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TMI Blog2024 (7) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... ome the obstacles suffered in difficult situation and mainly concentrates on the indirect welfare of the people who depends on the applicant Company - That the grant sanctioned by the FAO of UN is a gratuitous grant under the projects of the said UN organization and it has to be utilised according to the budget lines specified in the agreement within the time lines specified. The said budget lines were determined based on the proposal submitted by the applicant Company to the FAO of UN. From the perusal of the provisions of the CGST Act, 2017 regarding Scope of Supply and the submissions made by the applicant regarding the activities to be undertaken by the applicant as mandated by the grant providing organization we find that there is no supply of Goods or services to the grant providing organization, and hence the we are of the opinion that the activities undertaken by the applicant in lieu of receipt of the Grant from FAO is not covered under the meaning of scope of supply . On perusal of the description of the investment as mentioned in the Grant Agreement it is found that the purpose of the investment is .to help the applicant company overcome the losses due to lack of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tamil Nadu Goods and Services Tax Act are in pari materia and have the same provisions in like matter and differ from each other only on few specific provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Services Tax Act, 2017 would also mean a reference to the same provisions under the Tamil Nadu Goods and Services Tax Act, 2017. 2. The applicant submitted a copy of challan dated 17-10-2023 evidencing payment of application fees of Rs.5,000/- each under sub-rule (1) of Rule 104 of CGST Rules 2017 and SGST Rules 2017. The online application form for advance ruling dated 17.10.2023 was physically received on 06.11.2023 as mandated under Rule 107A. 3.1. M/s. Last Forest Enterprises Private Limited (hereinafter referred to as "Applicant") is a Private Limited Company incorporated under the erstwhile Companies Act, 1956 and its Registered Office and Principal place of Business situated at No. 41/111E, Groves Hill Road, Kotagiri, The Nilgiris, Tamil Nadu - 643217. 3.2. The applicant is engaged in the business of wholesale and retail trade of various Tribal, Non-timber Forest, Organic, Natural an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gency of the United Nations works to improve agricultural productivity and food security, and to better the living standards of rural populations. It also has an aim to defeat hunger and improve nutrition and food security with the help of international efforts. 3.9. The FAO of UN is a specified international organisation declared by the Government of India in pursuance of section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947). 3.10 The applicant had suffered the major losses by way of lack of capital, slowing down and stopping of cash flows and collapsing the distribution and marketing network due to Corona Pandemic Lockdowns in India and worldwide. 3.11 In order to re-imagining of running the green enterprise units of the Applicant in a sustained manner, the applicant Company was in urgent need of investments and hence, it had approached the FAO of UN for funding. Accordingly, the FAO of UN has sanctioned the USD 24,893/- by way of grant to the applicant Company for re-imagining, manage cash flow shortages and to overcome all other marketing obstacles they faced during the Pandemic Lockdowns. 3.12. The grant sanctioned by the FAO of UN is a gratuit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s submissions pertaining to interpretation of law 3.16 The applicant submitted that the grant receipt from the Food and Agriculture Organisation does not amount to the term "Supply'' as defined under Section 7 of the CGST Act, 2017 and stated Section 7 of the CGST Act, 2017 and Schedule I & Schedule II to the CGST Act, 2017 in support of their claim. 3.17 The applicant further stated that as per the Oxford Advanced Learner's Dictionary, "Supply" as a verb is defined as "to make available for use or to provide something to someone" and in the Cambridge dictionary as "to provide something that is wanted or needed". Whereas, in the transaction between the applicant and the FAO of UN, nothing will be supplied to the FAO of UN for the grant given by them. It is purely a gratuitous grant from the overseas UN linked autonomous and Non-Profit Organisation for the use of the applicant to overcome the obstacles suffered in difficult situation and mainly concentrates on the indirect welfare of the people who depends on the applicant Company. Hence, the said transaction is out of the meaning provided in the Section 7 of the CGST Act and the nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is payable for the supply of a service, the person to whom the service is rendered, 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. Section 2 (105) - Supplier of Goods or Services (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, 3.21 The applicant submitted that in the instant case, the FAO of UN, the grantor organisation nothing will be received from the applicant Company in lieu of grant provided to it as stated under Section 2 (93) of the CGST Act to constitute the FAO of UN as the recipient of Service. Similarly, the applicant Company will not supply anything to the grantor institution to bring it within the meaning of "Supplier" as defined in Section 2 (105) of the Act. Hence, the absence of supplier and the recipient relationship between the parties involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the criteria specified in the Section 7 of the CGST Act, 2017. Accordingly, the said receipt can't be termed as "Supply" for the purpose of determination of taxable supply under the CGST Act. 3.26 The applicant summarized the following based on the definition of supply U/s. 7 of the CGST Act, 2017; SI.No. Ingredients to constitute supply Application in the facts of the said case 1 Supply of goods or services. Supply of anything other than goods or services does not attract GST Here, nothing is supplied to the FAO of UN in lieu of grant provided by them. The receipt of grant from the FAO of UN is an aid to overcome the financial obstacles of the applicant and to strengthen its market base. 2 Supply should be made for a consideration The receipt of grant is an assistance to the applicant and not for an exchange of consideration to the FAO of UN in lieu of Grant. 3 Supply should be made in the course or furtherance of business The grant is an assistance to the applicant and not for the purpose of furtherance of business. Further the furtherance of business is not applicable in the said case as the FAO of UN is a NPO and autonomous organisation linked to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of a distinct person in accordance with Explanation 1 in section 8; 3.30 The applicant further stated that the grant from the FAO of UN would qualify as zero-rated supply in terms of Section 16 of the IGST Act, 2017; that Section 7 (5) of the IGST Act, 2017 provides that the supply of service shall be treated as a supply of service in the course of inter-State trade or commerce when the supplier is located in India and the place of supply is outside India and that as per Section 2 (23) of the IGST Act, zero-rated supply' shall have the meaning assigned to it in Section 16 of the IGST Act. Section 16 of the IGST Act, defines zero-rated supply as under;- 16. (1) "zero rated supply" means any of the following supplies of goods or services or both, namely:- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. (3) A registered perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not merely establishments of a distinct person in accordance with Explanation 1 in Section 8. Applicant (supplier of service) and Foreign University (recipient of service) are not merely, establishment of a distinct person 3.33 The applicant submitted that based on the above, no service shall be provided either within India or Outside India to the FAO of UN, a provider of grant or on their behalf in lieu of grant received. Instead, the grant will be utilised for the purpose for which it was sanctioned as per the budget lines specified by the grantor. However, the grant received or will be received from the FAO of UN, an overseas organisation is in convertible Foreign Exchange. Hence, the said grant shall be eligible to classify as an "Export of Service and qualify for "Zero-rated Supply within the meaning of Section 16 of the IGST Act, 2017. 3.34. The applicant further questioned that if the answers to the above questions are negative, whether the applicant is liable to pay GST under the head "IGST (Integrated Goods and Services Tax)" or under the head "CGST (Central Goods and Services Tax) and TNGST (Tamil Nadu Goods and Services Tax)" for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gazette, declare that the provisions set out in the Schedule shall, subject to such modifications, if any, as it may consider necessary or expedient for giving effect to the said agreement, convention or other instrument, apply mutatis mutandis to the international organisation specified in the notification and its representatives and officers, and thereupon the said provisions shall apply accordingly and, notwithstanding anything to the contrary contained in any other law, shall in such application have the force of law in India. 1 Provisions set out in the Schedule have been extended with certain modifications to the following organisations by various notifications (1) International Civil Aviation Organisation. (2) World Health Organisation. (3) International Labour Organisation. (4) Food and Agriculture Organisation of the United Nations. (5) United Nations Educational, Scientific and Cultural Organisation. (6) International Monetary Fund. (7) International Bank of Reconstruction and Development (8) Universal Postal Union. (9) International Telecommunication Union. (10) World Meteorological Organisation, (11) Permanent Central Opium Board. 4.0 The applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Organisation of United Nations. The AR stated that since Food and Agriculture Organisation of United Nations is a specified international organization within the meaning of section 3 of the United Nations (Previliges and Immunities) Act, 1947 (46 of 1947) they have sought advance ruling as to whether the amount received in convertible Foreign Exchange by the applicant from FAO an overseas NPO (Non-Profit Organisation) is liable to GST or not. DISCUSSION AND FINDINGS 7.1 We have carefully considered the submissions made by the applicant in the advance ruling application and also the submissions made during the personal hearing. 7.2 The Applicant is before us seeking Advance ruling on the following questions;- 1. Whether the grant from the Food and Agriculture Organisation of UN is a supply or not in accordance with the provisions of the GST Act? 2. If the said grant is treated as supply, whether the receipt of the said grant is eligible to classify under the Export of Service as "Zero rated supply" under Section 16 of the Integrated Goods and Services Tax Act, 2017 or not? 3. If the answers to the above questions are negative, whether the applicant is liable to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant has also submitted that the grant sanctioned by the FAO of UN is a gratuitous grant under the projects of the said UN organization and it has to be utilised according to the budget lines specified in the agreement within the timelines specified. The said budget lines were determined based on the proposal submitted by the applicant Company to the FAO of UN. 7.5. In view of the above facts it becomes imperative to dwell into the provisions of GST law regarding "levy' 'supply' and 'consideration' to decide the moot issue whether the grant from the Food and Agriculture Organisation of UN is towards any supply or not in accordance with the provisions of the GST Act. 7.6 The provisions regarding Levy and collection is provided under section 9 of the CGST Act, 2017, and Section 5 of the IGST Act, 2017. The extracts of the relevant provisions are reproduced below;- Section 9 of the CGST Act, 2017 (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout a consideration; [****] (d) [****]. [(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either 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 of6[sub-sections (1), (1A) 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. 7.8 On perusal of the above provision of scope of levy provided under the CGST Act, 2017 it can be seen that the scope of supply is an inclusive one and is not a specific one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes were determined based on the proposal submitted by the applicant Company to the FAO of UN. 7.10 We find the applicant submits that the grant received by the applicant shall be released in two phases for achieving the two milestones:- Payment #1: USD 16,000/- upon verification by FAO of achievement of Milestones, to be completed by August 2023: * Complete coffee and balms branding and design * Complete quality assurance training (Phase 1) * Implement PGS wild certification (Phase 1) Payment #2: final payment of USD 8,893/- upon verification by FAO of achievement of Milestones 2, to be completed by February 2024: Implement digital marketing, sales campaigns and participate in exhibitions (Al.2) * Complete quality assurance training (Phase 2) * Purchase products and packaging material (Phase 2) * Implement PGS wild certification Phase 21 7.11 Further, the said grant will focus on two product categories: beeswax and coffee, having high market potential due to its quality and versatility, and as part of the MPPI and Slow Food Coffee Coalition, respectively. The key activities will include:- i. Strengthen the LFE's branding, marketing and sales, and operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods or services or both. However in the instant case we find that there is no supply of goods or services or both involved in the transaction between the applicant and the FAO and we are of the opinion that the amount of USD 24,893/- received by the applicant cannot be held as consideration. 7.16 We find that the Food and Agriculture Organization of the United Nations (FAO) is a specialized agency of the United Nations that leads international efforts to defeat hunger and improve nutrition and food security. On perusal of the GRANT AGREEMENT Number: 1/2023-GCP/GLO/015/MUL submitted by the applicant it is seen that the FAO is providing Grant Support through project GCP/GLO/015/MUL, with funds provided by Terra del Terzo Mondo (the "Resource Partner") and the grant agreement is titled as "For the project: Strengthening Conservation, Enterprise & Livelihoods in the Nilgiri Biosphere Reserve: Focus on Beeswax products and Coffee." 7.17 Further we also find that under the heading "Description of the Investment" the following is mentioned;- LAST FOREST ENTERPRISES PVT LTD (LFE) is a social business enterprise that works as a market intermediary and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal, slowing down and stopping of cash flows and collapsing of the distribution network due to the pandemic lockdown and the activities to be undertaken by the applicant are towards strengthening the local green enterprise for sustained livelihood of vulnerable communities, and contribute to positive environmental outcomes, using an inclusive approach that focuses on enhancing the capacities of women in forest-based enterprises as envisioned by FAO. 7.19. In view of the foregoing we find that neither the grant received by the applicant can be construed to be consideration under the provisions of the GST law nor the activities to be undertaken by the applicant, as per the work plan developed and agreed upon jointly by the FAO and the applicant qualify to be supply under the provisions of GST law. 7.20. Since the answer to Question No. 1 raised by the applicant is answered in the affirmative we find that Questions 2, 3 & 4 need not be answered as they cease to exist. Also, we find that the Question No. 4 has been raised on behalf of the FAO. in this regard, the relevant provisions of Section 95 (a) and Section 103 (a) of the CGST Act, 2017 are reproduced below;- Section 95. Defin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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