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January 30, 2021

GST is exempt on supply of educational aids to students without consideration to Govt/Govt Aided schools- AAR

by Rubina Dsouza in GST, GST Circular Notification

GST is exempt on supply of educational aids to students without consideration to Govt/Govt Aided schools- AAR

Introduction                                                          

Under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at the time of supply of goods or services. Thus, determining whether or not a transaction falls under the meaning of supply is important to decide GST’s applicability. The GST council has fitted over 1300 goods and 500 services under four tax slabs of 5%, 12%, 18% and 28% under GST. Certain supplies are covered under Notification No. 2/2017- Central Tax (Rate)dated 28-06-2017 as amended by Notification No.35/2017-Central Tax (Rate) dated 13th October 2017 are exempted from the levy of GST (i.e no GST will be charged on such supplies).

As per S. no 150 of the above notification, Supply of goods by a Government entity to Central Government, State Government, Union territory, local authority or any person specified by Central Government, State Government, Union territory or local authority, against consideration received from Central Government, State Government, Union territory or local authority in the form of grants are exempt from GST.

Let us refer to the case of Tamil Nadu Textbook and Educational Services Corporation (GST AAR Tamil Nadu) where the applicant sought clarity on the applicability of the above exemption notification.

Basic Information of the Applicant:

M/s. Tamil Nadu Textbook and Educational Services Corporation is a society registered under the provisions of the Societies Registration Act 1860 set out by the Government with the object to acquire and take over the business and other activities of Government of Tamil Nadu relating to Publication of text books and to promote the advancement of General and Technical Education.

Applicant sought ruling for the following questions:

  • Whether the supply of educational aids to students such as school bags, footwear, geometry box, wooden colour pencils, crayons, woolen sweater of government and government aided schools based on the State Government educational policy for which the consideration is paid to applicant by the State Government by means of a budgetary allocation constitutes a supply
  • If the answer to the above is in the affirmative then is the applicant entitled to avail of corresponding input tax Credit on the procurement made.
  • Whether the supply of Rain Coats, Ankle Boots and Socks to students without consideration to Government/Government Aided schools located in Hilly areas is a supply.
  • If the answer to the above is in the affirmative then is the applicant entitled to discharge its tax liability on such outward supplies at Cost +10% and avail of corresponding Input Tat Credit on the procurement made.
  • Whether Tamil Nadu Text Book and Educational Services Corporation is eligible for exemption from payment of GST in respect of services if received from printers engaged by them for printing of text books.
  • Whether the applicant is required to pay GST on Penalty and Liquidated damages levied by them on suppliers due to violation of the contract terms for supply and if so the rate at which such GST is payable.

Observations of AAR on whether the supply of educational aids to students of government and government aided schools based on the State Government educational policy for which the consideration was paid to applicant by the State Government by means of a budgetary allocation constituted a supply

  • The applicant had stated that as per the requirements provided by the Education Department, Government of Tamil Nadu, the applicant floated tenders for procurement of the educational kits and submits a claim to the Education Department of the State government for allocating monies for the cost of procurement of the educational kits.
  • The applicant also claimed incidental expenses towards procurement such as advertisement cost for floating tenders, field inspection expenses and other related costs and administration charges which was at 1% of the cost of procurement of the supplies.
  • It was seen from the claim bills submitted by the applicant that they raised a claim on the Education Department, Tamil Nadu separately for the supply of the kits and for administrative charges such as advertisement, air ticket, field visit, testing charges, meeting expenses etc.
  • ‘Person’ is defined under section 2(84) of the CGST Act, 2017 to include individuals, Hindu Undivided Family, company including government company, firm, limited liability partnership, association of persons, body of individuals, co-operative society, local authority, government including a corporation established by or under any Central, State or provincial Act, trust and artificial juridical person.
  • In the instant case, the applicant is a society registered under Societies Registration Act, 1860 and hence is a ‘person’ as per Section 2(84).
  • According to Section 2(17) of the CGST Act, “business” includes:
  • any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
  • any activity or transaction in connection with or incidental or ancillary to (a) above
  • According to Section 7 of the CGST Act 2017 “supply” 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
  • In the instant case, the applicant was formed as a society by the State government for procuring and supplying textbooks and other items.
  • The applicant was supplying the kits for a consideration which included cost of the goods plus various administrative charges which is claimed by the applicant.
  • Therefore, the supply of educational aids such as school bags, footwear, geometry box, wooden colour pencils, crayons, woollen sweater by the applicant to the State government for a consideration was a ‘supply of goods’ in the course of its business as per Section 7 of the Act.
  • The applicant had claimed exemption in respect of the above supply vide Sl.No. 150 in Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended by Notification No.35/2017-C.T.(Rate) dated 13th October 2017.
  • As per the above entry inserted effective from 13th October 2017, Supply of goods to State Government by a Government entity, for which the consideration was received in the form of grants stands exempted.
  • In the case at hand, the applicant was a society established by State Government with Chief Minister as the Chairman of the Board, Educational Minister as Vice-chairman and Secretaries to the Government as members with control by the state government, therefore the applicant was a ‘Government entity’ as defined under the Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended.
  • From the submissions of the applicant on the Activities involved in the purchase of Cost Free Kits and the supply of the same, it was seen that based on the Government’s Order the Director of School Education places the requirement order with the applicant, who on receipt of the same prepared the Tender Document and initiated the tender process culminating in issuing of Purchase Order to the Successful bidders.
  • Thereupon, the applicant raised a claim bill with the Department of School/Elementary education for re-imbursement of cost of such kits and incidental expenses incurred by the applicant, which was sanctioned and released out of the Budget of Tamil Nadu School Education Department.
  • Thus, it was seen that the supply of the education kit by the applicant, a Government entity, to the Department of School/Elementary Education, the State Government Department, for which the consideration was paid out of the Budget allocation of the Education Department in the form of grant.
  • Therefore, the supply of educational kit was a ‘Supply’ and the same was squarely covered as supply of goods specified under Sl.No. 150 of Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended by Notification No.35/2017-C.T. (Rate) dated 13th October 2017 and hence was an exempted supply.

Observations of AAR on whether the applicant is entitled to avail ITC on the procurement made

The second question raised was on their eligibility to ITC on the procurement of Educational Kits supplied to the Government. As the supply of ‘Educational Kit’ was fully exempted, the applicant was not eligible to the ITC paid on the procurement of such goods.

Observations of AAR on whether the supply of Rain Coats, Ankle Boots and Socks to students without consideration to Government/Government Aided schools located in Hilly areas was a supply? If so, whether they were entitled to discharge the tax liability on such outward supplies at Cost + 10% and avail of corresponding ITC on the procurement made?

  • The applicant supplied raincoats, boots and socks based on the requirement as provided by the Education Department, to the Government Schools located in hilly areas for which no consideration was paid to the applicant by the Department of School/Elementary Education.
  • The applicant claimed that these supplies for which no consideration was received separately from the government should also be covered under the exemption at Sl.No. 150 of Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended and therefore exempted from payment of GST.
  • From the submissions made by the applicant it was seen that, it was ordered to supply raincoat, boots and socks, based on the announcement of the Chief Minister during the allocation of grants for the year 2016-2017.
  • Accordingly, sanction was accorded to meet the expenses from the funds already available with the applicant and no separate sanction was accorded.
  • It was evident that separate grant was not allocated but the funds of the applicant were ordered to be used for the supply.
  • It was seen from the balance sheet of the applicant that all their income came from the reimbursement from the State Government with any balances let over after expenses of procurement of the various goods as directed by the government.
  • As seen from the Order for supply of these goods, the Government had directed to use the funds already granted and lying unspent with the applicant.
  • Thus, it was to be construed that the grant for the procurement was already given and part of the previous grants left unspent with the applicant.
  • The entry at Sl.No. 150 of the Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended exempted supply of goods to Government by a Government entity, the consideration of which was in the form of grants.
  • From the Order of the Chief Secretary, it was evident that these supplies were considered and sanction for these expenses were to be used from the funds of the applicant.
  • Therefore, these supplies also were exempt vide the said entry.
  • As the supply of these goods to the Government were held to be exempted, the valuation to be adopted for taxation purposes did not arise and therefore was not dealt with.
  • Also, the applicant would not be eligible to avail any input tax paid on these procurements as credit, since the procurement was exclusively towards the exempt supply.

Observations of AAR on availability of exemption in respect of services received

  • According to section 95(a) of CGST Act “advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in section 97(2) or section 100(1), in relation to the supply of goods, services or both being undertaken or proposed to be undertaken by the applicant.
  • As per the above, the ruling can be sought in relation to the supply of goods, services or both undertaken or proposed to be undertaken by the applicant.
  • The issue related to receipt of service and not supply of service by the applicant.
  • Therefore, the said question was not taken up for consideration as the same was not covered under the purview of this Authority.

Observations of AAR on whether the applicant was required to pay GST on Penalty and Liquidated damages levied by them on suppliers due to violation of the contract terms for supply and if so what was the rate at which such GST was payable

  • The applicant had stated that as per the Purchase Order issued by the applicant for purchase of the goods to be supplied to the Government, they levied penalties and liquidated damages on the Suppliers, for failure to adhere to the tender conditions which was on account of delay in supply as per the tender condition or non­adherence to the quality parameters as set out for the items which were supplied.
  • In this case, the applicant had sought a ruling on a supply to be received by the applicant.
  • However, as per Section 95(a) of CGST/TNGST Act, the ruling can be sought in relation to the supply of goods, services or both undertaken or proposed to be undertaken by theapplicantand not received by the applicant.
  • Therefore, the said question was not taken up for consideration as it was not covered under the purview of this Authority.

In conclusion

Supply of educational aids to students of government and government aided schools based on the State Government educational policy for which the consideration is paid by the State Government by means of a budgetary allocation constitutes a supply.

However, the same is exempt with effect from 13.10.2017, vide entry Sl.No.150 in the Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended by Notification No. 35/2017-C.T. (Rate) dated 13th October 2017. Therefore, one also cannot claim credit of tax paid on the related purchases of goods and services.

Supply of Rain Coats, Ankle Boots and Socks to students without consideration to Government/Government Aided schools located in Hilly areas is a supply.

However, the same is exempt with effect from 13.10.2017, vide entry SI.No.150 in the Notification No. 2/2017-C.T.(Rate) dated 28th June 2017 as amended by Notification No. 35/2017-C.T. (Rate) dated 13th October 2017 and therefore one cannot claim credit of tax paid on the related purchases of goods and services.

Advance ruling can be sought in relation to the supply of goods, services or both undertaken or proposed to be undertaken by the applicant. However, advance ruling cannot be sought when the issue is related to receipt of service and not supply of service.

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