I. Nature of Services rendered by APMC

1 APMC are constituted under various State legislations. For the purpose of this Act, I have considered the provisions of Maharashtra Agricultural Produce Marketing (Development and Regulation) (MAPMRT) Act, 1963. APMC is a Market Committee constituted under section 11 of The Maharashtra Agricultural Produce Marketing (Development and Regulation) (MAPMRT) Act, 1963. Thus it is established by the State Government and is a creature of the State Government for discharging various statutory functions.

2 The object of the said Act is to develop and regulate marketing of agricultural and certain other produce in market areas and markets (including private markets and farmer-consumer markets) to be established therefore in the State; to confer powers upon Market Committees to be constituted in connection with or acting for purposes connected with such markets & to establish Market Fund for purposes of the Market Committees. Section 12, sub-section (2) states that notwithstanding anything contained in any law for the time being in force, every Market Committee shall, for all purposes, be deemed to be a local authority. Hence, assessee is a local authority for all purposes. However it does not fall specifically within the definition of local authority u/s. 2(69) of the CGST Act.

3 Hence assessee being a local authority can exercise various powers relating to establishment of law and order etc. by permitting establishment of various infrastructural facilities like banks, police station etc. in the market yard for meeting the objects of the Act.

4 To understand the various services rendered by the APMC it is essential to appreciate the scheme of the Act.

5 Section 29 lays down the Powers and duties of Market Committee. Sub-section (1) of Sec. 29 states that it shall be the duty of a Market Committee i.e., to implement the provisions of this Act, the rules and bye-laws made there under in the market area; to provide such facilities for marketing of agriculture produce therein as the Director [the State Marketing Board or the State Government, as the case may be,] may, from time to time, direct; do such other acts as may be required in relation to the superintendence, direction and control of market or for regulating marketing of agriculture produce in any place in the market area, and for purposes connected with the matters aforesaid, and for that purpose APMC may exercise such powers and perform such duties and discharge such functions as may be provided by or under this Act. Hence, APMC has to discharge statutory duties enshrined in the Act, Rules & Bye-laws. Some of the important duties discharged by APMC are as under :

a. Regulate the entry of persons and of vehicular traffic into the market;

b. Grant, renew, refuse, suspend or cancel licence;

c. Maintain and manage the market including admissions to and conditions for use of, markets within the market area;

d. Provide for necessary facilities for the marketing of agriculture produce within the market in the market area;

e. Regulate and supervise the auctions of notified agricultural produce.

f. Subject to the provisions of section 12, acquire, hold or dispose of any movable or immovable property for the purpose of efficiently carrying out its duties;

g. Levy, take, recover and receive charges, fees, rates and other sums or money to which the Market Committee is entitled;

Hence, the APMC has to perform various statutory duties for which it recovers fees, charges, etc.

6 As per section 6 of the Act, no person shall, on and after the date on which the declaration is made under sub-section (1) of section 4, without, or otherwise than in conformity with the terms and conditions of, a licence (granted by the Director when a Market Committee has not yet started functioning; and in any other case, by the Market Committee) in this behalf –

(a) Use any place in the market area for the marketing of the declared agricultural produce, or

(b) Operate in the market area or in any market therein as a trader, commission agent, broker, processor, weighman, measurer, surveyor, warehouseman or in any other capacity in relation to the marketing of the declared agricultural produce.

For the purposes of Sec. 6, under Sec. 7, a market Committee may, after making such inquiries as it deems fit, grant or renew a licence for the use of any place in the market area for Marketing of the agricultural produce or for operating therein as a trader, commission agent, broker, processor, weighman, measurer, surveyor, warehouseman or in any other capacity in relation to the marketing of agricultural produce; or may, after recording its reasons in writing therefore, refuse to grant or renew any such licence. As per Sec. 7(2) such licence is granted after receipt of fees.

7 As per Sec. 60, the State Government may, by notification in the Official Gazette, make rule for carrying into effect the purposes of this Act. Every rule made under this section shall be laid, as soon as may be after it is made, before each House of the State Legislature. Hence, the Rules are part and parcel of the Act and are made by the State Government.

8 As per Sec. 60(1), subject to any rules made by the State Government under section 60 and with the previous sanction of the Director or any other officer specially empowered in this behalf by the State Government, the Market Committee may in respect of the market area under its management make bye-laws for determining the quantity of agricultural produce for the purpose of its retail sale, for the regulation of the business (including meeting, quorum and procedure of the Market Committee) and the conditions of trading in the market area, including provision for refund of any fees levied under this Act.

9 Sec. 94 of the Act states that after paying all sums to the Government, a Market Committee shall, so far as the funds at its disposal permit, but subject to the provisions of the Act and these rules, provide-

(1) For the maintenance and improvement of any enclosure or building which may constitute the market;

(2) For the construction and repair of building

(3) For undertaking developments and for amenities in the market.

10 Rule 95 provides for allotment of shops, galas, sheds, plots or any other premises for the purposes of sale and purchase of agricultural produce or such other purpose directly or indirectly connected with the sale and purchase of agricultural produce. Hence, the activity of allotment of vacant land with structure, i.e. to say galas, etc. is a statutory duty to be performed by the assessee for achieving the objects of the act.

11 As per Rule 109, the Market Committee may, subject to the provisions of the Act and the rules but subject always to the availability sufficient surplus funds at its disposal, undertake any of the functions such as organisation of conferences, exhibitions, study tours grading, standardisation or any other activity which is likely to further the efficient regulation of marketing of declared agricultural produce and spend funds for the purposes with the previous approval of the Director or the officer authorised by him in that behalf. Hence, the assessee can organise exhibitions for achieving the object of the Act & also collect fees / charges for organizing the same.

12 Rule 120 permits a Market Committee to make bye-laws in respect of charges for weighment on a weighbridge.

13 Based on the above scheme of the Act, the APMC collect following fees/charges/consideration :

Gala Deposit/Lease premium : It is either refundable interest free security deposit or Lease premium charged from Gala holders for meeting the costs of construction of Gala.

Gala Rent : It is monthly rent charged from Gala Holders.

Market rent – rent of vacant land charged from vendors of agricultural produce who do not have gala.

Licence fees, Licence renewal fees – Pertain to grant of Licence.

Gate fee or Vehicle entry fee – Charges for bringing cattle or vehicles with agricultural produce.

Market fees – Commission on sale and purchase of agricultural produce in market yard.

Maintenance Charges – Charges from Gala holders for common maintenance expenses.

II. Applicability of Goods and Services Tax Act to APMC under Central Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017

1 Notification 12 of 2017 of the Ministry of Finance dated 28th June, 2017 lays down the list of services that have been exempt from Goods and Services Tax in exercise of the powers conferred by Section 11(1) of the Central Goods and Services Tax Act, 2017.

2 By virtue of Section 11(4) of the Maharashtra Goods and Services Tax Act, 2017 the supply of services which are exempt under Central Goods and Services Tax Act in exercise of the power conferred on it under Section 11 of the said Act would also be exempt under the Maharashtra Goods and Services Tax Act, 2017.

3 Hence list of Services mentioned under Notification 12 of 2017 will be exempt from CGST as well as MGST.

4 Services by APMC are covered in the said list. The said Notification under the heading 9986 provides as under :

“Services relating to cultivation of plants, and rearing of all life forms of animals except the rearing of horses, for food, fibre, fuel, raw material or other similar products or agricultural produce by way of –

a) Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;

b) Supply of farm labour

c) Processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

d) Renting or leasing of agro machinery or vacant land with or without structure incidental to its use;

e) Loading, unloading, packing, storage or warehousing of agricultural produce;

f) Agricultural extension services;

g) Services by any Agricultural Produce Market Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

5 Services by APMC were covered by the negative list under the Service Tax regime. The relevant portion of Section 66D of Chapter V of the Finance Act, 1994 which deals with negative list is reproduced as under:

(a) …………

(b) …………

(c) …………

(d) Services relating to agriculture by way of—

(i) Agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing;

(ii) Supply of farm labour;

(iii) Processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

(iv) Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(v) Loading, unloading, packing, storage or warehousing of agricultural produce;

(vi) Agricultural extension services;

(vii) Services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce.

6 On comparison of the portion relevant for APMC contained in Notification 12 of 2017 and Section 66D of the Finance Act, 1994, it can be seen that the provisions of both the erstwhile Services Tax and the current Central Goods and Services Tax Act, 2017 relating to services provided by APMC are in pari-materia. Therefore, in our view the jurisprudence with respect to the interpretation of the negative list of services in the Service Tax regime will continue to apply in the GST regime.

7 Under the Service Tax regime, as per the CBEC guide, the scope of negative list has been examined by the Board in the Education Guide dated 20-6-2012. Para 4.4.9 of the said Guide states as below:-

4.4.9 Would leasing of vacant land with greenhouse or a storage shed meant for agricultural produce be covered in the negative list?

Yes. In terms of the specified services relating to agriculture leasing of vacant land with or without structure incidental to its use? is covered in the negative list. Therefore, if vacant land has a structure like storage shed or a greenhouse built on it, which is incidental to its use for agriculture then its lease would be covered under negative list entry.

Further, on APMCs, in Para 4.4.11 the guide clarified as below:-

4.4.11 What are the services referred to in the negative list entry pertaining to Agricultural Produce Marketing Committee or Board?

Agricultural Produce Marketing Committees or Boards are set up under a State Law for purpose of regulating the marketing of agricultural produce. Such marketing committees or boards have been set up in most of the States and provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like, sheds, water, light, electricity, grading facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price.

APMCs collect market fees, licence fees, rents etc. Services provided by such Agricultural Produce Marketing Committee or Board are covered in the negative list. However any service provided by such bodies which is not directly related to agriculture or agricultural produce will be liable to tax e.g., renting of shops or other property.

8 Further, the scope of the taxability of services by APMC as per the Negative List came up for consideration before the CESTAT Principal Bench, New Delhi in “M/s Krishi Upaj Mandi Samiti v. Commissioner of Central Excise and Service Tax, Jaipur-I & II” wherein it was held that various services of APMC including renting of gala was not liable to service Tax. However, renting of immovable property to banks, general shops etc. will be liable to service tax. The relevant portion of said decision is as under-

“12. Accordingly, we hold that the appellants are not liable to service tax on renting of immovable property used for storage of agricultural produce in the market area. In this connection, we refer to paras 161 and 162 of the Budget Speech of the Hon”ble Finance Minister while introducing Budget 2012-13. The same is extracted as below:-

161. The important inclusions in the negative list comprise all services provided by the Government or local authorities, except a few specified services where they compete with private sector. The list also includes pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including Inland waterways, urban railways and metered cabs.

162. Agriculture and animal husbandry enjoy a very important place in our lives. Practically all services required for cultivation, breeding, production, processing or marketing up to the stage the produce is sold in the primary markets are covered by the list.

13. It is mentioned that practically all services required for cultivation, breeding product, processing or marketing up to the stage the produce is sold in the primary markets are covered by the list. In the present case, we note that we are dealing with the shops and land given out on rent, which are in the primary market areas, where agricultural produce are brought for sale. The allotment stipulates that the shops/godown shall be used for business of notified commodities and licence is issued by the Market Committee. As such, the premises in the primary market areas are let out with reference to agricultural produce, their storage/warehousing, etc. During the course of arguments, the ld. Counsel for the appellants submitted that they are not disputing their service tax liability with reference to renting of

shops etc. given to commercial establishments like banks, general shops etc. In fact, they are discharging service tax on the same.

14. We have examined the scope of entry in the negative list along with various clarifications issued by the Government. On harmonious construction of all material facts on record, we find that the appellants are not liable to service tax on shops/sheds/platforms/land leased out in the notified market area for traders for temporary storage of agricultural produce traded in the market. In respect of shops, premises, buildings, etc. rented/leased out for any other commercial purpose other than with reference to agricultural produce (like bank, general shop etc.), the same shall not be covered by the negative list and the appellants shall be liable to service tax.

15. In view of the above position, we find that the appellants are not liable to service tax for the period after 1-7-2012.”

9 In the light of the above provisions, CBEC Guide under service tax and decision of the Tribunal in Krishi Upaj (supra), the applicability of GST to various services provided by the APMC are as under:

Particulars of Income/receipt Chargeability
Gala Deposit Gala Deposit is nothing but interest free refundable security deposit. Same is not rent. Said amount is not exigible to GST. However, where Rent from shop is taxable, it may become a debatable issue if said deposit becomes part of taxable value of services.
Gala Rent It is not exigible to tax if gala is allotted to store agricultural produce. Otherwise same is taxable.
Rent of land (Bazar) It is not exigible to GST.
Transfer Fees It is not exigible to GST.
Licence Fee It is not exigible to GST.
Licence Renewal Fees It is not exigible to GST.
Gate Fee It is not exigible to GST.
Vehicle entry fee It is not exigible to GST.
Maintainence Charges It is not exigible to GST.
Market Fees It is not exigible to GST.

The implementation of the Goods and Services Tax (“GST”) will have a great impact on the Indian economy, with the number of persons having to register increasing and more activities getting covered in the tax net. Nevertheless, while the economic impact has been extensively discussed in the media & Government platforms, few have observed the social consequences of GST, particularly with regards to its impact on charities and non – profit organizations.

Charities are a social cause that is often undertaken by unselfish volunteers who are doing the work that the Government should be doing. Such work and activities should be fully encouraged and supported by the authorities. Rather, the intended implementation of GST will create many compliance related issues for NGOs as they might also be subjected to GST.

The purpose of this article is to throw light on the impact of Goods and Services Tax (GST) on NGOs, which has come into force with effect from 1st July, 2017.

Definitions

1) As per section 2(6) of The Central Goods and Services Tax Act, 2017(“CGST”), “aggregate turnover” means the aggregate value of all taxable supplies, exempt supplies, exports of goods or services or both (zero rated supplies), and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis. Further, exempt supply means all supplies which attract nil rate of tax or which may be exempted by way of a notification and includes a non-taxable supply.

Hence, while determining the threshold limit for registration in GST, all supplies i.e., taxable supply, exempt supply, nil rated supply, non-taxable supply, zero rated supply, would have to be considered for calculation of aggregate turnover. As compared to the earlier law whereby only taxable services was considered for the threshold limit, in the current provisions even exempt supplies have been included in determining the threshold limit.

All NGOs making a taxable supply of even a single rupee and having exempt supply, the aggregate turnover of which crosses ₹ 20,00,000, would require to get registered as per section 22(1) of CGST.

2) “Supply” has been defined in section 7 of CGST, and includes 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.

3) “Business” is defined in sec 2(17) CGST, and includes a vocation, whether or not for a pecuniary benefit and also includes activities incidental thereto, and is immaterial of the volume, frequency, and continuity or regularity of such transaction. Thus, though an NGO may be carrying on a vocation and not having any monetary gain from the activity, might be considered as a business for the purpose of this Act. Whether an NGO which is carrying out charitable activities be considered as doing business needs to be analysed.

4) The definition of a “Person” as per sec 2(84) of CGST, includes a society as defined under The Societies Registration Act, 1860 and also trusts.

5) Section 2(30) defines “Composite supply” to mean a supply consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. The issue are the words “two or more taxable supplies, or any combination thereof”. Whether only two taxable supplies can be composite supplies or even a taxable supply and an exempt supply can be considered a composite supply needs to be analysed.

6) Section 2 (31) – “Consideration” includes payment in money or “otherwise”. Therefore, “payment in kind” is also covered. Further, it includes “in response to or for the inducement of” the supply of goods or services or both. It also states that the payment may be by the recipient or by any other person and excludes central and state subsidy.

7) Section 2(47) – “Exempt Supply” includes nil rated supplies. Would this imply that exempt supplies are taxable supplies but are nil rated. If this analogy is taken further, then “composite supply” would get a wider meaning and many combinations of taxable and exempt supplies where the principal supply is the exempt supply would get exemption and fallout of the tax net.

8) In the earlier VAT law, an educational institution was not considered as a “dealer”. However, no such benefit is available to educational institutions in GST. As per sec 2(8) of The Maharashtra Value Added Tax Act, 2005, an educational institution carrying on the activity of manufacturing, buying or selling goods, in the performance of its functions for achieving its objects, shall not be deemed to be a dealer. Any transaction of sale in relation to education carried out by these institutions was not liable to VAT.

Thus, many educational institutions carrying on education services and also selling certain material in the course of providing education were not required to register (eg: sale of badges, calendars, books etc. by schools to its students). However, no such exclusion or benefit has been given to educational institutes in the GST regime.

Registration

There are certain categories of persons who would be compulsorily required to register under GST, immaterial of the turnover. Any NGO providing inter-state taxable supply would have to be registered [sec 24(i) of CGST].

Similarly, any NGO who is liable to pay tax under reverse charge, would also have to get themselves registered irrespective of the turnover [sec 24(iii) of CGST].

As per Rule 18 of CGST Rules, 2017, NGOs registered under this Act shall have to display their Certificates of Registration in a prominent location at all places of business.

Further, all NGOs with a taxable supply and having offices in more than one state would be required to register in each of the state. Any supply of taxable services or goods provided by one branch to another branch of the same NGO, even if without consideration would be considered as a supply between distinct persons and be liable to GST and an invoice for the same will have to be raised. E.g. If the Delhi branch of an NGO is sending goods to its Mumbai Branch then the branches would have to take registration immaterial of the amount of turnover.

Place of Supply

The place of supply of goods or services will determine the tax to be charged i.e. Central Goods and Services Tax/State Goods and Services Tax or Integrated Goods and Services Tax. The place of supply as per section 12 of IGST for various activities of NGOs would be as follows:

Sr. No. Section Service provided Place of Supply
1. Sec 12(2) Educational Institution a. If to a registered person then location of such a person.

b. If to an unregistered person, then, the location of the recipient where the address of the recipient exists, else the location of the supplier.

2. Sec 12(3) Renting of premises Location of the immovable property.
3. Sec 12(4) Hospital Where service is actually performed.
4. Sec 12(5) Training services a. If to a registered person then location of such a person.

b. If to an unregistered person, then location where such services are actually performed.

5. Sec 12(6) Cultural and other shows Place where event is actually held.
6. Sec 12(7) Sporting, scientific, cultural and artistic events a. If to a registered person then location of such a person.

b. If to an unregistered person, then location of the supplier.

Exempted Services

As per Notification No. 12/2017 (CGST Rate) and 9/2017 (IGST Rate) dated 28th June, 2017, 81 services have been classified as exempt services and therefore no GST is charged on the supply of these services. Most of the services which were in the negative list of services (66 D of Finance Act, 1994) have now been included in the exemption list of services. However, the notification for exemption states “exempts the supply of services” leading to the question that if goods are supplied along with the services, would the same be considered exempt.

Services given in exemption notifications of CGST & IGST directly impacting charitable trusts

1) Sr. No. 1

Service by an entity registered under section 12AA of the Income-tax Act, 1961 by way of charitable activities.

This exemption was available in the service tax legislation and the same has been continued without any modification.

2) Sr. No. 10

Construction related services

In the service tax legislation, services provided by way of construction, completion, repair, , to an entity registered under 12AA of The Income Tax Act, 1961 and meant predominantly for religious use by general public was exempt from service tax. These services are now taxable under the GST laws resulting in an increase in costs to the extent of GST charged on these services.

3) Sr. No. 12

Services by way of renting of residential dwelling for use as residence.

The exemption is only for renting of residential dwellings for use as residence. If the residential dwellings are rented and used for commercial purposes then the same would be liable to tax.

4) Sr. No. 13

Services by a person by way of conduct of any religious ceremony and renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961.

The term “religious place” has been defined in the said notification. It means a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation, or spirituality;

The same exemption was available in service tax. However, a condition has been added to the above exemption. In the service tax regime there was a blanket exemption for renting of precincts a religious place meant for general public.

In GST the benefit of this exemption is conditional to the amount of rent that the NGO charges per day/month for the premises. The conditions being:

• Rooms given on rent should be charged at less than ₹ 1,000 per day.

• Renting of premises, community hall, or open area should be for less than ₹ 10,000 per day

• Renting of shops or other spaces for business or commerce should be for less than ₹ 10,000 per month.

5) Sr. No.14

Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent.

What is covered in this exemption is only residential or lodging services. Boarding has not been included in the above exemption. Further services include by hotel, inn, guesthouse, club or campsite “by whatever name called”. This would mean that any NGO providing lodging services with a declared tariff less than ₹ 1,000/- would get the benefit of this exemption eg. hostels, old age homes, dharamshalas etc. However, there would be an issue on the boarding services supplied along with the lodging, Whether this activity would get covered in the meaning of composite supply as per sec 2(30) of The CGST Act,2017 needs to be analysed.

The Press release dated 13-7-2017 issued by Press Information Bureau (Ministry of Finance) services of lodging/ boarding in hostels provided by educational institutions which are providing pre-school education and higher secondary education or education a qualification recognized by law, is fully exempt from GST. Annual subscription / fees charged as lodging/boarding charges by such educational institutions from its students for hostel accommodation shall not attract GST.

6) Sr. No. 66

Service provided

a) By an educational institution to its students, faculty and staff

b) To an educational institution, by way of transportation of students, faculty and staff; catering: security or cleaning or house-keeping services; services relating to admission to, or conduct of examination up to higher secondary school or equivalent.

Provided that nothing contained in entry (b) shall apply to an educational institution other than an institution providing services by way of pre-school education and education up to higher secondary school or equivalent.

Further education institution has been defined in the notification. It means an institution providing services by way of-

(i) Pre-school education and education up to higher secondary school or equivalent;

(ii) Education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;

(iii) Education as a part of an approved vocational education course;

The provision to this exemption was inserted recently on 8th March, 2017 vide notification.no 10/2017, in the service tax legislation. Thus all educational institutes providing post qualification courses would be liable to pay GST on the input services as defined in clause ‘b’ of the notification, received by them.

The exemption notification is for “supply of services. “Goods” are not referred to in the notification. What needs to be examined is whether the benefit of this exemption can be extended to sale of items related to entry in the school. Eg: Sale of badges, ties, uniforms having the specific logo of the school?

7) Sr. No. 74

Services by way of health care services by a clinical establishment, an authorised medical practitioner or para-medics and transportation of a patient in an ambulance.

“Clinical establishment” has been defined to mean a hospital, nursing home, clinic, and similar institutions by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, etc. in any recognised system of medicines in India, and

An authorized medical practitioner includes a medical professional having the requisite qualification to practice in any recognised system of medicines in India as per any law for the time being in force. Eg. Ayurveda, Homeopathy etc.

Exemptions Withdrawn

Certain services which were exempt earlier have now made taxable. These services are listed in notification no. 11/2017 dated 28th June, 2017 of CGST (Rate).

1) Sr. No. 21

Earlier selling of space for advertisement in print media was exempt under service tax but now it is taxable @ 5% under GST. Thus, all NGOs publishing souvenirs, receiving advertisements for the souvenirs would now be a taxable supply.

2) Sr. No. 26

In the service tax regime, job work process in printing and textile processing, were exempt from service tax. This exemption is now removed and the service is now liable to tax @ 5%.

Services which are under reverse charge ie. the recipient of the service would be liable to make payment of GST [section 9(3) of CGST] and notification no. 13/2017 dated 28th June, 2017:

a) Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road, then whole of the tax be paid on reverse charge basis by the recipient of such services, subject to the limit based exemption available in the exemption notification.

b) Service provided by advocates to any business entity (whose aggregate turnover is in excess of Rupees twenty lakhs), located in taxable territory then whole of the tax be paid on reverse charge basis by the recipient of such services.

c) Services provided by an author, artist or the like to a publisher or a producer located in the taxable territory then whole of the tax to be paid on reverse charge basis by the recipient of the such services.

Eg : An author writing a book for an NGO which is in the activity of publishing books. In such a case, the NGO would be liable to pay GST and not the author.

If an NGO is liable to pay tax under reverse charge then it will have to compulsorily take registration under sec 24(iii) of CGST. The government vide notification. no 8/2017 dated 28th June, 2017 has exempted intra state supplies of goods or services received from an unregistered supplier from the applicability of the provisions of reverse charge where the aggregate value of supplies do not exceed ₹ 5,000/- in a day. This is intended to bring relief to the tax payer.

However, the control mechanism for determining the value of inward supplies from unregistered person exceeding of ₹ 5,000/- in a day would be a challenge for NGOs having multiple divisions.

Issue of Invoices, Bills of Supply and other documents

All registered suppliers have to issue a tax invoice for taxable supplies and bill of supply for exempt supplies containing all the prescribed particulars. Whenever tax is required to be paid under reverse charge the registered person needs to issue an invoice (where supply is received from an unregistered person) & also make a payment voucher containing the prescribed particulars.

NGOs have been subjected to multiple compliances in the last few years. From a regime of filing one return of income tax and two service tax returns every year, now a charitable trust will need to file close to 50 returns in a financial year. This will be a challenging proposition for many NGOs. For an NGO to continue doing the noble and charitable activities awareness of GST and compliance thereof will be a major challenge and will also result in a substantial increase in costs.

I. Preamble

“There are three ideas involved in a profession: organisation, learning, and a spirit of public service. These are essential. The remaining idea, that of gaining a livelihood, is incidental.”

– Roscoe Pound

Professions have traditionally been viewed through this prism of nobility which places them on a pedestal higher than a mere trade or occupation or even business. However, for taxation (whether direct or indirect), there is hardly any distinction between a profession or a business. Under the Income-tax Act, 1961 (IT Act), incomes from business and from profession are taxed similarly and under the same head.

Service Tax was introduced as a levy on services from 1st July 1994. Initially starting with three services in 1994, Service Tax net has consistently been broadened to gradually include more and more services till 1st July 2012, when all services were made chargeable to Service Tax except a handful of services contained in the negative list.

Exactly 23 years after 1st July 1994, the existing indirect tax regime under various laws has been replaced by one tax, the Goods and Services Tax (GST). In present times (whether under the erstwhile service tax regime or the new GST regime), indirect tax has been extended to almost all spheres of economic activity. Since professionals are not engaged in the supply of goods but only in supply of limited number of services, for the purpose of this write up, provisions of the new GST law are discussed only in so far as they affect services provided by professionals that are part of the knowledge-based economy.

II. Genre of the GST law

For taxation of intra-state supply of services (and goods) throughout India1, the Parliament has enacted the Central Goods and Services Tax Act, 2017 (CGST Act) while the respective states have enacted their own law. For example, the law in Tamil Nadu is called the Tamil Nadu Goods and Services Tax Act, 2017 while the law in Uttar Pradesh is called the Uttar Pradesh Goods and Services Tax Act, 2017, and so on. The Parliament has also enacted the Union Territory Goods and Services Tax Act, 2017 (UTGST Act) for taxation of intra-state supply within the Union territories of the Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu and Chandigarh. New Delhi and Puducherry, despite being Union Territories, have their individual legislatures and are considered “states” for GST process.

A separate Act for the Union Territories was necessary as without it, GST on intra-state supply could not have been levied in these Union Territories. The UTGST Act is equivalent to the State GST Acts.

For taxation of inter-state supply, the exclusive power of which has been retained by the Parliament2, the Integrated Goods and Services Act, 2017 (IGST Act) has been enacted.

The State GST Acts are replicas of each other and of the CGST Act in all material aspects. This was necessary to maintain consistency in the manner of taxation within each State. In fact, as per Section 11(4) of the State GST Acts, a notification issued by the Central Government granting an exemption shall be deemed to be a notification under the State Acts as well to ensure uniformity in law throughout the country.

III. Professionals: Meaning, relevance of classification and impact of GST law

The term “profession” is not defined in any of the GST Acts. But, it is generally understood to mean “a paid occupation, especially one that involves prolonged training and a formal qualification”. “Business” has been defined in Section 2 of the CGST Act and the State GST Acts to include profession.

Traditionally, advocates, chartered accountants, company secretaries, cost accountants, doctors, dentists, engineers, architects and interior decorators, teachers are regarded as professionals. By Notification No. SO 17(E), dated 12-1-1977, the Central Board of Direct Taxes (CBDT) has notified work of film artists (actors, cameramen, directors/ assistant directors, music directors/ assistant music directors, art directors/ assistant art directors, dance directors/ assistant dance directors, editors, singers, lyricists, story writers, screen play writers, dialogue writers and dress designers) as profession.

While the classification of an activity as constituting profession or not may be relevant for the purposes of Income-tax law, the classification is not relevant for the GST law. What is relevant is the nature and description of the service. For the purpose of this write up, services provided by and provisions applicable to advocates, chartered accountants, company secretaries, cost accountants, doctors, dentists, architects, interior decorators/ designers, engineers, teachers, film artists and designers (fashion, industrial and specialty) are discussed.

IV. Taxability of services provided by professionals

A. Services provided by legal professionals i.e. advocates

Position under the erstwhile service tax regime – Till 2011, advocacy services were outside the purview of service tax net. By Finance Act, 2011, services by way of representation before the judicial authorities was brought within the tax net. From 2012 onwards i.e. in the negative list regime, legal services provided by an individual advocate/ partnership firm of advocates to a certain class of persons was exempted while liability was imposed on a reverse charge basis i.e. on the recipient of services for services which did not qualify for exemption.

From 2016, designated senior advocates were treated as a distinct class among legal service providers and liability to pay service tax was imposed upon them on a forward charge basis i.e. the liability to pay service tax lay upon the senior advocate and not on the service recipient. After some opposition, the Government introduced certain changes making reverse charge applicable to senior advocates for services rendered to business entities with a turnover of more than ₹ 10 lakhs.

Liability under the GST law – As per Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 (Notification No. 12), “legal service” means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority. Legal services are contained in Heading 9982 of the new classification scheme. The further sub-classification is as follows:

The rate of Central GST (CGST) and State GST (SGST) / Union Territory GST (UTGST) applicable to legal services is 9% each (aggregating to 18%). The rate of Integrated GST (IGST) is 18%3.

However, the GST Council, in its meeting on 19th May 2017, has decided to continue service tax exemptions for certain services even under the GST regime. This decision has been given effect to by Notification No. 12 wherein services taxable at Nil rate have been specified. These services include legal services provided by an individual advocate/ partnership firm of advocates to another advocate/ partnership firm of advocates/ non-business entities/ business entities with a turnover up to ₹ 20 lakhs4. The exemption is also applicable to legal services provided by senior advocates to non-business entities/ business entities with a turnover up to ₹ 20 lakhs4. It appears that the exemption does not extend to legal services provided by senior advocates to another advocate/ partnership firm of advocates. Legal services which are not exempted, subject to the discussion below, would in my view, be liable for GST.

Service recipient to pay/ reverse charge mechanism – On recommendation of the GST Council, the Government, in exercise of powers under Section 9(3) of the CGST Act, can specify categories of supply of services the tax on which GST shall be paid on reverse charge basis by the recipient of such services. In its 14th meeting on 19th May 2017, the GST Council has decided that services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services should be charged under reverse charge mechanism. However, by Notification No. 13/ 2017-Central Tax (Rate) dated 28th June 2017 (Notification No. 13), it has been notified that GST on services supplied by an individual advocate including a senior advocate or by a firm of advocates by way of representational services before any court/ tribunal/ authority to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, by way of legal services, to a business entity is payable on reverse charge basis i.e. by the recipient of service. Thus, while the GST Council meeting had decided that all legal services provided by advocates should be chargeable under reverse charge mechanism, in Notification No. 13/ 2017, the wording used appears to make applicable reverse charge mechanism only to representational services. In case of conflict between the minutes of GST Council meeting and a notification issued by the Government, the notification should prevail. This is because notification has the force of law while minutes of GST Council meeting are only for informational purposes. The following disclaimer in the minutes of the 14th meeting merits consideration in this regard:

“The list of services that will be under reverse charge as approved by the GST Council is given below. The information is being uploaded immediately after the GST Council’s decision and it will be subject to further vetting during which the list may undergo some changes. The decisions of the GST Council are being communicated for general information and will be given effect to through Gazette notifications which shall have force of law.”

It is thus clear that only representational services are liable for GST under the reverse charge mechanism. For other legal services such as advisory services, documentation and certification services etc., reverse charge mechanism does not appear to have been made applicable. The above would have meant that liability for those legal services for which exemption has neither been continued nor reverse charge mechanism made applicable would lay on the provider of such legal services i.e. the advocate (including senior advocate and firm of advocates) concerned.

Exemption from registration – The GST Council, in its 16th meeting on 11th June 2017, has taken a decision that advocates including senior advocates are exempted from the requirement of registration. However, without the imprimatur of the Government by way of a notification, this decision too would not have the force of law. Notification No. 5/ 2017 dated 19th June 2017 appears to be issued pursuant to the 16th GST Council meeting. By this notification, the Government has specified that persons who are only engaged in making supplies of taxable services, the total tax on which is liable to be paid on reverse charge basis by the recipient of such services as exempted from obtaining registration under the CGST Act. Since advocates/ senior advocates supply legal services other than representational services as well, there was a school of thought that advocates/ senior advocates would become liable to register themselves under the GST law. For instance, an advocate who charges a fee for conference in an advisory assignment to a client whose turnover exceeds ₹ 20 lakhs should be liable to pay GST on forward charge basis, and consequently, be liable for registration as well.

Delhi High Court takes note of unclear legal position – The Delhi High Court, in J. K. Mittal & Company v. UoI & Ors [W.P.(C) 5709/2017], by order dated 12th July 20175, has taken note of the lack of clarity under GST law as regards taxation of advocates and has directed that no coercive action should be taken against advocates (including firms) for non-compliance of GST provisions until suitable clarification is issued in this regard.

Clarification dated 15th July 2017 issued by the Government – The Government has issued a clarification dated 15th July 2017 wherein it has been clarified that reverse charge mechanism would extend to all legal services supplied by advocates and senior advocates. It appears that the Government has, in deference to the order of the Delhi high Court in J. K. Mittal & Company (supra), issued this clarification. This clarification, in my view, puts the controversy as regards position of advocates to rest and makes it clear that all legal services provided by them would be chargeable under reverse charge mechanism.

Services provided by arbitral tribunals – As per Section 7(2) read with Schedule III of the CGST Act and the State GST Acts, services provided by statutory tribunals are not chargeable to GST. However, of late, we have seen a sharp increase in arbitration where parties settle their contractual disputes through arbitration by referring the disputes to an arbitral tribunal constituted by agreement of parties. Advocates (including senior advocates) are often appointed as arbitrators. By Notification No. 12, services provided by an arbitral tribunal to a non-business entity or to a business entity with an aggregate turnover up to ₹ 20 lakhs (₹ 10 lakhs in the case of special category states viz. Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand) in the preceding financial year are taxable at Nil rate. In case services are provided to a business entity with turnover in excess of ₹ 20 lakhs or ₹ 10 lakhs, as the case may be, GST is liable to be paid on reverse charge basis by the recipient of service.

B. Services provided by chartered accountants, company secretaries and cost accountants

Chartered Accountants generally provide accounting, auditing, bookkeeping, tax return preparation and filing, consultancy and representational services. These services are contained in Heading 9982 and are liable to CGST and SGST/ UTGST at the rate of 9% each (aggregating to 18%). The rate of IGST is 18%.

While there is no separate heading for company secretarial and cost accountancy services, such services can be classified in the residuary Tariff entry under the same Heading and would also be liable to CGST, SGST/ UTGST or IGST, as the case may be, at the same rates.

Insolvency and receivership services – With the enactment of the Insolvency and Bankruptcy Code, 2016, one of the recent additions to a host of services that can be provided by chartered accountants, company secretaries and cost accountants is insolvency and receivership services. Such services are also liable to CGST and SGST/ UTGST at the same rates as above.

It is important to note that even advocates are entitled to act as insolvency professionals and provide these services. However, in such a case, exemption from GST and/ or reverse charge mechanism may not be available to advocates and tax would be payable by advocates on forward charge basis at the same rate as other professionals providing these services and not under reverse charge basis. This is because though insolvency and receivership services may qualify to be termed as “assistance in any branch of law” to fall within the definition of the term “legal services”, a separate and more specific entry in the new classification scheme (Tariff entry 998240) should be preferred over the general classification of legal services as per the accepted principle of interpretation of generalia specialibus non derogant which means provisions of a general statute must yield to those of a special one.

Representational services provided by chartered accountants, company secretaries and cost accountants – Certain statutes such as the IT Act, the Companies Act, 2013 and even the CGST Act allow chartered accountants/ company secretaries/ cost accountants, as the case may be, to represent clients before certain authorities and tribunals. Though such services can be termed as legal services, the exemption available to advocates from GST and/ or reverse charge mechanism is not applicable to chartered accountants/ company secretaries/ cost accountants. In such cases, the chartered accountant, the company secretary or the cost accountant, as the case may be, would be liable to pay GST on representational services on forward charge basis at the same rate as their other services i.e. 18%, under the residuary Tariff entry.

Services provided by chartered accountants/ company secretaries/ cost accountants as arbitrators
– Chartered accountants, company secretaries and cost accountants are often appointed as arbitrators especially when the dispute is technical in nature and requires specialized knowledge. In such a case, Notification No. 12 and the discussion above in “services provided by arbitral tribunals” would be applicable. By Notification No. 12, services provided by an arbitral tribunal to a non-business entity or to a business entity with an aggregate turnover up to ₹ 20 lakhs (₹ 10 lakhs in the case of special category states) in the preceding financial year are taxable at Nil rate. In case services are provided to a business entity with turnover in excess of ₹ 20 lakhs or ₹ 10 lakhs, as the case may be, GST is liable to be paid on reverse charge basis by the recipient of service.

C. Services provided by doctors and dentists

Health care services provided by clinical establishments, authorized medical practitioners and para-medics were exempt from service tax. So were services provided by veterinary clinics in relation to health care of animals and birds. The logic behind these exemptions was to subsidize health care costs to the extent possible. This logic has been carried (I think correctly) into the GST regime. As per Notification No. 12, these services are made taxable Nil rate. Dental care is part of health care, and therefore, dental services should also be liable to be taxed at Nil rate.

For GST purposes, medical and dental services are covered under Heading 9993 and veterinary services are covered under Heading 9983. “Health care services” has been defined in Notification No. 12 to mean any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma. This position is the same as was prevalent in the erstwhile service tax regime. Services for appearance enhancement i.e. hair transplant, cosmetic and plastic surgeries are liable to CGST and SGST/ UTGST of 9% each (aggregating to 18%). The rate of IGST is 18%.

Apart from allopathy, as per the Clinical Establishments (Registration and Regulation) Act, 2010, Ayurveda, Yoga, Unani, Siddha, Homoeopathy and Naturopathy are recognised systems of medicine in India. Therefore, health care services under these systems of medicine are also taxable at Nil rate.

D. Services provided by architects and interior decorators/ designers

Architectural services are contained under Heading 9983 in Tariff entries 998321 – 998328. Interior decoration/ design services are contained in Tariff entry 998391. Such services are liable to CGST and SGST/ UTGST of 9% each (aggregating to 18%). The rate of IGST is 18%.

While location of architectural and interior decorator/ design services may not be relevant for intra-state supply, the same becomes relevant for inter-state supply. This is because the recipient of such services will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in its own state. As per Section 12(3)(a) of the IGST Act, the place of supply of services directly in relation to an immovable property, including inter alia services provided by architects and interior decorators would be the location at which the immovable property is located. Similarly, even when provider or recipient of architectural or interior decoration services is located outside India, as per Section 13(4) of the IGST Act, the place of supply of services shall be the place where the immovable property is located.

Casual taxable person – It is not unusual for architects and interior decorators to provide services on a site at a place where she/ he does not have a regular place of business. As per Section 2(20) of the CGST Act, a “casual taxable person” means a person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business. As per Section 25(1) of the CGST Act, a casual taxable person shall apply for registration at least five days prior to the commencement of business. Therefore, an architect/ interior decorator providing services in a State where she/ he does not have a regular place of business should register in that State before commencing services.

E. Services provided engineers

A person carrying on engineering profession is regarded as professional under the Income-tax Rules, 1962. Engineering services are contained in Tariff entries 998331 – 998339 under Heading 9983. An individual or a firm of engineers providing these services would be liable to CGST and SGST/ UTGST of 9% each (aggregating to 18%). The rate of IGST is 18%.

F. Teachers

The Supreme Court in P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC) has held that teaching was a vocation. As per Section 2(36) of the IT Act, profession includes vocation. Therefore, private teachers/ tutors who conduct coaching classes or run coaching centres are professionals and the services they render to students can be termed as education services and depending on the nature thereof can be classified under the appropriate Group under Heading 9992. Under this Heading, services provided by certain types of education institutes is chargeable at Nil rate. However, no exemption is provided to private teachers/ tutors. Therefore, services provided by them would be liable to CGST and SGST/ UTGST of 9% each (aggregating to 18%). The rate of IGST is 18%.

G. Designers (Fashion, industrial and speciality)

Services of fashion, industrial and speciality designers are covered under Tariff entries 998391 under Heading 9983 and would be liable to CGST and SGST/ UTGST of 9% each (aggregating to 18%). The rate of IGST is 18%.

H. Film artists

As stated above, the CBDT has regarded actors, cameramen, directors/ assistant directors, music directors/ assistant music directors, art directors/ assistant art directors, dance directors/ assistant dance directors, editors, singers, lyricists, story writers, screen play writers, dialogue writers and dress designers are regarded as professionals.

Services of film artists are contained in under Heading 9996. As per Notification No. 12, services by an artist by way of a performance in only folk or classical art forms of music, dance or theatre is chargeable to GST at Nil rate if the consideration charged for such performance is not more than ₹ 1,50,000/-. However, for other forms of art or where consideration exceeds  ₹ 1,50,000/-, CGST and SGST/ UTGST are 9% each (aggregating to 18%) and IGST rate is 18%.

V. General provisions applicable to all services provided by professionals

(i) Registration – As per Section 22 of the CGST Act, a professional is liable to get herself/ himself registered under the GST law if the aggregate turnover from supply of services exceeds ₹ 20 lakhs (₹ 10 lakhs for special category states). In case of an advocate or a senior advocate or a firm of advocates engaged exclusively in supplying services chargeable at Nil rate or chargeable under reverse charge mechanism are not liable to be registered. Similarly, since doctors are engaged in supplying services which are chargeable at Nil rate, even they are not liable for registration.

However, in a situation where a professional otherwise not liable to register avails services of a professional whose services are chargeable under the reverse charge mechanism, the first mentioned professional would be liable to be registered under GST law. For example, in case where a doctor avails the representational services of an advocate in course of her/ his medical profession, GST being liable to be paid under reverse charge mechanism, the doctor, in my view, would have to register herself/ himself and would be liable to pay GST on the representational services so availed. In such a case, all GST provisions regarding maintenance of accounts and records in so far as they pertain to the representational services availed as also furnishing of returns should be applicable to such doctor.

(ii) Taxability of services of an employee – As per Section 7(2) read with Schedule III of the CGST Act and the State GST Acts, services by an employee to the employer in the course of or in relation to her/ his employment is not chargeable to tax.

Therefore, services provided by a doctor employed in a hospital or a chartered accountant employed by a chartered accountancy firm or by a teacher to her/ his employer-school, for instance, to their employers would not be chargeable to tax under the GST law.

(iii) Levy of GST – Liability to pay GST would be as under:

(a) For supply of services within a state (Intra-State): Central GST + Respective State GST;

(b) For supply of services within Union Territories (Intra-UT): Central GST + Union Territory GST;

(c) For supply of services across different States and/or Union Territories (Inter-State/ Inter-UT): Integrated GST.

(iv) Time of supply of services – The time of supply of services is relevant because the liability to pay GST arises at the time of supply of services. As per Section 13(2) of the CGST Act, time of supply of services would be the earliest of the following dates:

(a) Date of issue of invoice by the supplier, if the invoice is issued within the prescribed period prescribed (i.e. 30 days from supply of service as per Rule 2 of Tax Invoice Rules, 2017) or the date of receipt of payment, whichever is earlier; or

(b) The date of provision of service, if the invoice is not so issued within the period prescribed aforementioned or the date of receipt of payment, whichever is earlier; or

(c) The date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply.

In case reverse charge mechanism is applicable, the time of supply shall be the earlier of the following dates:

(a) The date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or

(b) The date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

Thus, it can be seen that the liability to pay GST would fall due even if the services have not been paid for within the timelines prescribed above.

(v) Valuation of taxable supply of services – As per Section 15 of the CGST Act, the value of supply of services by professionals would be the transaction value i.e. the price actually paid or payable where the service provider and recipient are unrelated and price is the sole consideration for the supply. The transaction value would include out-of-pocket expenses incurred by the service provider and shown separately in the tax invoice. Though it is uncommon for professionals to charge interest/ late fee/ penalty for delayed payment of any consideration, the same would also be includible in the valuation if separately charged.

(vi) Eligibility for availing levy under composition scheme – Composition levy under GST law is not available for services provided by professionals.

(vii) Whether Profession tax is subsumed in GST? – While the GST law is enacted to tax goods and services, Profession Tax is a tax on persons engaged in any profession, trade, calling or employment. Thus, the subject of taxation in both these cases is different. The liability to pay Profession Tax arises under the respective State acts such as the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 in Maharashtra. Profession Tax is not subsumed under the GST law and continues to be governed by the respective State Act if any.

(viii) Position of various cesses levied under erstwhile law – Before the roll-out of GST, the Parliament has abolished a number of cesses by the Taxation Laws (Amendment) Act, 2017. Under the GST regime, Education Cess, Krishi Kalian Cess and Swachh Bharat Cess would not have to be paid (unless reintroduced). The GST rates prescribed are all-inclusive rates.

Cesses on certain goods which are not covered under GST such as on imported goods, on crude petroleum oil etc. would continue to be leviable. However, in so far as GST on services provided by professionals are concerned, there would be no cess.

(ix) Tax invoices, books, records and returns – As per Rule 3(2) of Tax Invoice Rules, 2017, tax invoices issued by professionals for their services ought to be prepared in duplicate – one for the recipient and one for professional herself/ himself. Each tax invoice must contain the various components of the GST i.e. CGST and SGST/ UTGST or IGST, as the case may be.

Professionals are required to maintain records and particulars of inward and outward supply of goods and services, input tax credit availed and output tax payable and should retain them until the expiry of 72 months (i.e. 6 years) from the due date of furnishing of annual return for the relevant year.

Professionals would be liable to furnish the following returns electronically through the GST Network under the GST law:

Sr. No. GST return Form Particulars/ details to be furnished Person liable to file Due date
1 GSTR-1 Details of outward supplies of services effected during the tax period (monthly return) Registered service supplier 10th of succeeding month
2 GSTR-2 Details of inward supplies of taxable goods and/or services effected including services on which GST is payable on reverse charge basis (monthly return) Registered service recipient 15th of succeeding month
3 GSTR-3 Inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid (monthly return) Every registered person 20th of succeeding month
4 GSTR-9 Annual return Every registered person 31st December of succeeding financial year

VI. Postface

The rate of tax on services provided by professionals has undergone an increase from 15% in the erstwhile service tax era to 18% in the GST regime which is expected to boost tax revenues for the Government. The demand for professional services rarely sees a drop due to such across-the-board increase in statutory levies. We hope that the simplification and harmonization that the GST is designed to offer in the indirect tax regime brings about the expected reduction of cost of production and inflation in the economy making the Indian trade and industry more competitive domestically as well as internationally. However, such simplification and harmonisation would become achievable only when avoidable ambiguities such as the one involving position of advocates discussed above are not allowed to arise.

 

1 Including Jammu and Kashmir which became the last state to join GST from 8th July 2017.

2 Article 246A(2) of the Constitution of India.

3 For IGST rates, refer Notification No. 8/2017-Integrated Tax (Rate) dated 28th June 2017.

4 ₹ 10 lakhs for special category states.

5 Interim order available on www.itatonline.org. Matter is now listed on 18th July 2017 for further hearing.

Stock brokers are last chain in investment cycle of an economy catering to the investors wanting to invest in financial markets through a stock exchange. Goods and Services Tax (GST) is introduced in the nation from 1st July 2017 seeks to levy tax on supply of stock broking service by a stock broker. The all encompassing definition of ‘supply’ covers service provided by the stock broker. However, ‘securities’ are excluded from the definition of goods or services. Thus, service provided in relation to ‘security’ only is covered within the ambit of GST.

The definition of ‘securities’ under ‘The Security and Exchange Control Act’ is as follows:

(h)“securities” include—

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ii) Government securities;

(iia) such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interest in securities;

Stock brokers dealing in all these securities are covered under GST. All are aware that service tax levied while Finance Act, 1994 included service tax on stock broking service. The provisions of GST under Central Goods and Services Tax Act (CGST), State Goods and Services Tax Act (SGST) Union Territory and Services Tax Act (UTGST) and Integrated Goods and Service Tax Act (IGST) are more or less in line with the provisions of Finance Act, 1994, so far as services of main stock broker is concerned. However, in a security transaction on stock exchange, other intermediaries like Sub-Brokers, Authorised Persons, Remisers are also involved. In the service tax regime, service tax liability was required to be discharged by the main broker and other intermediaries were not liable to pay service tax. GST being destination based tax on the foundation of input tax credit at every stage, covers all intermediaries in the transaction of securities. So far as the main brokers are concerned, there is no difference in the leviability of tax under GST except the change in rate of tax (15% aggregate in service tax and 18% in GST) and availment of input tax credit at every stage in the chain of purchase or sale of securities.

However, marked difference to the levy of service tax and GST is that unlike service tax, interest, late fee, penalty for delayed payment of consideration is also liable to GST. This means that in case of any delayed payment from a purchaser of security for which interest is levied by the broker, the same shall be subject to GST. The rate of tax on interest shall be the same in case of stock broking i.e. 18% IGST or 9% CGST & 9% SGST.

Other intermediaries

In terms of provisions of Section 2(13) of the IGST Act, 2017 Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account

Thus, a Broker, Sub-Broker Authorised Person, Remiser, Network Partner is an intermediary or negotiator in the contracting of any type of bargain, acting as an agent for parties who wish to buy or sell stocks, bonds, real or personal property, commodities, or services.

Valuation of stock broker’s service under GST

Service tax was leviable on brokerage, transaction charges and taxes levied by SEBI. S. 15 of CGST Act deals with valuation of a transaction. As per the provisions of S. 15 any taxes, duties, cesses, fees, charges levied under any law for the time being in force is included for the purpose of valuation. Thus, in addition to brokerage, GST is leviable on various charges collected by the stock broker. However, it may be possible to deduct such charges from the valuation if they are recovered on actual basis and the conditions of ‘pure agent’ as mentioned in Determination of Value of Supply Rules are met.

Sometime stock broker provide service of giving tips by way of morning calls by sms or otherwise. All such services if for a consideration shall be liable to GST

Place of Supply

GST is a destination based consumption tax. The place of supply in the context of stock broker assumes utmost importance. In service tax the place of business of stock broker determined the place of taxation, under the GST law, if supply of service is made to a registered person, the location of such person as exists on record shall determine the nature of tax to be levied. If location of recipient is not available on record of stock broker then the location of supplier would be relevant. When a stock broker purchases or sells a security, he has the address of the recipient on record. Now it is mandatory to register KYC norms for any individual investor or trader. Thus, when a stock broker issues bill or invoice he has full name and address of the recipient. If a Mumbai based stock broker issues invoice to an investor or trader in Maharashtra, he will have to charge and pay CGST and SGST to such investor. However, if the same stock broker issues invoice to an investor / trader outside the State, he will have to charge and pay IGST.

This leads to an interesting situation if the stock broking service is provided to a non-resident or foreign entity like FII. If such FII is registered in India, the State in which it is registered will determine the place of supply. If the State in which the stock broker located and FII registered is same, CGST and SGST of that State will apply. If the place of location of both the parties is in different State, IGST will be levied. However, in case FII has no place of business in India, GST in the State of location of stock broker shall apply and IGST will be applicable. There has been no change in the place of supply of intermediary service from the earlier service tax regime when either the location of supplier or recipient is outside India. In such a case, place of location of intermediary is determinative.

Input Tax Credit (ITC) in the hands of stock broker

A stock broker is allowed input tax credit of goods, services and capital goods used or intended to be used in the course or in furtherance of his business and the amount of such ITC shall be credited to his Electronic Credit Ledger. Conditions for availment of input credits are in general applicable in all cases and hence not discussed here specifically. Credits of motor vehicles and other conveyances, food & beverages, membership of club, health and fitness services, rent-a-cab, life insurance, health insurance are not allowed. Input tax credit of capital goods includes GST paid on purchase of air-conditioners, computers and other electronic gadgets are allowed subject to they being shown as capital assets in the books of accounts. Further, input tax credit of rent paid for use of commercial premises for the purpose of stock broking business is allowable.

Goods or services used partly for business and partly for other purpose shall be allowed proportionately as attributable to the business purpose. However, when a stock broker undertakes proprietary trading in securities, the input tax credit in the proportion in the value of securities traded for earning the brokerage business shall be allowed in proportion of such value to the total value of securities transacted. This is because transaction in security is outside the ambit of GST.

If a stock broker having office at different States he will be required to take registration in all those States. Input tax credits arising in those States will have to be used for discharging the liability in those States. However, in case of overflow of such credit in a particular State the same can be transferred to another State of his operation if such credit is used for providing service from such another State. Such credit can be transferred by cross charging the office in other State using the mechanism of charging IGST.

If a stock broker is holding investors seminar in another State, he will need to take registration as Casual Taxable Person in that State to avail input tax credit of the hotel, convention hall etc. as such hotel will charge CGST & SGST of that State and the input tax credit will have to be transferred by cross charging the office in other State using the mechanism of charging IGST.

In case of services of Network Partner outside the State, input tax credit should be allowed on the basis of IGST charged in his invoice.

Registration

Earlier, the sub-brokers, agents etc were not required to register and discharge liability of service tax as the main broker was liable to do the same. However, under GST agents/sub-brokers, Authorised Persons, Remisers etc are liable to get themselves registered due to provision of compulsory registration as enrished in The Central Goods and Services Tax Act, 2017. CGST Act provides that any person who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise will have to take registration. The threshold limit of registration is aggregate turnover of ₹ 20 lakhs for other than Special Category States like Arunachal Pradesh, Assam, Nagaland, Manipur, Himachal Pradesh, Sikkim and Jammu & Kashmir. In case f these States the aggregate turnover is ₹ 10 lakhs. Further, aggregate turnover will define as aggregate value of all taxable supplies including exempt supplies, exports and inter-state supplies having same permanent account number to be computed on all India basis but excluding CGST, SGST, UTGST & IGST. However, inward supplies on which tax is payable on reverse charge basis are not to be included for the purpose of computing aggregate turnover.

If a sub-broker etc. is not registered, the main broker is liable to pay GST on reverse charge basis for commission paid to sub-broker/ franchisee. Main broker paying commission to the sub-broker or authorised person etc. shall have to issue debit note on month on month basis for claim of input tax credit.

Once registered, a stock broker will have to observe all compliances under GST including issue of invoice, payment of tax, filing of monthly returns, invoice matching, record maintenance, annual audit in case of turnover above ₹ 2 crore in a financial year etc. Further, he will be required to pay GST on purchases from unregistered dealers above ₹ 5,000/- per day in aggregation of all premises registered under same permanent account number. The registered person can take input tax credit of GST paid on purchase from unregistered dealer by issuing self invoice and uploading the same in GSTN.

Rate of tax

Stock broking service falls under the general description of the rate schedule called as ‘other services’ under Chapter Heading Number 9997.

Concluding remark

GST in general and particularly on stock broker service will streamline the entire process of services of trading of securities by all intermediaries from main broker to sub-brokers, authorised persons, remisers, network partners. With availment of input tax credit it is expected to bring financial discipline in the financial market.

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:

“business” includes––

(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 [1972] 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.”

ANNEXURE-2

Judgment of Madras High Court on the activities of TTD

In Tirumala Tirupati Devasthanam v. State of Madras [1972] 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.”

ANNEXURE-3

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.”