Charitable trust running medical store require to take GST registration irrespective of any pecuniary benefits

The Hon’ble High Court of Gujarat in case of Nagri Eye Research Foundation v. Union of India [R/Special Civil Application No. 7822 of 2021, dated July 09, 2021] affirmed the decisions of the Hon’ble Gujarat Appellate Authority for Advance Ruling ('GAAAR') and the Hon’ble Gujarat Authority for Advance Ruling ('GAAR') holding sale of medicines at lower rate by the charitable trust is a taxable supply and Goods and Services Tax ('GST') registration is required for medical store run by  such charitable trust.

Facts

Nagri Eye Research Foundation ('the Petitioner') is a charitable trust running a medical store where the medicines to the indoor and outdoor patients of the Petitioner’s Hospital are sold at a lower rate. Whatever marginal difference in terms of excess of income over expenditure is earned, the same is used only for the purpose of mitigating any unforeseen eventualities and/or administrative expenses.

The Petitioner filed an application before the GAAR seeking advance ruling on the following issues:

1. Whether GST registration is required for medical store run by Charitable Trust?
2. Whether providing medicines at lower rate by the medical store amounts to supply of goods?

The Hon’ble GAAR gave affirmation to both grounds vide advance ruling dated May 19, 2020. The Petitioner preferred an appeal before the Hon’ble GAAAR wherein, the decision of the Hon’ble GAAR was affirmed confirming the findings, and dismissed the appeal vide order dated January 28, 2021 ('the Impugned Order').

Hence, the Petitioner has filed present writ petition.

Issues

1. Whether GST registration is required for medical store run by the Petitioner?
2. Whether providing medicines at lower rate by the medical store amounts to supply of goods?

Held

The Hon’ble High Court of Gujarat in R/Special Civil Application No. 7822 of 2021 dated July 09, 2021, held as under:

• Analysed the provisions of Section 2(17) (pertaining to 'business), Section 7 (pertaining to scope of supply), Section 22 (pertaining to 'Persons liable for registration’) of the Central Goods and Services Tax Act, 2017 ('CGST Act'), and observed that, the Petitioner is selling the medicines, at a cheaper rate but for consideration in the course of their business.
• Noted that, any trade or commerce whether or not for a pecuniary benefit, would be included in the term 'business’ as defined under Section 2(17) of the CGST Act.
• Stated that, the Petitioner has failed to substantiate or justify as to how such activity of selling medicines to the patients for consideration could not be said to a trade or commerce under Section 2(17) of the CGST Act.
• Affirmed the Impugned Order.
• Held that, the medical store run by the Petitioner would require GST registration and that the medical store supplying medicines at lower rate would amount to supply of goods.

Relevant Provisions

Section 7(1) of the CGST Act

'Scope of supply.

7. (1) For the purposes of this Act, the expression '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;
• the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

Explanation.– - For the purposes of this clause, it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another;

• import of services for a consideration whether or not in the course or furtherance of business and;
• the activities specified in Schedule I, made or agreed to be made without a consideration

Section 22(1) of the CGST Act

'22. Person liable for registration

(1) 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.

Provided further that the Government may, at the request of a special category State and on the recommendations of the Council, enhance the aggregate turnover referred to in the first proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject to such conditions and limitations, as may be so notified;

Provided also that the Government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees to such amount not exceeding forty lakh rupees in case of supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified.

Explanation. - For the purposes of this sub-section, a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.'

Section 2(17) of the CGST Act

'(17) '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 sub-clause (a);
• any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
• supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
• 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;
• admission, for a consideration, of persons to any premises;
• 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;
• activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and
• any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;'