2019 (8) TMI 29 - AAR - GST

Classification of supply - classification of goods or services - grant-in-aid or not - use and construction of toilets - services by way of any charitable activity - entities registered under Section 12AA of the Income Tax Act, 1951 Whether the activities of the applicant can be considered as supply of goods or services and whether the applicant is liable to pay GST on the amount received by them from AICL if the Said amount is treated as consideration towards supply of goods or services. Also, whether the amount received from AICL can be treated as grant-in-aid, which may be non-taxable? - HELD THAT - In the present case, there is a direct link between the amount paid and the supply of taxable service of installation of solar pumps, solar street lights and construction of toilets. The MoU clearly provides that the amount of ₹ 20,35,76,800 is to be paid by AICL to the applicant for installation of specific numbers solar pumps and solar street lights and for construction of Specific numbers of toilets. Further, the MoU specifies the details of the beneficiaries and guidelines to ensure that such services are delivered to them. Hence, it is not a case where IACL has donated lump sum to the applicant for carrying out activities which the applicant may be persuing. The amount paid in this case is linked to specific taxable activity. Use and Construction of toilets - Whether the said supply of goods or services by the applicant is exempted under S. No. 1 or under S. No. 76 of the Notification No. 12/2017 -Central Tax (Rate) dated 28.06.2017? - HELD THAT - The exemption under Section 12A / 12AA and Section 10 (23C) and (v) of the Income Tax Act, 1961 does not cover all incomes or activities of the applicant. The exemption under said provisions are admissible based on the nature of activity and source of such incomes. In the present case, such income has not been received by the applicant for either any Charitable purpose of for running any Institute. Hence, exemption under CGST Act, 2017 on income is admissible only if the Same is towards charitable activity - for the said services to be covered in clause (iv) of the above definition of charitable activities, these must be relating to the preservation of environment. However, in the present case, the purpose of said services is to provide infrastructural facilities in the villages to improve quality of life of the rural population. It has been observed that most of the villages lack basic amenities like education, health, sanitation, roads, civil infrastructure and facilities, availability of adequate electricity, potable water and other necessary facilities. The said services are not covered in the definition of charitable activities and impugned services rendered by the applicant are not covered under S. No. 1 of Notification 12/2017 - Central Tax (Rate) dated 28.06.2017. Hence, in cases where the service provider is permitting use of toilet facility for a consideration from the user, the same may be possibly exempted from payment of CGST under the said exemption notification - However, construction of toilets is not covered under Service Code heading 9994 or in the Service description given in S. No. 76 of the said Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Whether Goods and Services Tax (GST) is leviable on the transaction/agreement as per the Central Goods and Services Tax Act, 2017.
2. If GST is applicable, whether the transaction can be exempted in whole or in parts under specific provisions of exemption notifications.

Issue-wise Detailed Analysis:

Issue 1: GST Applicability on the Transaction/Agreement

Consideration and Supply:
The primary issue is whether the amount paid by AICL to the applicant constitutes "consideration" for the supply of goods or services. The applicant argued that the payment from AICL is a grant and not consideration since the services are provided directly to beneficiaries and not to AICL. However, the judgment clarified that under Section 2(31) of the CGST Act, 2017, consideration can be paid by any person other than the recipient. The direct link between the payment and the services provided (installation of solar pumps, solar street lights, and construction of toilets) establishes that the amount is indeed consideration for the supply of services.

Nature of the Transaction:
The applicant's activities under the MoU with AICL are considered "supply" under Section 7(1) of the CGST Act, 2017. The payment by AICL to the applicant is directly linked to specific services, thus qualifying as consideration. The argument that the payment is a grant-in-aid was rejected since the payment is tied to specific services, and there is a clear nexus between the payment and the services provided.

Issue 2: Exemption Under Notification No. 12/2017

Charitable Activities:
The applicant claimed exemption under S.No. 1 of Notification No. 12/2017, which exempts services provided by entities registered under Section 12AA of the Income Tax Act, 1961, if the services are by way of charitable activities. The judgment examined whether the services provided (installation of solar water pumps, solar street lights, and construction of toilets) fall under the definition of "charitable activities" as per the notification.

Public Health and Preservation of Environment:
The applicant argued that their activities relate to public health and preservation of the environment. However, the judgment clarified that the installation of solar pumps and lights primarily aims to improve infrastructure and quality of life in rural areas, not directly for the preservation of the environment. Thus, these activities do not qualify as charitable activities under Clause (i)(B) or Clause (iv) of the notification.

Public Conveniences:
The applicant also claimed exemption under S.No. 76 of Notification No. 12/2017, which exempts services by way of public conveniences. The judgment clarified that only services falling under heading 9994 (sewage and waste collection, treatment, and disposal) are covered. Since the construction of toilets does not fall under this heading, it does not qualify for exemption.

Ruling:
1. The amount received by the applicant from AICL is considered "consideration" for the supply of goods or services under Section 2(31) of the CGST Act, 2017, and is thus subject to GST.
2. The supply of goods or services by the applicant is not exempt under S.No. 1 or S.No. 76 of Notification No. 12/2017. Therefore, the applicant is liable to pay GST on the transactions under the MoU dated 16.01.2017 with AICL.