2022 (7) TMI 504 - AAR - GST

Supply u/s 7 of CGST/SGST Act - procurement and distribution of drugs, medicines and other surgical equipment by APMSIDC on behalf of government without any value addition, and without any profit or loss, without even the intent to do business - exemption from GST on establishment charges received from the State Government as per G.O.Rt 672 dated 20-5-1998 and G.O.Rt 1357 dated 19-10-2009 by APMSIDC - exemption as per Entry 3 or 3A of Notification 12/2017-Central Tax (Rate). HELD THAT - For a transaction/activity to be qualified under 'business', it need not be for a pecuniary/ monetary benefit. Similarly, the absence of profit motive will not shield any transaction from being included under business - in the excerpt from the 'Tender Notice', payment is made and the invoices are raised in the name of MD, APMSIDC, Mangalagiri, Andhra Pradesh, for the supply of goods, which is an established fact as submitted by the applicant himself. Therefore, the procurement and distribution of drugs, Medicines and other surgical equipment by APMSIDC, is essentially a 'supply', as per the provisions of the Act. Whether the establishment charges received from the State Government as per G.O.Rt 672 dated 20-5-1998 and G.O.Rt 1357 dated 19-10-2009 by APMSIDC is eligible for exemption as per Entry 3 or 3A of Notification 12/2017 Central Tax (Rate)? - HELD THAT - The applicant claims that corporation does not incur any profit or loss on any of the commodities and hence the remuneration earned by Corporation is for the pure services alone. But, as a matter of fact, the applicant undertakes the procurement of drugs, surgical equipment, etc, and raises an invoice in the name of MD, APMSIDC. In addition to the above, the charges are received from the State Government as 'establishment charges' for handling and monitoring the activity. By all means, the principal activity is the procurement of goods and the ancillary activity is the service component of handling and monitoring of the supply, for which establishment charges are received as 2% as mentioned by the applicant. Thus, there is a clear cut involvement of both goods and services in the instant transaction and it is not in any way, a pure service, thus not eligible for exemption.

Summary

Issues Involved:
1. Whether the procurement and distribution of drugs, medicines, and other surgical equipment by APMSIDC on behalf of the government amounts to "Supply" under Section 7 of CGST/SGST Act.
2. Whether the establishment charges received from the State Government by APMSIDC are eligible for exemption as per Entry 3 or 3A of Notification 12/2017-Central Tax (Rate).

Issue-wise Detailed Analysis:

Issue 1: Procurement and Distribution as "Supply" under Section 7 of CGST/SGST Act

The judgment examines whether the activities of APMSIDC in procuring and distributing drugs, medicines, and surgical equipment on behalf of the Health, Medical, and Family Welfare Department, Government of Andhra Pradesh, qualify as "Supply" under Section 7 of the CGST/SGST Act. According to Section 7, the scope of supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

The applicant contended that the procurement and distribution were done on a "no profit/no loss" basis, with no commercial interest, and the government reimbursed the actual amounts incurred. However, the judgment clarified that these attributes do not exclude the transaction from being considered a "supply." The definition of "business" under Section 2(17) includes any trade, commerce, manufacture, profession, vocation, adventure, wager, or any other similar activity, whether or not it is for pecuniary benefit. Therefore, the absence of profit motive does not shield the transaction from being included under "business."

Furthermore, the transaction involved "consideration," as defined in the Act, which includes 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. The procurement and distribution of drugs and surgical equipment by APMSIDC, involving invoices raised in the name of MD, APMSIDC, Mangalagiri, Andhra Pradesh, clearly fall under the definition of "supply."

Issue 2: Exemption of Establishment Charges under Entry 3 or 3A of Notification 12/2017-Central Tax (Rate)

The second issue addressed whether the establishment charges received from the State Government by APMSIDC are eligible for exemption under Entry 3 or 3A of Notification 12/2017-Central Tax (Rate). The notification exempts pure services provided to the Central Government, State Government, or local authority 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 argued that the services provided by APMSIDC are pure services and fall under the functions entrusted to a Panchayat under Article 243G. However, the judgment noted that the principal activity of APMSIDC involves the procurement of goods (drugs, surgical equipment, etc.), and the ancillary activity is the service component of handling and monitoring the supply. The establishment charges received are for handling and monitoring the activity, but the principal activity involves both goods and services. Therefore, the transaction is not considered a pure service and does not qualify for the exemption under Entry 3 or 3A of Notification 12/2017-Central Tax (Rate).

Ruling:

1. The procurement and distribution of drugs, medicines, and other surgical equipment by APMSIDC on behalf of the government amounts to "Supply" under Section 7 of CGST/SGST Act.
2. The establishment charges received from the State Government by APMSIDC are not eligible for exemption as per Entry 3 or 3A of Notification 12/2017-Central Tax (Rate).