Grants For Daily Expenses Are Not Consideration For Services Rendered By Assessee, Not Liable To Tax: Kerala High Court
The Kerala High Court stated that financial grants provided to the assessee for covering daily operational expenses do not qualify as payment (consideration) for any services that the assessee might be providing and are not liable to tax.
The Bench of Justice Gopinath P. observed that “The assessee has only received grants to meet its day-to-day expenses including salary, allowances etc. Such payment cannot be deemed to be a consideration for the alleged services rendered or for goods supplied by the assessee. The revenue has no case that the activity of the assessee falls within Scheduled-I”.
The petitioner/assessee is 99.99% owned by the Government of Kerala. It procures and supplies IT hardware to government and aided schools based on directives from the General Education Department. The assessee's operations are entirely funded by the Kerala Infrastructure Investment Fund Board (KIIFB), a statutory body under the Kerala government.
The assessee has challenged the order passed by the Additional/Joint Commissioner (3rd respondent), which held that the assessee is liable to pay Goods and Services Tax (GST) amounting to ₹99,05,74,260. The order is based on the premise that the assessee is engaged in a composite supply of goods and services to schools and is, therefore, liable to pay GST.
The assessee submitted that the transactions between the assessee and the Government and certain aided schools' amount to a 'supply' as defined in Section 7 of the CGST / SGST Acts. There is no suggestion in the show cause notice or in the order that would suggest that the activity of the assessee would amount to an activity specified in Schedule I of the CGST Act.
The bench observed that while the adjudicating authority accepts that the assessee is the owner of the goods, he proceeds to hold that the ownership of the goods vests in the General Education Department. These findings are clearly contradictory.
The bench looked into Section 7 of the CGST Act and observed that in respect of transactions which do not fall under Schedule I, consideration is an essential ingredient to establish that there is either a supply of goods or services. There is nothing in the order which would indicate that the assessee had received any consideration from the Government, the KIIFB or the General Education Department as consideration for the supply of goods or services.
“The assessee has only received grants to meet its day-to-day expenses including salary, allowances etc. Such payment cannot be deemed to be a consideration for the alleged services rendered or for goods supplied by the assessee. The revenue has no case that the activity of the assessee falls within Scheduled-I,” added the bench.
In view of the above, the bench allowed the petition and quashed the order.
Counsel for Petitioner/ Assessee: V.A. Haritha and Midhuna Bhaskar
Counsel for Respondent/ Department: P.G. Jayashankar
Case Title: Kerala Infrastructure and Technology For Education v. Union Of India
Case Number: WP(C) NO. 12864 OF 2024