The Kerala Authority for Advance Ruling (KAAR) has held that educational service supplied by charitable societies to educational institutions is liable to Goods and Service Tax (GST).
M/ s. Choice Foundation, the applicant is a society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 possessing the expertise and experience in operating premier educational institutions in the State of Kerala.
The applicant engaged in the business of construction, development and maintenance of infrastructure. CECPL is the owner of property consisting of land and a building situated in Thiruvalla, Kerala, India (‘Property’).
The applicant proposes to enter into a joint venture agreement with CECPL, to combine the individual expertise of the applicant and CECPL for the joint operation of an educational institution on the Property.
A four-member strategic committee consisting of equal representatives of the applicant and CECPL would be responsible for taking strategic and operative decisions about the running and operation of the educational institution. All decisions relating to the educational institution including the quantum of fees to be collected from the students of the educational institution shall be decided by the strategic committee.
The revenue generated from the operation of the educational institution shall be shared between the applicant and CECPL in a fixed ratio to be decided subsequently. The applicant and CECPL shall open and maintain a joint bank account with any nationalized, bank or other banks as mutually agreed which shall be jointly operated by the authorized signatories of the applicant and CECPL.
From the definition, ‘consideration’ means the payment made in money or otherwise in response to the supply of goods or services. The applicant provides an interest-free refundable deposit to CECPL repayable by CECPL to the applicant upon expiry or termination of the proposed agreement, whichever is earlier.
The activities specified in Schedule I of the CGST / KSGST Act, 2017 are to be treated as supply even if made without consideration. Since the applicant and CE PL together control a third person i.e., the Joint Venture. Hence as per (vii) above of the explanation, the applicant and CECPL are ‘related persons’ and as per Para 2 of Schedule I of the CGST/KSGST Act, 2017, the supply between them even without consideration is to be treated as supply.
As per Rule 28 of the CGST/KSGST Rules, 2017, the Value of supply of goods or services or both between distinct or related persons other than through an agent, is the open market value of such supply. In the open market, the consideration for services of extending deposits is normally ‘interest’. Hence the exemption under the above entry in Sl.No. 27 is pertinent to the supply made by the applicant also.
The Authority comprising of Dr.S.L. Sreeparvathy, IRS &Shri. Abraham Renn S, IRS held that “the service supplied by the applicant to the educational institution i.e., the joint venture is liable to goods and Services Tax (GST) as per notification No. 11/2017-Central Tax (Rate) dated 28 /06/ 2017 andS.R.0 370/2017dated 30/06/2017 of Government of Kerala.”
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