Kautilya in his treatise on statecraft named ‘Arthasasthra’ recommends that the king shall protect places of worship. Such protection, perhaps might be, because religious institutions are extremely useful in providing a forum for exchanging the righteous values through various means like Satsangs, publication of books and discourses. These would result in the society becoming good with the best values. There will be overall improvement of conduct and character of persons. This has been proved over the decades. Religion is a sense of comfort and solace to the persons during times of personal and social crisis. Persons look towards religious institutions for solace, whenever they face problems. Arthasasthra also says that Temple and Gurukul lands shall be exempt from taxes, fines and penalties.
The US Supreme Court, in a majority opinion written by Chief Justice Warren E. Burger in Walz v. Tax Commission of the City of New York, decided May 4, 1970, stated: “The exemption creates only a minimal and remote involvement between church and state, and far less than taxation of churches. It restricts the fiscal relationship between church and state, and tends to complement and reinforce the desired separation insulating each from the other.” By taxing churches, the government would be empowered to penalize or shut them down, if they default on their payments. The US Supreme Court confirmed this in McCulloch v. Maryland (1819) when it stated:
“the power to tax involves the power to destroy.”
Levy of tax would cripple the functioning of these institutions and eventually it results in lowering their activities of charity. They earn from society and spend on society
by establishing hospitals, educational institutions, choultries for annadaanam, orphanages etc.
Let me now discuss the liability to pay tax by the religious institutions in the present GST scenario in the country. Section 9 (1) of the CGST Act, 2017 provides for levy of a tax called the central goods and services tax on all intra-State supplies of goods or services or both………. (SGST Act and IGST Act have also similar provisions). Section 2 (83) defines ‘outward supply’ in relation to a taxable person to mean supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business. Scope of ‘Supply’ in Section 7 (1) (a) includes all forms of supply of goods or services or both…. in the course or furtherance of business. All these provisions would mean that supplies which are made, not in the course or furtherance of business are not ‘supplies’ for levying tax under the GST law. Section 2 (17) defines ‘business’. Inter alia it says:
(a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;”
Similar definition existed in the Andhra Pradesh General Sales Tax Act, 1957 (for short APGST Act). It read as follows:-
“Sec.2 (1)(bbb)(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues there from.”
When tax was levied on the sale of goods made by Srisaila Bhramaramba Mallikarjuna Devasthanam, A.P. under the APGST Act, the Honourable AP High Court (73 STC 321) held thus:
“If the dominant activity of an institution, like religious or charitable institution, is not of business activity, but if the secondary activity has the elements of commerce or trading activity, then in order to claim exemption from tax, it must be established that it forms the integral part of the main activity. It is clear that the main object of the assessee-Devasthanam is neither commercial nor trading in nature. The revision petitions of Government are dismissed”
Further in the case of Commissioner of Sales Tax v. Sai Publication Fund (2002—126 STC 288), the Hon’ble Supreme Court held as follows:-
“We have stated above that the main and dominant activity of the Trust in furtherance of its object is to spread message. Hence, such activity does not amount to “business”. Since the sole object of the trust was to spread the message of Saibaba of Shiridi and the books, literature, etc., containing the message of Saibaba were distributed by the trust to devotees at cost price, the primary object of the trust was to spread the message of Saibaba and its main activity did not amount to “business”. The activity of publishing and selling books and literature was incidental or ancillary to the main activity of spreading the message of Saibaba and not any business as such. The trust was not established with an intention of carrying on business of selling or supplying goods. The trust did not carry on the business of selling and supplying goods so as to fall within the meaning of “dealer” under section 2(11).”
Long back in the case of Tirumala Tirupati Devasthanams v. State of Madras  29 STC266, the Honourable Madras High Court held “Their object is something very different from doing business.”
In this background, we have to understand the status of religious institutions in GST law. Charging Section 9(1) in the CGST Act, 1957 mandates that tax shall be paid by the ‘taxable person’, who is defined as follows:-
“Section 2 (107)-‘Taxable person’ means a person who is registered or liable to be registered under Section 22 or Section 24”.
Section 22 mandates that every supplier shall be liable to be registered under the Act in the State or Union Territory, if his aggregate turnover in a financial year exceeds twenty lakh rupees (for special category States, the limit is ten lakh rupees). Section 24 provides for compulsory registration in the specified circumstances, without reference to the said threshold limit. ‘Supplier’ is defined as follows:-
“Section 2 (105): “Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;”
“7(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, 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.
(2) Notwithstanding anything contained in sub-section (1),––
(a) Activities or transactions specified in Schedule III; 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 (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.”
What we could gather from the above provisions is that supply of taxable goods or services by a supplier, who is a taxable person shall be taxable under the GST Act, if such supply is in the course or furtherance of business. On the other hand if such supply is not in the course or furtherance of business, then no tax shall be payable, for want of taxable person and taxable supply. In tune with these provisions, it has to be judged whether religious institutions have been making supplies in the course or furtherance of business.
Religious institutions provide amenities and facilities to the visiting pilgrims, which include Darsan, prayer facilities, accommodation, food etc. Some of the institutions also supply photos, DVDs, calendars, books, prasadams etc., to pilgrims at affordable prices. Availment of such benefits is part of pilgrimage. In the context of providing these facilities and amenities to pilgrims, we have to examine the fundamental activity of the institution. It is naturally not a business activity as held in the above decisions. Providing rooms and other facilities are not in the course or furtherance of business, as these institutions do not conduct any business at all. All these facilities provided very much form integral part of the main activity, which is neither business nor commercial and have functional integrality. All facilities are made as part of pilgrimage by collecting some charges. There is no objective to earn income. All are subsidised only. Very fact of feeding thousands of pilgrims at religious places freely, shows the great charitable activity of the religious institutions. Income generated by them is used for the good of the society like running educational institutions, hospitals etc. Giving rooms on rent is a ‘religious activity’, because pilgrims do not stay in the rooms for amusement or entertainment or tourism purpose. No facilities like TV, telephone, room service, attendant etc., are available in the rooms given on rent by the religious institutions. They cannot be considered as hotels or inns or guest houses.
On the other hand such levy would amount to taxing the sentiments of millions of pilgrims visiting the religious shrines. The stay of devotees at the religious places is a part of the age-old religious practice and considered as sacred by the pilgrims. Hinduism or Sanatana Dharma has a strong and ancient tradition of pilgrimage ie.,tirdhayatra. Pilgrimage is a sacred quest. It transforms persons. In the case of Hindu religious institutions, the facilities provided are in tune with the relevant Endowments Act and they are not supplies of services or goods or both. A distinction needs to be made. Accommodation provided by the religious institution is not on par with the activity of a hotel. Unlike in a hotel, pilgrim has to compulsorily vacate the room say after 24 hours, to provide facility to the waiting pilgrims. It is recognised that the practice of religion is an essential part of the religious freedom and the religious institutions are duty bound to manage the religious affairs by making necessary arrangements by providing basic amenities and conveniences to the thousands of pilgrims visiting the shrines daily. In a way such levy of GST would amount to taxing the practice of religion itself. Hence the religious institutions of all religions are outside the purview of GST law, in my view, as their fundamental activity is not business.
There is one more issue for further discussion. In some quarters it has been argued that no exemption has been provided from the payment of tax in the GST law. One should draw a line between goods / services which are taxable but are exempt by a Notification and goods / services, which are not at all liable to tax for any reason. Similarly there would be a taxable person, but still he may be exempt by a Notification. There are also persons, who have secondary/subsidiary activity, resembling business, with the fundamental or primary activity, which is not business. All such persons, as held by the Judiciary cannot be said to have been indulged in doing business and accordingly they are not taxable persons. When a person is not a taxable person, the question of exempting him from payment of tax does not arise at all. In the absence of liability to pay tax, being a non-taxable person, there is no need to grant any exemption from payment of tax by the Government. Unfortunately, authorities have been missing this point.
For example, hospitals and educational institutions are not engaged in any business activity. Exempting them from payment of tax would be superfluous. If they are statutorily deemed to have been engaged in business by a definition or otherwise, it would be a different case.
In the case of The State of Bombay v. Ahmedabad Education Society (7 STC 497), the Hon’ble Bombay High Court held as follows:
“The activity which the person must indulge in is not merely the activity of selling in the sense of transferring property in goods, but it must be the activity of carrying on the business of selling or supplying goods. What the Legislature has emphasised is not the act or activity of selling but the act or activity of carrying on the business.”
In the case of University of Delhi and Another v. Ram Nath and Others (AIR 1963 SC 1873), the Hon’ble Supreme Court held as follows:-
“Prima facie, to speak of this educational process in terms of being a “business” equally sounds incongruous……Education in its true aspect is more a mission and a vocation rather than a profession or trade or business, however wide may be the connotation of the two latter words under the Act.”
In the case of The Indian Institute of Technology, Kanpur v. State of UP (38STC 428), the Allahabad High Court held as follows:
“Accordingly, it cannot be said that the petitioner’s principal activity is doing business in a commercial way of buying and selling foodstuffs. On the other hand, it is apparent that the principal activity of the petitioner is predominantly academic and the supply of foodstuffs in the manner stated above is minor, subsidiary and incidental to the principal activity and is an integral part of its academic activity.Consequently, the petitioner cannot be dubbed as a “dealer” within the meaning of section 2(c) of the U.P. Sales Tax Act. The Sales Tax Officer had accordingly no jurisdiction to initiate proceedings for levy of sales tax on the petitioner.”
Similarly in the said Sai Publication Fund case, the Honourable Supreme Court held as follows:-
“On the facts and in the circumstances of the present case irrespective of the profit-motive, it could not be said that the Trust either was “dealer” or was carrying on trade, commerce, etc. The Trust is not carrying on trade, commerce, etc., in the sense of occupation to be a “dealer” as its main object is to spread message of Saibaba of Shridi as already noticed above.”
It shall be pertinent to state here that the Ministry of Finance, Government of India in its press release dated 13-7-2017 clarified as follows in the context of payment of tax on reverse charge basis when a taxable person purchases old gold from an individual. The following is the extract:-
“Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se.”
In my view, this clarification holds good even in respect of religious institutions. When the Honourable Supreme Court and Andhra Pradesh High Court have already held that a religious institution is not engaged in the activity of business, it cannot be said that giving rooms on rent or supplying photos and calendars by the religious institutions is in the course or furtherance of business. In tune with the above clarification, it must be held that supplies of goods or services by a religious institution cannot be said to be in the course or furtherance of business and hence do not quadify to be a supply per se.
Article 27 of the Constitution of India is to the following effect:
“27. Freedom as to payment of taxes for promotion of any particular religion. No person shall be compelled to pay any taxes, the proceeds of which are specifically appropriated in payment of expenses for the promotion or maintenance of any particular religion or religious denomination.”
This Article would say that the State should not spend the public money collected by way of tax for the promotion or maintenance of any particular religion. In such scenario, religious institutions should have freedom to earn and spend for the benefit of pilgrims and devotees. It may not be correct to tax the pilgrims and make an earning on their religious sentiments.
I have to mention in this context that Service Tax has been levied by the authorities under the Finance Act, 1994 under the ‘short-term accommodation services’ on Tirumala Tirupati Devasthanams (hereinafter referred to as TTD)under the following clause:
“65 (105) (zzzzw). To any person by a hotel, inn, guest house, club or camp-site, by whatever name called, for providing of accommodation for a continuous period of less than three months.”
TTD questioned such levy before the Honourable High Court of A.P. In its judgment in WP No.1500 of 2012 dated 24-1-2012 (2013 – 30 taxmann.com 343 – Andhra Pradesh), the Court has dismissed the petition by observing as follows:-
“6. We have seen the Finance Act also and in clause 65(105) thereof, the Parliament has inserted sub-clause (zzzzw), which deals with the applicability of service tax to the following category of persons.
7. There is no doubt that the petitioner is running guest houses by whatever name they are called whether it is a shelter for pilgrims or any other name. There is no dispute that it has been running these guest houses for a considerable time. Under these circumstances, the petitioner is liable to have itself registered for payment of service tax. We find no error in the view taken by the respondents in this regard.”
It could be seen from this decision that there is no discussion at all on whether TTD has been doing any business. There is no reference to the earlier decision in Srisaila Devasthanam case. I understand that the matter is now pending before the Honourable Supreme Court in an appeal filed by TTD. In any case, I am of the view that the liability to pay tax under GST law has to be decided in terms of the provisions contained in the C/SGST Acts.
In conclusion it must be said that a religious institution, per se, is not doing any business and hence it need not be exempt through a specific notification. Even in the absence of such exemption notification, as held in the said decisions, a religious institution is not engaged in the activity of business, that it is not a supplier, that it is not making any supply of goods and services and accordingly it is not a taxable person for the purposes of GST law.
(EXTRACTS FROM THE ABOVE JUDGMENTS)
ANNEXURE – 1.
Extract from the decision of AP High Court in the case of State of Andhra Pradesh v. Bhramaramba Mallikarjuna Swamy Devasthanam, Srisailam (73 STC 321).
“On the above conspectus, the principles that could be deduced are:
(a) If the main activity of a juristic person is business or commercial in nature, and in case the subsidiary activity which may not form the integral part of the main but nevertheless, such activity, different in nature, has the indicia of business or commerce, then that activity by itself would constitute a distinct business within the meaning of section 2(bbb) of the Act and would attract sales tax.
(b) If the dominant activity of an institution, like religious or charitable institution, is not of business activity, but if the secondary activity has the elements of commerce or trading activity, then in order to claim exemption from tax, it must be established that it forms the integral part of the main activity.
(c) However, if any religious or charitable institution has any distinct incidental activity which is in the nature of business or commerce and if there is no functional integrality with the main activity, then such business activity will be exigible to tax.
Now, bearing in mind the above principles, when we come to the incidental activity of the assessee-Devasthanam, viz., running of the canteen wherein eatables are sold to the pilgrims, it is clear that the main object of the assessee-Devasthanam is neither commercial nor trading in nature and secondly the running of a canteen for the supply of foodstuffs to the visiting pilgrims or devotees is to extend the facilities at reasonable prices, which has, in our judgment, the bearing of functional integrality and, therefore, though such activity by itself constitutes business activity but it must escape sales tax because of the second principle as enumerated above.
Coming to the second activity pertaining to disposal or sale of motor parts as scrap, it may be stated that the assessee-Devasthanam was running the motor vehicles for extending the transport facilities to the pilgrims at highly reasonable prices. In that process, it was inevitable that unserviceable motor parts have to be disposed of as scrap, as the retention would cause storage problem, unhygienic condition and so forth. Hence, that activity though in isolation may constitute a business activity, nevertheless in so far as the assessee-Devasthanam is concerned, it does partake the character of functional integrality and, therefore, the turnover on this, must be excluded from tax.
The third activity, which should not detain us long in answering, is the sale of human hair. The human hair that is offered by the pilgrims who visit the temple in fulfilment of their vow, is taken by the Devasthanam and the same is sold just as in case of scrap material. The accumulation of the same would cause difficulty in storing and also hazardous to the health. In this case, the Devasthanam disposes off the human hair periodically, which activity cannot by any stretch constitute as commercial. Hence, this item also cannot be held to be exigible to tax.
Resultantly, the contentions advanced on behalf of the revisionist are devoid of merits and the same are rejected. Consequently, the tax revision cases are dismissed. No costs. Advocate’s fee ₹ 300 in each. Petitions dismissed.”
Judgment of Madras High Court on the activities of TTD
In Tirumala Tirupati Devasthanam v. State of Madras  29 STC266, the Madras High Court considered the question whether the silver and other valuable articles found in the hund is in the temples of the Tirumala Tirupati Devasthanam form an asset of the Devasthanam and when the Devasthanam converts the same into cash by holding public auctions whether the same could be said to be a business or indulging in a commercial activity and held as under:
“It follows from this definition that in order to characterise a person as a dealer, the primary prerequisite is that he should carry on business. Such a business may be in myriad ways, such as buying, selling, etc. But he should carry on business before he could be terminologically called a dealer within the meaning of section 2(g) of the Act. If a person, therefore, does not carry on business, he is not a dealer. It is in the perspective of this annotation of these two definitions that the facts in the present case have to be noticed.
The Tirumala Tirupati Devasthanam, besides being a charitable institution, is a Hindu institution of age-old antiquity, which has gained importance for the way in which the Devasthanam is functioning and propagating the Hindu religion and serving the needs of those who often visit the Hills for getting the darshan of the Lord. It is common knowledge, which can be taken judicial notice of, that the pilgrims, who visit Lord Venkateswara, pay their homage by submitting in the hundi kept in the temples their mite, and such collections, sometimes include silver and other valuable articles. These hundi collections form an asset of the Devasthanam, which they utilise for the purpose of propagating the religion and for serving the various objects for which the Devasthanam has been founded, which I have already referred to. It therefore becomes necessary for the Devasthanam to convert such valuable metals which find their place in the hundi into cash, so that such cash may be utilised for the objects for which the institution has been founded and for which itis existing. It is with this sole and unambiguous object in view that the Devasthanam auctions such valuable metals such as silver, etc., at appointed places according to their discretion, and secure their money equivalent in public auctions held for the purpose. It is difficult to holdthe view that in such cases, where the Devasthanam justifiably disposes off the metallic substances or metallic goods in their custody the same being the realisations in the hundi, either by private negotiation or by public auction, it could be said that the Devasthanam was doing a business or was indulging in a commercial activity, though not for a profit-motive. Business, which is intricately connected with commerce, is unknown to the Devasthanam, and it is impossible to conceive that while they dispose of their articles of silver, etc., found in the hundi, they were doing a business. Their object is something very different from doing business.
Their objects are not only enumerated by the Legislature of the Andhra Pradesh State, but their accredited objects are more salutary and more important to the community and to the country than mere commercial activity as thought of by the respondent. In this view, the action of the respondent is absolutely illegal and without jurisdiction.”
In the case of Commissioner of Sales Tax v. Sai Publication Fund (and another appeal) (2002—126 STC 288), the Honourable Supreme Court held as follows:
“17. This decision is directly on the point supporting the case of the respondent after noticing a number of decisions on the point including the decisions cited by the learned counsel before us. It may be stated that the question of profit-motive or no profit-motive would be relevant only where person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce, etc. On the facts and in the circumstances of the present case irrespective of the profit-motive, it could not be said that the Trust either was “dealer” or was carrying on trade, commerce, etc. The Trust is not carrying on trade, commerce, etc., in the sense of occupation to be a “dealer” as its main object is to spread message of Saibaba of Shridi as already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question referred by the Tribunal in the affirmative and in favour of the respondent-assessee.”