2019 (3) TMI 927 - AAR - GST

Trust's marathon event organization subject to GST despite charitable purpose under Section 12AA registration

The AAR Tamil Nadu ruled that a Trust's marathon event organization is subject to GST despite its charitable purpose. The Trust, registered under Section ... Charitable activities - exempt supply - consideration as constituting taxable supply - entity registered under Section 12AA of the Income Tax Act - registration under GST where aggregate turnover exceeds threshold - organising and conducting events as supply of servicesOrganising and conducting events as supply of services - consideration as constituting taxable supply - The amounts collected from participants for organising the marathon constitute consideration for the supply of services of organising and conducting the marathon and are taxable under GST. - HELD THAT: - The Authority found that the Applicant organises a marathon in which participants pay amounts that are applied to event-related expenses (registration partner fees, event management charges, prize money, publicity, T-shirts, banners and related materials). Section 2(31) of the CGST Act treats payments made in respect of a supply as 'consideration.' Since the collected amounts are used to meet the costs of organising the marathon, they are consideration for the service of organising and conducting the event for participants and therefore constitute a taxable supply liable to GST. The reasoning is recorded where the Authority applies the definition of consideration to the material showing the flow of funds and event expenses. [Paras 5]Money collected from participants is consideration for the service of organising the marathon and is taxable under CGST/TNGST.Charitable activities - entity registered under Section 12AA of the Income Tax Act - exempt supply - Merely being an entity registered under Section 12AA and raising funds for charity does not render the activity of organising a marathon automatically exempt under Notification No. 12/2017-Central Tax (Rate). - HELD THAT: - The Authority observed that Notification No. 12/2017 grants nil rate only for 'services by an entity registered under section 12AA ... by way of charitable activities' and that the exemption applies only to those activities which fall within the notification's definition of 'charitable activities' in Clause 2(r). The activity of organising the marathon was held not to fall within the enumerated heads of 'charitable activities' in Clause 2(r) of the Notification. Consequently, the exemption at Sl. No. 1 of the Notification does not apply to the act of organising the marathon even though the Applicant is registered under Section 12AA and uses net proceeds for charitable purposes. The determinative reasoning rejecting automatic applicability of the exemption is recorded in the Authority's comparison of the event activity with the clause 2(r) definition. [Paras 5]The exemption under Notification No.12/2017 does not apply to the Applicant's activity of organising the marathon merely by virtue of Section 12AA registration or because net proceeds are used for charity.Charitable activities - exempt supply - Only those activities of an entity registered under Section 12AA that themselves qualify as 'charitable activities' under Clause 2(r) of Notification No.12/2017 are eligible for exemption; activities not falling within that definition are not exempt. - HELD THAT: - The Authority emphasised that the statutory exemption is activity-specific: registration under Section 12AA makes an entity eligible for exemption only insofar as the particular service provided by the entity qualifies under the Notification's definition of 'charitable activities.' The marathon-organising service was examined against the components of Clause 2(r) and found not to be covered. Thus, exemption is confined to services that match the notification's specified categories of charitable activities. [Paras 5]Exemption is limited to services that themselves fall within the Notification's definition of 'charitable activities'; the marathon service does not.Registration under GST where aggregate turnover exceeds threshold - exempt supply - The Applicant is required to register under CGST/TNGST because it makes a taxable supply (organising the marathon) and its aggregate turnover in a financial year exceeds the prescribed threshold. - HELD THAT: - Relying on Section 22 of the CGST/TNGST Act, the Authority noted that a supplier making taxable supplies must register in the State if aggregate turnover exceeds the statutory threshold. The Applicant's accounts and balance sheet indicated annual turnover in excess of the monetary threshold and involvement in taxable supply by organising marathons. Consequently, the Applicant is liable to register under CGST/TNGST. The finding on mandatory registration follows from the combination of taxable supply status and turnover exceeding the limit. [Paras 5]The Applicant must obtain registration under CGST/TNGST as it makes taxable supplies and its aggregate turnover exceeds the threshold.Final Conclusion: The Authority ruled that (a) amounts collected from marathon participants are consideration for the taxable service of organising the event and are not exempt under CGST/TNGST; (b) Section 12AA registration does not automatically render the organising activity exempt-only activities that themselves satisfy the Notification No.12/2017 definition of 'charitable activities' are eligible for nil rate; and (c) the Applicant must register under GST as its taxable turnover exceeds the statutory threshold. Issues Involved:1. Whether the conduct of marathon events by the Trust through which donations are raised for charity is an exempted service under GST.2. Whether the Trust, approved under Section 12AA of the Income Tax Act 1961, automatically qualifies as a charitable activity exempted under GST.3. Whether the Trust, performing charitable activities as per Clause 2(r) of Notification No. 12/2017 -Central Tax (Rate), requires registration under GST.4. Whether donations received from participants of the marathon event are exempted from GST.Issue-wise Detailed Analysis:1. Exemption of Marathon Events under GST:The Applicant, a Trust registered under Section 12AA of the Income Tax Act, organizes marathon events to raise funds for charitable causes. The collected amounts are used to cover event expenses, with the remaining funds donated to charitable activities. However, the conduct of marathon events is considered a separate supply of service. According to Section 2(31) of the CGST Act, the money collected from participants is deemed as consideration for organizing the marathon, making it liable for GST. Thus, the conduct of marathon events by the Trust is not exempt from GST.2. Automatic Charitable Activity Exemption under GST:While the Trust is approved under Section 12AA of the Income Tax Act, this does not automatically exempt its activities from GST. The exemption under Sl.No. 1 of Notification No. 12/2017-C.T. (Rate) applies only to specific 'charitable activities' as defined in Clause 2(r) of the notification. The Trust’s activity of organizing marathon events does not fall under this definition. Therefore, despite the Trust’s charitable status under the Income Tax Act, its marathon events are not exempt from GST.3. GST Registration Requirement:As per Section 22 of the CGST/TNGST Act, any supplier making taxable supplies with an aggregate turnover exceeding twenty lakh rupees in a financial year must register under GST. The Trust’s annual turnover from organizing marathon events exceeds this threshold, making it liable for GST registration. Consequently, the Trust must register under the CGST/TNGST Act due to its taxable supply of services.4. GST Exemption on Donations from Marathon Participants:The money collected from marathon participants is used to cover event expenses and is considered a supply of service. Therefore, it is not exempt from GST. The Trust’s claim that these amounts are donations does not change their liability under GST, as the funds are used for organizing the marathon, which is a taxable service.Ruling:1. The conduct of marathon events by the Applicant is not an exempt supply under CGST/TNGST Act.2. Only those activities of the Applicant that fall under the definition of 'charitable activities' as per Clause 2(r) of Notification 12/2017-Central Tax (Rate) are exempt.3. The Applicant is required to register under CGST/TNGST Act due to its taxable supply of services and annual turnover exceeding twenty lakh rupees.4. The money collected from marathon participants is not exempt from CGST/SGST.