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August 24, 2022

Advance ruling cannot be given on applicability of GST on Donation

by CA Shivam Jaiswal in GST, Legal Court Judgement

Advance ruling cannot be given on applicability of GST on Donation

Facts and Issue of the Case

The applicant is a society registered under The Karnataka Society Registration Act, at Madikeri, which is a century old club involved in Golf activities. They received a donation of Rs.1 Crore, during 2021-22, from a person, who is not a member of their club; the donation received with natural love and affection towards Golf and without any consideration and no publicity involved in the form of Advertising and Promotion of business.

In view of the above, the applicant has sought advance ruling in respect of the question that whether the donation amount is taxable under GST or not? If taxable whether the rate of GST applicable on the said donation is 18% or not?

The applicant submitted a copy of the letter from the donor to the applicant wherein the donor mentioned that the donation has been given, by the donor, without any instructions or without a quid pro quo in the form of supply of any goods or services by the club to the donor; The donation is without any favour or for favour in return and is a financial help or any other support from the donor, which is not aimed at giving publicity to the donor in such manner that it would be an advertising or promotion of business of the donor and hence there is no supply of service for a consideration. The applicant, in view of this, without furnishing any interpretation of law, contends that the said donation is not taxable under GST.

Observation by the Court

Mis Mercera Downs Golf Club is a registered society under Karnataka Society Registration Act, involved in Golf activities as mentioned by them. As per their profile details in GST Prime they are involved in provision of the services of Membership of Clubs (HSN-00440322) and Accommodation in Hotels/Inn/Guest House/Club or Camp Site etc., service (1-1SN-00441070), On the outset, it does not seem to be involved in any charitable work nor does it seem to be registered as Charitable Trust under Section 12AA of Income Tax Act 1961. The applicant is not involved in any services mentioned under Notification. All payments will be taxable.

As per the application, Mr. Mahendran Balachandran, who has donated Rs.1 Crore on voluntary basis is neither a member of the club nor does he have any relationship with the club. The donation has been made out of natural love and affection without a quid pro quo. This claim is hard to believe as the club is not involved in any kind of social work and donation to such organization can’t be without a motive.

In this case, the donation given by the person in the form of money consideration to club to carry out their business activities as narrated as per Section 7(aa) is a supply and this consideration can be for future supply of service. Keeping all these points in view, in our opinion this can be considered a supply and the payment will be taxable.

The court would like to make it clear that the provisions of CGST Act, 2017 and the KGST Act, 2017 are in pari-materia and have the same provisions in like matters and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.

The court had considered the submissions made by the applicant in their application for advance ruling, the court  also considered the issue involved on which advance ruling is sought by the applicant and relevant facts.

The applicant received a donation of Rs. 1 Crore (Rupees One Crore Only) from a donar and thus sought advance ruling as to whether the said donation is exigible to GST or not. The applicant contends on the basis of the letter of the donar that the donation is without any instructions or without any quid pro quo in the form of any supply of goods or services by the applicant; there is no relationship between donor and the applicant; the donation is without any favour in return; the donor provides financial support in the form of donation and the said donation is not aimed at giving publicity to the donor in such a manner that it would be an advertising or promotion of donar’s business; there is no supply of service for consideration; the donation was given out of natural love & affection and thus the amount of donation is not taxable under GST.

In the instant case, it is an admitted fact that the donor has donated Rs.1 Crore to the applicant out of natural love & affection and there is neither quid pro quo nor any supply is involved. In view of the above the court proceed to examine the admissibility of the instant application. The court invite reference to  understand the scope of advance ruling. It is evident from the above provisions that advance ruling can be sought under Section 97 only for supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. Supply, as per Section 7(1), includes all forms of supply of goods or services or both, made or agreed to be made for a consideration by the applicant in the course or furtherance of business.

In the instant case the applicant admittedly is not involved in supply nor intends to supply any goods or services or both to the donor and thus the first limb of the Section 7(1) supra is not fulfilled. Also admittedly there is no quid pro quo involved to treat the amount as consideration and there is no business relationship between the donor and the applicant and hence the receipt of donation is not towards any supply. Thus from the facts brought forth in the application for advance ruling, the applicant admittedly is neither undertaking nor proposed to undertake any supply of goods or services or both to the donor in respect of the donation received and thus there is no supply in terms of Section 7(1) of the COST Act 2017 and hence the instant application does not qualify as an application for vance ruling in terms of Section 97 read with Section 95(a) and Section 7(1) of ef:Act, ibid, and is liable for rejection in terms of Section 98(2) of the COST Act.

Conclusion

The application is rejected as “inadmissible”, in terms of first proviso of the CGST Act 2017.

In-re-Mercara-Downs-Golf-Club-GST-AAR-Karnataka

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