CA Manoj Nahata 
1. Whether collecting fees from members and spending it on organizing leadership programs for members by club is liable to GST?
Held: Yes
In case of M/s Lions Club of Poona Kothrud-AAAR Maharashtra, the applicant is an autonomous unit that collects fees from their members in order to conduct social activities and meet their administrative costs. Similarly, Lions Districts collect fees from Clubs and Cabinet Members to manage District activities. The question raised by the respondent before the Advance Ruling Authority was “Since the amount collected by individual lions clubs and lions districts is for convenience of lions members and pooled together only for paying meeting expenses and communication expenses and the same is deposited in a single bank account, as there is no furtherance of business in this activity and neither any services are rendered nor are any goods being traded, whether registration is required by them or not.”
The Authority for Advance Ruling vide its order dated 28-8-2018 ruled that the GST is not applicable on the fees collected by the Lions Club and hence need No Registration under GST Act.
Against the said Ruling, the department approached to the AAAR, Maharashtra in an appeal.
The Department submitted that the above ruling seems to be on wrong footings inasmuch as no proper weightage has been given to the actual field activities as stated by the applicant that Lions Club and Lions District consists of association of persons, joined together to undertake social activities without any profit motive. Funds collected as fees are pooled together to be expended for meeting expenses and forwarding to international office for administrative expenses. Surplus, if any, is used for charitable activities. From a conjoint reading of section-2(17) and section-7 of the CGST Act, 2017, it seems that the ruling delivered by the Advance Ruling Authority is not legal and proper inasmuch as element of “furtherance of business” in the activity do exist even though it is stated that no goods are being traded. Consequentially, a prayer of the respondent that no registration is required has no leverage and legal backing. It is pertinent to mention here that in an identical case of the West Bengal Authority for Advance Ruling, Kolkata in case of Association of Inner Wheel Clubs in India, has given verdict in favour of the Department. In that order the basic question has been dealt with at length regarding “supply of services” and has rightly made clear distinction between said services and held that such services at best are “incidental and ancillary to the social welfare activity and preferred to classify the above activities under the Services Accounting Code no. 99836.
The Appellate Authority referred the meaning of the term ‘consideration‘ envisaged under section 2(31) of the CGST Act, 2017, the relevant extract of which has been reproduced herein below:
“Consideration” in relation to the supply of goods or services or both includes—
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or State Government;
Thus, from the above inclusive definition of the term “consideration”, it can decisively be construed that the membership fee collected by the Club from its members is not only meant for meeting the administrative expenses, but is also towards organizing the Leadership Program for the direct or indirect benefits of the members. Any Leadership Skill along with other skills as stated in the documents submitted by the applicant, imparted to any Lion member is not restricted or limited to any particular project, but the overall impact of such qualities developed in any person stays for his entire life span and the benefits accrued out of such skills will undoubtedly go much beyond the Projects undertaken by the Lions Club. Thus, any membership fee collected by the Lions Club from its members will definitely be understood as “consideration” as the same has been paid for the supply of services.
2. Whether compensation paid to parties for agreements which could not materialize is taxable under GST?
Held: Yes
In case of M/s Goa Industrial Development Corporation-AAR Goa, The applicant had allotted land to 7 parties for setting up Special Economic Zone (SEZ). However, this could not materialize due to protest from the people. As a result, deposit taken from the parties had to be refunded. However, GIDC refused to pay compensation on this deposit, as the original Deed of Lease never mentioned such clause. The Government of Goa resolved to approve the proposal of Goa Industrial Development Corporation (GIDC) to take back all the land allotted to 7 parties for setting up Special Economic Zone and refund the amount paid by SEZ parties along with interest, earned on such amounts paid by the parties. The applicant sought an advance ruling on the taxability of the compensation provided by the applicant.
The Authority observed the above matter in light of the provisions of section-7 and Schedule-II of the CGST Act, 2017. In the applicant’s case, the applicant has agreed to do an act of vacating the claim by parties of setting up SEZ units for which GIDC has paid consideration. Thus the original amount which is paid back along with compensation would clearly qualify as ‘Supply of Services’. The same is evident from the extracts of relevant portion of Schedule-II produced below-
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and
Hence, the compensation paid by GIDC would clearly qualify as ‘Supply’ under clause 5(e) of Schedule II of the GST Act, and therefore the amount would attract tax liability.
3. Whether printing services provided on the direction of foreign entity to recipient located in India are taxable under GST?
Held: Yes
In the case of Swapna Printing Works Pvt. Ltd.-AAR West Bengal, the applicant is engaged in the business of printing. The applicant sought an advance ruling on whether the activities undertaken by procuring orders from a foreign buyer to print texts and thereafter deliver them to various places in India is a taxable transaction or not?
The applicant submitted that Hope Foundation Inc, a foreign entity, awards the applicant a contract for printing booklets in various Indian languages. The content is provided by the foreign entity. The applicant arranges physical inputs like paper, ink and other physical inputs, prints the content and binds the printed material into booklets and delivers the booklets to the recipient. It receives consideration in US dollars. It further submitted that the recipient, as defined under section 2(93)(1) of the GST Act, means the person liable to pay the consideration. It argues that the person liable to pay the consideration is not necessarily the one to whom the service is rendered. The recipient, therefore, might not be the person to whom the service is rendered. The distinction is apparent from the wording of clauses (a) and (c) of section 2(93) of the GST Act. If consideration is payable, as in the present context, the recipient shall be the person liable to pay the consideration. Otherwise, the recipient of the service shall be the person to whom the service is rendered. Therefore, the place of supply should, be determined in accordance with the provisions under section 13(2) of the IGST Act, 2017, the recipient being located outside India.
The Authority observed that the applicant prints booklets that are classifiable under heading 4901 of the Tariff Act. The recipient provides the content usually on a digital media and retains usage right on such intangible inputs. The applicant prints the content on physical media, binds them into booklets and supplies the printed material. The goods so supplied have no utility other than displaying the printed content. Service of printing, therefore, is the predominant element of the composite supplies. At the same time, being a composite supply, the printing service is inseparable from supply of the goods, namely the printed booklets. The place of supply of the printed booklets will, therefore, be the place of supply of the printing service. In other words, the place at which the printed booklets are delivered is the place of supply of the composite printing service.
The Authority also stated that the applicant fails to appreciate the true meaning of the terms ‘recipient’, as defined under section 2(93) of the GST Act. In the context of a supply involving payment of consideration, a ‘recipient’ of supply of goods or services means the person who is liable to pay the consideration and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied. The ‘recipient’ is, therefore, so defined as to make separation impossible between the person to whom the supply is made and the one liable to pay the consideration. Of course, when no consideration is involved, as under clause (c) of the above section, the recipient can only be the person to whom the service is rendered. The person who receives the supply in India should, therefore, be considered as the recipient, being inseparable from the foreign buyer as far as the applicant’s supply is concerned. Also, the applicant’s services do not fulfill the criteria for being classified as ‘export of services’ provided under section-2(6) of the IGST Act, 2017. Therefore, the applicant’s supply is a composite supply taxable under GST in terms of Sl No. 27(i) of Notification No. 11/2017 – Central Tax (Rate) dated 28/06/2017 as amended from time to time.
4. Whether solid waste management services provided to Municipal Corporation is exempt under GST? Whether section-51 of the CGST Act, 2017 is applicable to it?
Held: Exempted and section-51 of the CGST Act, 2017 not applicable.
In the case of M/s Dipak Kanti Mazumdar Dynamics Engineers.-AAR West Bengal, the applicant was providing conservancy/solid waste management service to the Howrah Municipal Corporation (HMC). The HMC, however, is deducting TDS while paying consideration for the above supply. The applicant sought an advance ruling on the taxability of the above said services supplied by it and whether TDS provisions are applicable to it?
The applicant submitted that Sl No. 3 of the Notification No. 12/2017 C.T (R) dated 28.06.2017 exempts from payment of GST any “pure service” (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution. The applicant further submitted that the services provided by it are of local authority and therefore the exemption notification applies to his supplies.
The Authority observed that these functions are in the nature of public welfare service that the governments on their own, and sometimes through governmental authorities/entities, do provide to the citizens. When the activity is in relation to any such function, the supply to the governments or governmental authorities/entities or local authorities is exempt from paying GST under Sl No. 3 or 3A of the Exemption Notification, provided it is either a pure service or a composite supply, where supply of goods does not constitute more than 25% of the value.
The Authority stated that the recipient (HMC) is a local authority as defined under sec-2(69) of the CGST Act, 2017. Also, it is observed that the services provided by the applicant is in the nature of pure service as there is no reference to any supply of goods in the course of executing the work. Further, the applicant’s supply to HMC is a function mentioned under Sl No. 6 of the Twelfth Schedule of the Constitution of India. Hence, the applicant’s service is exempt under GST in terms of the Notification No. 12/2017.
Also, the TDS provisions under GST are not applicable to payments made to the applicant as the section-51 of the CGST Act, 2017 mandates a local authority to deduct TDS only when the payments are made to a supplier of taxable goods or services or both .As the services provided by the applicant are exempt under GST, no TDS provisions are applicable to the payments made to the applicant.
5. Whether ITC on GST paid on goods purchased for the purpose of construction and maintenance of Warehouse such as vitrified tiles, marble granite and other construction material can be claimed in full?
Held: No
In case of M/S Unity Traders–AAR Madhya Pradesh, the applicant is a partnership firm engaged in providing Clearing and Forwarding Agent services. It stores goods of other companies and charges rent for the same. The applicant sought an advance ruling on the availability of ITC in respect of goods purchased for the purpose of providing the above mentioned C & F Agent services.
The applicant submitted that the firm being a taxable person is liable to pay GST on rent realized from warehouse. Therefore in view of section-16 of the CGST Act, and to avoid the cascading effect of ITC, the firm is statutorily entitled to avail the benefit of taking credit of the ITC charged on the supply of goods or services which are consumed or utilized for the construction of the warehouse and set off the same against the output tax liability arising on account of rent realized from the warehouse.
From a plain reading of section-17 of the CGST Act, 2017, it is evident that ITC is blocked only in cases where inputs are consumed in the construction of an immovable property which is not meant and intended to be sold. But the position is totally different where the immovable property is constructed for the purpose of letting out the same as the tax chain is not broken and on contrary, the construction of building will result in fresh stream of GST revenue to the exchequer on the rentals generated by the building. Therefore, the denial of ITC in such a situation is completely arbitrary, unjust and oppressive.
The Authority observed that as per section-16 of the CGST Act, 2017, every registered person shall entitle for ITC subject to such conditions and restrictions as may be prescribed. The applicant constructed the warehouse which is an immovable property and as per the exclusion clause section-17(5), no ITC is available on the goods and services used in the construction of immovable property. The section-17(5) of the CGST Act, 2017 is an exclusion clause in spite of the goods and services used in the course or for furtherance of his business as the section-16 of the CGST Act, it is clearly mentioned that the entitlement of ITC is subject to the conditions and restrictions. Further, the contention of the applicant is not correct and there is no scope of interpretation but in spite of the clear cut law, the applicant has wrongly interpreted the section to avail the benefit of inadmissible credit. Therefore, the authority ruled that applicant is not entitled to avail the input tax paid on goods and services used in the construction of warehouse used for letting out on rent.
6. Whether the activities performed by an association such as promotion of research in the fields of Life Sciences, Environmental sciences, performing online research journal on them, organizing seminars on such matters are covered under Charitable activities under Notification No. 12/2017 C.T (R) dated 28.06.2017 implying Nil rate of tax?
Held: Promotion of research and publishing of online research journal are not covered under the ‘Charitable activity’.
In case of M/s World Researchers Associations-AAR Madhya Pradesh, the applicant is an international not for profit company incorporated under section-8 of the Companies Act, 2013 and registered u/s 12AA of the Income Tax Act, 1961 carrying out the activities like promotion of research in the fields of Life Sciences, Environmental sciences, performing online research journal on them, organizing seminars on such matters. The applicant sought an advance ruling on whether the applicant’s services are classified as ‘charitable activities’ in terms of Notification No. 12/2017 C.T (R) dated 28.06.2017?
The Authority stated that the definition of ‘charitable activity’ under Notification No. 12/2017C.T (R) dated 28.06.2017 is not an inclusive definition. A joint reading of the activities covered under the Notification and the activities performed show that the promotions of research and publishing of online research journals are not activities contemplated in the exemption entry. Further, the fact of ‘organization of seminars, symposiums and conventions’ has to be determined as whether the program is open for public or not. Since, the applicability of the exemption is dependent on whether the activity is for public awareness, which is fact to be determined in each case. Hence, promotion of research and publishing of online research journal are not covered under the exemption entry of the Notification No. 12/2017 C.T (R) dated 28.06.2017. No advance ruling can be passed on organization of seminars and conventions as their nature varies from case to case.
7. Whether ITC can be claimed on the inward supply of medicines used to provide medical facilities to the employees, pensioners and dependents in the in-house hospital?
Held: No
In the case of M/s. Chennai Port Trust-AAR Tamil Nadu, the applicant is engaged in supply of port services and incidental supply of goods like disposal of discarded assets. It sought an advance ruling on whether is entitled to take credit of input tax charged on the inward supply of medicines which are used or intended to be used in the course or furtherance of business of the applicant?
The applicant has stated that they are engaged in supply of port services and incidental supply of goods like disposal of discarded assets. It is functioning under the administrative control and supervision of Ministry of shipping of Government of India. It is maintaining an in-house hospital for providing health and medical cover exclusively to their employees and pensioners. The hospital is only a cost centre and the inward supplies of medicines are provided to the employees and pensioners without charging any separate consideration. It submitted that these inward supplies of medicines are used by the applicant only for the purposes of his business. No apportionment of ITC is applicable under section 17(1) to (4). The term “health services” are not defined in the ACT or Rules. The health and medical cover provide by the applicant will not get covered under the definition of “services” under section 2(102) of the Act as no separate consideration is charged. Hence, the ITC for these inward supplies are not blocked credits under section 17(5)(b)(i). These medicines cannot be considered as “goods used for personal consumption” since the cost of these medicines are borne by the applicant as a part of service contract with its employees and pensioners as held in the case of Hindustan Coca Cola Beverages (P) Ltd. v. CCE (2015) 56 taxmann.com 378/51 GST 126 (Mum–CESTAT). The medicines are used in the course or furtherance of business as per section 16 and are not blocked credit under section 17(5)(g), consequently it is eligible for ITC on inward supply of medicines under section 16(1) subject to fulfillment of rules 36 to 45 of CGST Rules.
The Authority stated that the applicant has their own in-house hospital for use by the employees, retirees and their dependents. This is a free center where all the services and medicines are provided free to the employees. No consideration is charged from the employees for this. This provision of free medical care is mandatory as per the Regulations made under Major Ports Act. These are mandated to be provided to the applicant’s employees, their dependents, pensioners and family pensioners for their own in-patient and out-patient treatments. These treatments include medicines which are also provided free of charge to the employees for their personal use. The medicines and medical facilities are proved by the applicant to its employees for their personal use. Therefore, as per section 17(5)(g) of CGST/TNGST ACT, input tax credit is not available for the medicine that the applicant is procuring for the consumption of its employees and pensioners and their dependents. The applicant has stated in their application that these are not “goods for personal consumption” as the applicant pays for the same. The fact of who pays for the medicines here is irrelevant to the usage of the said medicines. They are used by the employees and dependents and hence are for personal consumption and the applicant is ineligible to take input tax credit on the inward supply of medicines used to provide health facilities to its employees in its hospital. Therefore, the applicant is not entitled to take credit of input tax charged on the inward supply of medicines which are used to provide medical facilities to the employees, pensioners and dependents in the in-house hospital.
8. Whether selling of space/time for advertisement in print media by advertising companies is a pure service or otherwise. If yes, whether said pure service is exempted from payment of GST vide Notification No. 12/2017-Central Tax (Rate), dated 28th June, 2017 when advertising agency is raising bill to Local Authority or otherwise?
Held: No, taxable under GST
In the case of M/s Harmilap Media Private Ltd.–AAR Uttarakhand, the applicant is an Advertising Company/Agency engaged in selling unit of space in various print media to diversified clients on DAVP approved rate/DIPR approved rates or rates as per open market. The applicant sought an advance ruling on the applicability of the Notification No. 12/2017-Central Tax (Rate), dated 28th June, 2017 to the services provided by the applicant.
The Authority stated that “Pure Services” are mentioned under Notification No. 12/2017-Central Tax (Rate), dated 28th June, 2017 and exemption to pure services are admissible subject to the fulfillment of certain conditions laid down in the said notification On perusal of aforesaid notification, the Authority found that services supplied without involving of goods is a pure service and to avail exemption under said notification following conditions are required to be fulfilled:
(i) pure service must be supplied to the Central Government, State Government or Union territory or local authority or a Governmental authority, and
(ii) supply of pure service is related to an activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution.
The Authority observed that the applicant argued that “sale of space for advertisement in print media” includes invariably the supply of material in the form of newspaper and the material component forms a major part of the value of said supply. Thus said supply does not fall in the category of “Pure Services”. Hence, supply of service “Sale of Space for Advertisement in Print Media” is not a “Pure Service” and the exemption to said services are not admissible in terms of Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 (as amended from time to time)
