2023 (1) TMI 434 - AAAR - GST

State corporation's drug procurement and distribution without profit qualifies for GST exemption under Entry 3 Notification 12/2017

In Re: M/s. Andhra Pradesh Medical Service and Infrastructure Development

AAAR held that procurement and distribution of drugs, medicines and surgical equipment by state corporation on behalf of government without value addition ... Supply or not - pure services - procurement and distribution of drugs, medicines and other surgical equipment by APMSIDC on behalf of government without any value addition, and without any profit or loss, without even the intent to do any business - establishment charges received from State Government as per G.O. RT 672 dated 20-05-1998 and G.O. RT 1357 dated 19-10-2009 by APMSIDC - eligibility for exemption as per Entry 3 or3A of Notification 12/2017 Central Tax (rate). HELD THAT:- Here in the instant case, the appellant is providing Pure Service (supply / distribution of drugs, consumables and equipment for Hospitals) to State Government by way of an activity in relation to a function entrusted to a Panchayat under Article 243G (Sl.No.23 of Eleventh Schedule of Article 243G of Constitution is - Health and sanitation, including hospitals, primary health centres and dispensaries) - the service provided by the appellant in the instant case is qualifying all the conditions stipulated at Sl.No.3 of Notification No. 12/2017CT (Rate) Dated 28.06.2017 and thereby GST 'Rate chargeable' to the said service is 'Nil'. The service rendered by the APMSIDC is in relation to a function entrusted to a Panchayat under Article 243G of the Constitution of India. (the appellant is providing Pure Service (supply / distribution of drugs, consumables and equipment for Hospitals) to State Government by way of an activity in relation to a function entrusted to a Panchayat under Article 243G (Sl.No.23 of Eleventh Schedule of Article 243G of Constitution is - Health and sanitation, including hospitals, primary health centres and dispensaries) - it is rightly eligible for exemption under Entry 3 or 3A of Notification No. 12/2017 - Central Tax (Rate) dt:28.06.2017. Issues Involved:1. Whether the procurement and distribution of drugs, medicines, and other surgical equipment by APMSIDC on behalf of the government without any value addition, profit, or intent to do business amounts to supply under Section 7 of CGST/SGST Act.2. Whether the establishment charges received from the State Government by APMSIDC are eligible for exemption as per Entry 3 or 3A of Notification 12/2017 Central Tax (Rate).Issue-wise Detailed Analysis:1. Procurement and Distribution as Supply:- Background: The appellant, Andhra Pradesh Medical Services and Infrastructure Development Corporation (APMSIDC), sought an advance ruling on whether their procurement and distribution activities without profit or intent to do business constitute a supply under Section 7 of the CGST/SGST Act.- AAR Ruling: The Authority for Advance Ruling (AAR) concluded that the transaction is a supply and that the establishment charges are ancillary to the principal supply.- Appellant's Argument: The appellant contended that the AAR did not consider the specific facts of their case. They argued that while procurement from vendors is a supply, the distribution to government entities (PHCs and hospitals) without charges does not constitute a supply. They likened their role to that of a courier agency, merely distributing goods as per government instructions without any commercial transaction.- Appellate Authority's Analysis: The authority examined the activities of APMSIDC, noting that it operates on a no-profit-no-loss basis, collecting supervision charges for procurement and distribution. The procurement process is GST compliant, involving a purchaser, supplier, and consideration. However, the distribution of medicines to hospitals and PHCs does not involve a commercial transaction. Despite this, the distribution process falls within the scope of supply under Section 7 of the APGST Act 2017, as it involves the supply of services (warehousing and distribution) for consideration (2% establishment charges).- Conclusion: The procurement and distribution by APMSIDC amount to supply under Section 7 of CGST/SGST Act. However, the benefit of Notification No. 12/2017-CT (Rate) is available, making the supply exempt from GST.2. Exemption of Establishment Charges:- Background: The appellant sought clarity on whether the establishment charges received from the State Government are exempt under Entry 3 or 3A of Notification 12/2017 Central Tax (Rate).- AAR Ruling: The AAR held that the establishment charges are part of the principal supply and thus taxable.- Appellant's Argument: The appellant argued that the establishment charges are for pure services provided to the government and should be exempt. They emphasized that these charges are for services like procurement management, administration, and distribution, not for the goods themselves.- Appellate Authority's Analysis: The authority noted that the services rendered by APMSIDC qualify as pure services provided to the State Government. These services are related to functions entrusted to a Panchayat under Article 243G of the Constitution (health and sanitation, including hospitals and PHCs). Thus, the establishment charges meet the conditions for exemption under Entry 3 of Notification 12/2017-CT (Rate).- Conclusion: The establishment charges received from the State Government are eligible for exemption under Entry 3 of Notification 12/2017 Central Tax (Rate).Order:1. Procurement and Distribution: The procurement and distribution of drugs, medicines, and surgical equipment by APMSIDC on behalf of the government amount to supply under Section 7 of CGST/SGST Act. However, this supply is exempt from GST under Notification No. 12/2017-CT (Rate).2. Establishment Charges: The establishment charges received from the State Government by APMSIDC are eligible for exemption under Entry 3 of Notification 12/2017 Central Tax (Rate).