional compensation towards management of the project. Hence, the supply in the form of management of the project by M/s IICA to M/s AICL Is not covered under charitable activities and hence, liable to GST.
46. The applicant is registered as a society under the Societies Registration Act, 1860. It is a Government Of India enterprise and is engaged in implementation of projects related to Corporate Social Responsibility (CSR). It has signed a Memorandum of Understanding (MoU) dated 16.01.2017 with Agriculture Insurance Company of India Limited (Ala) for implementation of “Integrated Village Development Programme” for Improving infrastructure facilities in SO villages in the States of Bihar, Jharkhand, Madhya Pradesh, Maharashtra and Uttar Pradesh. Under this MoU arrangement, the applicant Is required to provide Solar Street lights, Solar Water Pumps and construction of toilets in the selected villages. By implementing this social welfare project, the Ala wanted to discharge its Corporate Social Responsibility (CSR) for the financial year 2016.17.
47. The IICA had submitted a proposal to AICL on 04.07.2016, namely, ‘Developing a CSR road map and undertake CSR projects. Thereafter, a MoU was signed between the two on 03.08.2016 for conducting a comprehensive baseline and need assessment survey. Thereafter, the IICA had submitted a Detailed Project Report (DPR) to AICL.
48. As per the Detailed Project Report (DPR) submitted by the applicant IICA to M/s AICL, further study and secondary data analysis was conducted to identify 50 undeserved villages from the five states to take up following much-needed interventions in the selected village with an objective of making a measurable difference in the lives of people:
1. Providing better healthcare facilities to the village population by facilitating regular visits of doctors and providing basic healthcare facilities.
2. Improving access to drinking water by installing solar water pumps.
3. Providing solar street lights In villages which have inadequate or no street lights.
4. Improving village sanitation by building household toilets for poor people who have not been covered under the Swachh Bharat Abhiyan till date and are still resorting to open defecation.
49. Through the above interventions in SO selected villages, the programme envisages to serve 25053 households with a total population of 125927. The programme would provide a total of 1230 solar street lights, 122 solar water pumps and 3670 individual household units in the villages.
50. Village Development Committees would be constituted in each village and community will be adequately sensitized about the value of assets provided and their role in maintaining and upkeep of assets shall be ensured. Gram Panchayats would be made responsible, through written agreement, for maintenance and upkeep of all infrastructure and assets provided.
51. Efforts have been made to Identify and select designs and models of solar street light and solar water pumps which are latest state-of-the-art, high quality and long lasting. Household toilets would be built on government approved design and as far as possible local labour would be engaged.
52. There is an inbuilt maintenance provision designed at the execution level through joint efforts of service provider, community and implementing agency. Households would be trained for use and maintenance of toilets.
53. The Project envisages to meet the daunting challenge of infrastructure development In unserved and underserved villages. The improved facilities are likely to have, not only direct benefits, but also indirect spin offs and overall upliftment in the status of villages.
|intervention-wise parameters for providing Infrastructure facilities|
|Intervention||intervention outreach selection parameters|
|Solar water pump facility||One pump to be installed for a population of 1000 households.
Minimum one pump to be installed in each village where population is less than 1000.
No more than 10 solar pumps to be installed in one village.
|Solar Street Lights||Minimum 20 solar street lights to be installed in each village having population structure between 0-500 households.
30 solar street lights to be provided to villages having 500-1000 households.
40 solar street lights to be provided to all villages having more than 1000 households.
|Construction of Household Toilets||Villages having 0-500 households — cover at least 25% households or 100 toilets, whichever is lower.
Villages having 500-1000 households — cover 25% household or 330 toilets per village, whichever Is lower.
Installation of Solar Water Pump In Villages:
1. Improved, easy and quick access of safe water.
2. Availability of water throughout the day and night even in non electrified locations.
3. Environment-conservation by using solar-energy instead of electricity-for-the-water pump with boring.
Installation of Solar Street Lights:
55. lighting is the basic amenity which is needed by all. Most of the villages In India do not have adequate facilities for street lighting. Installation of solar street lights is proposed to improve safe navigation on village streets and conserving energy through solar lights. In each village 20-40 solar lights will be provided depending on their geographical area and population. A total of 1230 street lights are proposed to be installed.
1. Improved visibility at night which will reduce crime rate and improve navigation.
2. Environment conservation by using solar energy instead of electricity.
Sanitation Awareness and Construction of Household Toilets:
57. The intervention aims to build household toilet facilities and improve village and individual level of sanitation and hygiene and create a healthier dwelling for villagers. Beneficiaries will be poor and underprivileged households who have not been able to build sanitation facilities in their dwellings. Total 3760 beneficiaries would be covered under the project in all five states.
1. Eradicating the practice of open defecation.
2. Ensuring clean, healthier environment.
3. Sustainable behaviour change with provision of sanitary facilities in villages.
59. As per clause 2 of the Moll, the total cost of the above mentioned project is Rs. 20,35,76,800 which shall be borne by AICL
61. A person is liable to pay GST on its transactions which are falling within the “scope of supply” as prescribed in section 7 of CGST Act, 2017. It appears that the activities of the applicant under the MoU with AICL are covered In the abovementioned definition of “Supply” under Section 7 of the CGST Act, 2017. However, the applicant has claimed that the amount received by them from AICL is not in the nature of “consideration” and hence, their activities under the said MoU cannot be treated as “Supply” of goods or services.
63. GST is payable on supply of goods and services under Section 9 of the CGST Act, 2017 if such goods and services are not exempted from tax. Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 provides for exemption from tax in respect of certain supplies. An extract of this Notification relevant for the applicant case, is given below:
In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it Is necessary in the public Interest so to do, on the recommendations of the Council, hereby exempts the Intra-state supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub section (1) of section 9 of the said Act, as is In excess of the said tax calculated at the rate as specified In the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-
|SI. No.||Chapter, Section, Heading, Group or Service Code (Tariff)||Description of Services||Rate
|1.||Chapter 99||Services by an entity registered under section 12AA of the
Income Tax Act, 1961 (43 of 1961) by way of Charitable
|76||Heading 9994||Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets.||Nil||Nil|
64. The issues for decision In this case are:
(i) Whether the activities of the applicant can be considered as supply of goods or services and whether the applicant is liable to pay GST on the amount received by them from AICL if the said amount is treated as “consideration” towards “supply” of goods or services. Also, whether the amount received from Ala can be treated as grant-in-aid, which may be non-taxable.
(ii) Whether the said supply of goods or services by the applicant Is exempted under S. No. 1 or under S. No. 76 of the Notification No. 12/2017 — Central Tax (Rate) dated 28.06.2017.
65. The first Issue mentioned above is whether the amount paid by M/s AICL to the applicant is in the nature of consideration for supply of good or services or the same can be considered as grant-in-ald. The applicant has claimed that the amount received by them from Ala is not covered in the definition of “consideration” as per Section 2(31) of the CGST Act, 2017. The first argument of the applicant is that the payment of money by AICL to them cannot be called consideration as the applicant is not providing any services to M/s Ala but the agreed services are being supplied directly to the ultimate recipients / beneficiaries of the scheme. The applicant has claimed that the whole activity can be divided into two parts. The first part consist of payment of the money / amount by AICL to the applicant for which no services are provided by them to AICL. They have claimed that the said amount is In the nature of grant-in-aid, which Is non-taxable. The second part consist of services supplied by the applicant directly to the beneficiaries for which such beneficiaries make no payment I.e. applicant does not receive any consideration for the said services. Hence, in view of the applicant, none of the said two parts of the activity is subject to the payment of GST.
66. However, it is observed that under sub-section (a) of the Section 2(31) of the CGST Act, 2017, the consideration for the supply of goods or services may be paid by the recipient or by any other person. Hence, even if It assumed that services supplied by the applicant are not received by M/s AICL but are received by the beneficiaries, the amount paid by M/s AICL to the applicant Is still covered in the definition of “consideration” paid for the said supply of goods or services by the applicant and Is covered in the definition of supply given under Section 7(1) of the CGST Act, 2017. Hence, contention of the applicant that the whole activity can be split into two separate non-taxable transactions, is not correct.
67. The applicant has also mentioned that as per Service Tax Circular No. 127/09/2010 — ST dated 16.08.2010, the amount received by them from AICL should be considered as grants-in-aid and the same cannot be called “consideration” towards services supplied by them to the beneficiaries.
68. However, it is observed from the said circular that the main issue which has to be examined in such cases Is the presence or absence of a link between the consideration and the taxable service. In case, the amount paid and service provided have no link or nexus, the same would be treated as non-taxable grant-In-aid. However, if the amount paid and the service provided have a link or nexus, the said amount would be treated as consideration for the said services. In the present case, there is a direct lin k between the amount paid and the supply of taxable service of installation of solar pumps, solar street lights and construction of toilets. The MoU clearly provides that the amount of Rs. 20,35,76,800 is to be paid by AICL to the applicant for installation of specific numbers of solar pumps and solar street lights and for construction of specific numbers of toilets. Further, the MoU specifies the -details-of the beneficiaries-and guidelines-to-ensure that-such services-are-delivered to them. Hence, it is not a case where IACL has donated a lump sum to the applicant for carrying out activities which the applicant may be persuing. The amount paid in this case is linked to specific taxable activity.
Question No. 2:
69. The second issue for decision Is whether the said services supplied by the applicant are covered under S. No. 1 of Notification No. 12/2017 — Central Tax (Rate) dated 28.06.2017 under which services supplied by the entitles registered under Section 12AA of the Income Tax Act, 1961 are fully exempted from payment of CGST provided that the said services are by way of any charitable activity. Also, whether the said services are covered in S.No. 76 of the said notification under which “services by way of public convenience such as provision of facilities of bathrooms, washroom, lavatories, urinal or toilets” are exempted provided they are covered under Heading 9994 of Tariff.
70. It is also observed that the order of registration issued to the applicant under Section 12AA / 12A of the Income Tax Act, 1961, contain the following:
i. The applicant was constituted by deed of trust / memorandum of association / instrument dated 12.09.2008 indicating its charitable object.
ii. The Order under section 12A (a) read with Section 12AA (1) (b) does not confirm any right of exemption upon the applicant under Section 11, 12 and 13 of the Income Tax, 1961. Such exemption from taxation will be available only after the Assessing Officer is satisfied about the genuineness of the activities promised or claimed to be carried on in each financial year relevant to the assessment year and at the provision of law acted upon.
71. Similarly, in the order under Section 10 (23C) (iv) and (v) of the Income Tax, 1961 granting exemption to the applicant, it is mentioned that their primary objective Is to establish, manage, maintain and run a world class institute IICA. Further, It is specifically mentioned that the said approval shall not apply in relation to any income from any activity In the nature of trade, commerce or business or rendering of any service In relation to trade, commerce or business irrespective of the nature of use or application or retention of income from such activity.
72. Hence, the exemption under Section 12A / 12AA and Section 10 (23 C) (iv) and (v) of the Income Tax Act, 1961 does not cover all incomes or activities of the applicant. The exemption under said provisions are admissible based on the nature of activity and source of such incomes. In the present case, such income has not been received by the applicant for either any Charitable purpose of for running any Institute. Hence, exemption under CGST Act, 2017 on income is admissible only if the same is towards any charitable activity.
73. It is observed that vide clause (r) of para 2 of the said Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, the expression “charitable activities” has been defined as follows:
(r) charitable activities” means activities relating to —
(i) public health by way of,-
(A) care or counseling of
(I) terminally di persons or persons with tome physical or menial disability;
(II) persons afflicted with HIV or AIDS;
(III) persons addicted to o dependence-forming substance such as narcotics drugs or alcohol; or
(B) public awareness of preventive health, family planning or prevention of HIV Infection;
(ii) advancement of religion, spirituality or yoga;
(iii) advancement of educational programmes or skill development relating to,-
(A) abandoned, orphaned or homeless children;
(B) physically or mentally abused and traumatized persons;
(C) prisoners; or
(D) persons over the age of 65 years residing in a rural area;
(iv) preservation of environment including watershed, forests and wildlife;
74. The applicant has claimed that the services supplied by them are covered in Clause (I) (B) and (iv) of the above definition of charitable activities. Hence, the activity of installation of solar water pumps and installation of solar lights would be covered under S.No. 1 of Notification no. 12/2017 — Central Tax (Rate) dated 28.06.2017.
75. However, it is observed that Clause (i) (B) of definition of charitable activity covers:
“activities relating to public health by way of public awareness of preventive health, family planning or preservation of HIV infection.”
76. The activity of installation of solar water pumps and Installation of solar lights in villages for improving infrastructural facilities is not covered in the said clause.
77. Further, for the said services to be covered in clause (iv) of the above definition of charitable activities, these must be relating to the preservation of environment. However, in the present case, the purpose of said services is to provide infrastructural facilities in the villages to improve quality of life of the rural population. It has been observed that most of the villages lack basic amenities like education, health, sanitation, roads, civil infrastructure and facilities, availability of adequate electricity, potable water and other necessary facilities. The baseline survey conducted by AICL revealed and reported various development needs in villages and identified various need based interventions to uplift the status of those villages. The said purpose does not appear to be merely or primarily for the preservation of environment. Even if environment friendly technologies are used, the primary purpose is not protection of environment but is to provide infrastructure facilities in the target villages. Hence, the said services are not covered in the definition of charitable activities and impugned services I elide’ ed by the applicant are not covered under S. No. I. Of Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017.
78. The applicant has contended that the “construction of toilets” is covered In S. No. 76 of the said Notification. However, under S. No. 76 of the said Notification, only those service which fall under heading 9994 and which are by way of public conveniences such as provision of facilities of bathroom, washroom, lavoratories, urinal or toilets are covered.
79. The said S.No. 76 of the notification covers only such services, which are covered in Service Code heading 9994, which reads as follows:
|629||9994||Sewage and waste collection, treatment and disposal and other environment protection services.|
80. Hence, in cases where the service provider is permitting use of toilet facility for a consideration from the user, the same may be possibly exempted from payment of CGST under the said exemption notification.
81. However, construction of toilets is not covered under Service Code heading 9994 or in the Service description given In S. No. 76 of the said Notification No. 12/2017 — Central Tax (Rate) dated 28.06.2017.
82. The amount received by the applicant from AICL is not in the nature of grant-in aid and is covered in the definition of “consideration” for the supply of goods or services under Section 2(31) of the CGST Act, 2017 in respect of the MoU dated 16.01.2017. Hence, they are liable to pay GST under Section 9(1) of the CGST Act, 2017.
83. The said supply of goods or services are not exempted from the payment of GST under S. No. 1 or S. No. 76 of the Notification No. 12/2017 — Central Tax (Rate) dated 28.06.2017 and parallel notifications under SGST and IGST. Hence. the applicant is liable to pay GST on the supply of goods or services under the MOU dated 16.01.2017 entered by them with AICL.