TAXABILITY OF SUPPLY OF SPIRITUAL PRODUCTS BY TRUST

[Dr. Sanjiv Agarwal]

Charitable Trusts are formed for carrying out certain objectives for which charitable trust is constituted as per its trust deed. Though such trusts may enjoy immunity from levy of GST on its activities, viz, supply of goods or services, all activities may not be exempt. On whether sale of spiritual products by a charitable trust would amount to ‘business’ and ‘supply’ for the purpose of levy of GST, the Authority of Advance Ruling (AAR), Maharashtra  has pronounced an advance ruling.

In Re: Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra 2018 (9) TMI 235 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, the AAR ruled that it would be a taxable supply, as also affirmed by the Appellate Authority for Advance Ruling (AAAR), Maharashtra  In Re: Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra 2019 (1) TMI 25 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA; .

Facts and Advance Ruling

The applicant, Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra was a public charitable and religious trust engaged in advancement of the teachings of Paramkrupaludev Shrimad Rajchandra and spreading the knowledge of Jain Religion entrusted by Shri Mahavir Swami and other Tirthankars.

The main object of the applicant trust was to spread the knowledge of the Jain Dharam and advancement of teachings of Paramkrupaludev Shrimad Rajchandra. The ancillary and incidental objects of the applicant trust were to carry out activities for advancement of main object such as Satsang, Shibirs, etc. To spread knowledge of the Jain Dharam through publications of books, audio CDs, DVDs, etc. and other materials for students and public in general and to set up organizations for helping people. The ancillary object also includes, protecting birds and animals from being killed in slaughter houses and other activities.

The applicant was registered under VAT law and subsequently migrated to GST. It is also registered u/s 12AA of Income Tax Act, 1961.

It sought advance ruling on following issues:

1. Whether the applicant which is a charitable trust with the main object of advancement of religion, spirituality or yoga can be said to be in business so as to attract the provisions of Central Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017?

2. Whether the applicant which is a charitable trust with main object of the advancement of religion, spirituality or yoga, is liable to registration under the provisions of Central Goods and Services Tax Act, 2017 and Maharashtra Goods and Services Tax Act, 2017?

3. Whether sales of spiritual products which is incidental / ancillary to main charitable object of the applicant can be said to be business of the applicant in terms of the definition in Section 2(17) of the Central Goods and Services Tax Act, 2017 and option provision of Maharashtra Goods and Services Tax Act, 2017?

4. Whether the sale of spiritual products can be said to be supply under Section 7 of the Central General Sales Tax Act, 2017 and equivalent provision of the Maharashtra Goods and Services Tax Act, 2017 so as to attract GST?

It was held that sales of spiritual products incidental and ancillary to its main charitable  object amounted to ‘business’ and amounted to ‘supply’ attracting Goods and Services Tax. There is no exemption granted to charitable trusts in case of supply of  goods which are taxable and are not specifically exempt or nil rated. In case of Service Tax exemption, a charitable trust is required to comply with the following criteria:

(i) The entity must be registered under Section 12AA of the Income Tax Act.

(ii) The services provided by the entity must be a charitable activity.

Under the GST Act, not all services provided by a Trust registered under Section 12AA would be termed as a charitable activity. Only the following activities are termed as charitable activity and are exempt from GST- Services relating to public health like; care or counseling of terminally ill persons or persons with severe physical or mental disability; persons afflicted with HIV or AIDS; persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; public awareness of preventive health, family planning or prevention of HIV infection; advancement of religion, spirituality or yoga; advancement of educational programs or skill development relating to; abandoned, orphaned or homeless children; physically or mentally abused and traumatised persons; prisoners; or persons over the age of 65 years residing in a rural area; preservation of environment including watershed, forests and wildlife.

It was thus ruled as follows:

1. Applicant is in business and provisions of CGST Act, 2017 / Maharashtra GST Act, 2017 would be applicable.
2. Applicant is liable to be registered under GST law provided the aggregate turn over in a  financial year exceeds the threshold limit provided under section 22 of the CGST Act, 2017.
3. Sale of spiritual products is business activity u/s 2(17) of CGST Act, 2017
4. Sale of spiritual products is a supply u/s 7 of CGST Act, 2017

Appellate Ruling

Being aggrieved with the advance ruling, appellant filed appeal before Appellate Authority for Advance Ruling (AAAR) on the following main grounds:

1. AAR did not consider the objects of Trust to consider whether it fact under scope of ‘business’ as defined in section 17 of CGST Act, 2017 and that they are not engaged in business.
2. AAR had discussed the exemptions on issues not raised in application no question was raised by the appellant on exemption of various services provided by the Appellant. Thus, the findings on services provided by the Appellant are ex-facie erroneous and not binding on the Appellant.
3. Judicial precedents have not been considered.
4. The Appellant is a public charitable trust with the main object of advancement of religious and spiritual teachings and not engaged in any trade, commerce, manufacture, profession, vocation adventure, wager or any other similar activity. Further, the Appellant does not get any pecuniary benefit from various activities carried out by the Appellant under the main object of spreading religious and spiritual teachings.
5. Appellant sold various spiritual products such as Books, Audio CDs, DVDs, Statues etc which are for the advancement of the religious teachings of the Paramkrupalu Shrimad Rajchandra. The said books give in-depth study of the teachings of Gurudev and are only for spreading the religious message. The DVDs and CDs are recorded pravachan, satsang, spiritual songs and bhajans for those who cannot be personally present at the events. These were sold at cost or less then cost price.
6. Appellant can not be considered as carrying on business even for the ancillary and incidental activity of selling the spiritual products.
7. Since the aggregate of taxable supplies of goods and services does not exceed twenty lakh rupees, the Appellant was not liable for registration under Section 22 (1) of the CGST Act, 2017.
8. Since the Appellant is not engaged in carrying out business as defined under Section 2(17) of the CGST Act, 2017, the other provisions and rigors of the CGST Act shall not be applicable to the Appellant.

The AAR, agreed with AAR that the the definition of ‘business’ under the CGST Act is wide enough to include trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activities. The term ‘trade’ is a comprehensive term which covers the activity of buying, selling or exchanging goods or services. The terms ‘trade and commerce’ by themselves mean the buying or selling goods or services between people. The charitable trust may be formed with the fundamental objectives of carrying out spiritual activity and salvation. But it also, at the same time, sells goods and services under the auspices of the trust. The trust sells various goods and services to the people desiring to buy them and such an activity by itself forms a part of the objective of the trust. Under the heading - ‘other objectives of the trust’ and the heading ‘activity of spreading the knowledge’ the trust had printing and publishing as one of the objectives of the trust. In the various objectives of the trust listed, it was observed that the trust can dispose its property, buy and sell securities, sell the trust property by public auction or let it out on lease etc. Thus, though it is public charitable religious trust by name, activities of trade and commerce also form a major part of the objectives of the trust.

The main activity or object of the trust includes trade and commerce and as the definition of ‘business’ under the CGST Act includes the words ‘trade and commerce’, it can be said that the appellant is engaged in supply of goods and services and is therefore, liable to get itself registered.

On charitable activities, certain activities are exempt from GST. Specific exemption from GST is given to charitable institutions registered u/s.12AA of the IT Act, 1961. Thus, it could be gathered that the intention of the legislature is to tax all the activities of supply goods and services by charitable trust except those specifically exempted. This is with the background that charitable institutions qua their activities of charity do not lend themselves to any specific concession or exemption from the definition of ‘supply’ or ‘business’ or ‘taxable person’. The very fact that certain services have been carved out and given out a special treatment makes it clear that all trade and commerce transaction of selling books, statutes, CDs and DVDs etc. done commercially for consideration come within the broad ambit of ‘business’ under the CGST Act.

It further observed that in the present case, a reading of the GST Act/rules/notifications/exemptions show that the intent was to consider ‘charitable/religious trusts’ as taxable persons effecting taxable supply of goods/services and they have been given specific exemptions in some areas. As said earlier, the GST law had no such exemption provisions.

It thus, concluded that the intention of the legislature is to tax all the activities of supply goods and services by charitable trust except those specifically exempted. [In Re: Shrimad Rajchandra Adhyatmik Satsang Sadhana Kendra 2019 (1) TMI 25 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA; ].