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July 2, 2020

Whether GST Registration is required for medical store run by Charitable Trust?

Whether GST Registration is required for medical store run by Charitable Trust?

Under GST law, Section 9 levies tax on intra-state supply of goods or service or both and the scope of supply is defined in Section-7 which is reproduced hereunder

Section-7 (1) for the purposes of this Act, the expression “supply” includes:

  1. 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
  2. Import of services for a consideration whether or not in the course or furtherance of business
  3. The activities specified in Schedule I, made or agreed to be made without a consideration
  4. The activities to be treated 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 of sub-sections (1) 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.

The term ‘business’ is defined in Section 2(17), business is basically:-

  1. Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit
  2. Any activity or transaction in connection with or incidental or ancillary to sub-clause (a)
  3. Any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction
  4. Supply or acquisition of goods including capital goods and services in connection with commencement or closure of business
  5. Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members
  6. Admission, for a consideration, of persons to any premises
  7. Services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation
  8. Services provided by a race club by way of totalisator or a licence to book maker in such club
  9. Any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.

Facts of the Case

The applicant is a Charitable Trust and is running a medical store where medicines are given at a lower rate and the motive of the trust is not profit.

The applicant has submitted that all forms of supply should be in the course or furtherance of business and their trust is a Charitable Trust and a person as per Section- 2(84) (m) of the Act; that therefore, the liability to GST for sale of medicine is required to be examined to ascertain whether the sale of medicines is in the course of furtherance of business or not.

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Questions raised at advance ruling:-

Whether GST Registration is required for medical store run by Charitable Trust?

Whether medical Store providing medicines at a lower rate amounts to supply of goods?

Proceedings of AAR

  • As per their submission, the applicant are a charitable trust and are running a medical store where medicines are given at a lower rate and the motive of the trust is not profit.
  • They have quoted a judgement of the Gujarat High Court in the Tax Appeal in the case of Gujarat v/s Saurashtra Kidney Research Institute which was similar to their case wherein it was observed that the activity of purchasing, selling and supplying medicines was to achieve the object of the Trust and was not a business activity; that therefore, the sale of medicines by the said Charitable Trust would not attract GST and therefore, the question of registration under the Act does not arise and that under the Gujarat GST Act, the position is comparable and therefore, no liability would arise.
  • We find that the issue pertains to registration of dealer under Section-2(10) of the Gujarat Sales Act. In the said judgement, the Court of Gujarat has referred to the exclusion clauses available to charitable trusts under Section 2(10) of the VAT Act and Section-2(10) of the Gujarat Sales Tax Act.
  • As per the said judgement:
  • Explanation-III to Section 2(10) of the VAT Act reads as under: Exceptions:-The following shall not be deemed to be a dealer within the meaning of this clause, namely:-(iii) a charitable, religious or educational institution, carrying on the activity of manufacturing, buying, selling or supplying goods, in performance of its functions, for achieving its avowed objects, which are not in the nature of business.
  • Explanation-II to Section 2(10) of the Gujarat Sales Tax Act reads as under: “a charitable, religious or educational institution, carrying on the activity of manufacturing, buying, selling or supplying goods, in performance of its functions, for achieving its avowed objects, shall not be deemed to be a dealer within the meaning of this clause.
  • Since there are no such exclusion clauses for similar type of assesses in the CGST Act, 2017 we are of the opinion that the said judgement is not applicable to the present case.
  • However, it is seen that ‘trust’ has been defined as a person Section 2(84)(m) of the CGST Act. Therefore, the applicant would remain outside the scope of GST registration if and only if the activity carried out by them does not fall under the definition of ‘business’ as defined in Section 2(17) of the CGST Act or falls under Schedule-III of the CGST Act.
  • The applicant has raised the question as to whether there is requirement of registration under GST Act for providing medicines from medical stores at lower rate and whether medicines provided from medical store amounts to supply or not.

In this regard, we would like to refer to the following sections of the CGST Act, 2017 which are relevant to the issue in hand.

  • Section 22(1) which defines the conditions for registration and reads as under: “Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category states, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees: Provided that where such person makes taxable supplies of goods or services or both from any of the special category states, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.”
  • Section 2(108) which defines taxable supply and reads as under: “A supply of goods or services or both which is leviable to tax under this Act;
  • Section 7(1)(a) which defines Scope of supply” and reads as under: “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;”
  • Section 2(52) defines Goods and reads as under: “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply
  • According to Section 2(31) of CGST Act, 2017 which defines Consideration (a) 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, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) The monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;
  • Section 2(84) “Person” includes an individual, HUF, company, LLP, firm, AOP, BOI, corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in section 2(45) of The Companies Act, body corporate incorporated under the laws of a country outside India, co-operative society registered under any law relating to co-operative societies, local authority, Central Government or State Government, Society as defined under the Societies Registration Act, Trust and every artificial juridical person, not falling within any of the above.

Observations of the AAR

  • The applicant is a charitable trust which appears under the definition of ‘person’ and falls at clause(m) of sub-section 84 of Section 2 of the CGST Act, 2017.As per definition, a charitable trust is a person as per clause (m) of sub section 84 of section 2 of CGST Act, 2017.
  • The applicant is providing medicines from its medical store at lower rate, so activity of dealer is to provide medicines with less pecuniary benefit.
  • As per the definition of ‘business’ any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit is termed as business.
  • Hence, it is clear that any trade carried out whether for pecuniary benefit or not is a business as per CGST Act, 2017. Therefore, the applicant is carrying out business activity as per CGST Act, 2017.
  • Applicant is selling medicines from its medical store. Medicine is goods as per subsection 52 of Section 2 of the CGST Act, 2017.
  • Medicine is a taxable supply as per section 2(108) of CGST Act, 2017 and GST is leviable on medicine as per Chapter-30 of HSN code.
  • Therefore, sale of medicine by the applicant is a taxable supply of goods. Applicant is providing medicines from its medical store at lower rate so price paid by the customers is consideration for the applicant as defined in sub-section 31 of Section 2 of the CGST Act, 2017.
  • Further, the activity of supply of goods by the applicant does not fall under the list appearing in Schedule-III of the CGST Act, 2017.
  • Therefore, we conclude that the applicant is making taxable supply from its medical store, so as and when aggregate turnover (here medicine) of applicant exceeds threshold limit as specified of Section 22(1) of the CGST Act, 2017, the applicant has to obtain registration under the relevant provisions of the CGST Act, 2017.

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