Some of you may have heard news that as per a recent decision, Grants are to be covered under GST. SRRF Dialogue examines the case and its implications.
Jayshankar Gramin Va Adivasi Vikas Sanstha, (referred to as JGAVS)an NPO is registered under Maharashtra Public Charitable Trust Act and having S. 12AA registration under Income Tax Act. It requested Authority of Advance Rulings of Maharashtra (AAR-Maharashtra) to decide if GST is applicable on its activities, considering under the GST Exemption Notification (12/2017 dt 28-6-2017) exempts Charitable Activities of a NPO registered under S.12AA of Income Tax Act.
The GST Exemption Notification has defined Charitable Activities as follows:
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“Charitable activities” means activities relating to:- |
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(i) Public health by way of,- |
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(A) Care or counselling of |
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(I) Terminally ill person or person with severe physical or mental disability: |
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(II) Person afflicted with HIV or AIDS: |
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(III) Persons addicted to a dependence-forming substance such as narcotics drugs or alcohol: or |
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(B) Public awareness of preventive health, family planning or preventing of HIV infection: |
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(ii) Advancement of religion, spirituality or yoga: |
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(iii) Advancement of educational programmes or skill development relating to,- |
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(A) Abandoned, orphaned or homeless children: |
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(B) Physically or mentally abused and traumatized persons: |
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(C) Prisoners; or |
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(D) Person over the age of 65 years residing in a rural area: |
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(iv) Preservation of environment including watershed, forests and wildlife; |
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It is obvious that the above definition does not cover a large number of activities that most NPOs undertake.
Activities of JGAVS
JGAVS receives monthly grant of Rs 2000/- per child from the State Govt for 50 orphans and homeless children for providing shelter, education, guidance, clothing, food and health for these children. It also provides legal and other support services to destitute women suffering from domestic violence for which it receives Grant from the central Govt. It also receives donations.
It felt its activities are covered under iii(A) & iii(B) of Charitable Activities as defined under the Exemption Notification given above and filed an application with AAR-Maharashtra to decide if its income falls within the scope of GST.
The AAR stated that while the NPO
(a) provides for the care, shelter and education of orphans it is not specifically covered under the Exemption Notification, as it only covers Educational programmes or skill development and not other aspects.
(b) similarly, in case of destitute women, it stated that legal and other support services are not covered by the definition given in the Exemption Notification.
Thus AAR decided that activities of the NPO are not covered by the Exemption Notification. We believe this is a very narrow interpretation of the Charitable Activities as defined in the Exemption Notification. However it is clear that, this interpretation, further narrows down the scope of activities for NPOs which can be covered under the Exemption Notification.
AAR also stated that an NPO undertakes a number of activities, and all other activities undertaken by an NGO that are not covered by the Exemption Notification would be subject to GST. Thus an important clarification, that relying on Exemption Notification for exemption may not be very beneficial for NPOs.
The AAR authority has further deliberated on the definition of ‘Supply’, which is the basis of charging of GST.
Definition of ‘Supply’
S. 7 (1) states that Supply includes: (a) All forms of supply of goods & 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 of furtherance of business,
The most important para from the Order which covers applicability of GST on NPOs, based on various definitions under the Statute.
“In order to arrive at a definitive conclusion on the taxability of service, the main ingredients which need to be necessarily present, as per GST statute, are the service (supply), the service provider (supplier), the service receiver (recipient) and the consideration for the service. In the instant case, if we refer to definition of “supply” (which is very much exhaustive), it covers almost all activities of the applicant. Moreover, definition of “consideration” includes grants and excludes only “subsidy”. The profit motive is not important, if we make combined reading of all above definitions, including that of “business”.
Hence it has basically concluded that considering all the definitions under GST statute, activities of an NPO would be covered under GST.
This order of AAR, Maharashtra has put all the NGOs in a very difficult situation, since if courts also hold the same view than, all NGOs would need to pay GST on all their supplies (in simpler terms all activities other than donations without consideration) since July’2017, date of applicability of GST, a very worrisome thought.
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Socio Research & Reform Foundation (NPO)
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008