GST Update on Requirement of registration where medical stores are run by charitable trusts 75/2020-21

This is to apprise you regarding the recent Gujarat Advance ruling in the case of M/s Nagri Eye Research Foundation wherein the applicant is a not-for-profit charitable trust covered under section 2(84)(m) of the CGST Act, 2017 and they operate a medical store for the sale of medicines at a lower price. The Applicant approached the Authority for Advance Ruling to determine whether the sale of medicines at a lower price constitutes a supply under the GST law. On the similar question ruling was also pronounced by Maharashtra authority for advance ruling in the case of M/s Kasturba Health Society.
In the Gujarat AAR the applicant contended that the trust was not engaged in any business activity but it is created by Municipal Corporation with a view to provide medical facilities to citizens and they offer medicines on a cost to cost basis. The sale of medicines is not a business activity in light of the decision in the case of M/s Saurashtra Kidney Research Instituteby Gujarat Hight Court (2003) where it was discussed that a charitable institution registered as a public trust and engaged in welfare activities provided medical treatment through a medical store on its premises is not business activity. Moreover, the Hon’ble High Court had followed itsearlier order in the case of Bhailal Amin General Hospital (Tax Appeal No.1673/2009) wherein it was observed that the activity of purchasing, selling and supplying medicines was to achieve the object of the Trust and was not a business activity.
However the Authority has stated that the facts of the two cases are different and decision given in case of Saurashtra Kidney Research Institute can’t be applied in Nagri case on the grounds that section 2(10) of the Gujarat Sales Tax Act dealing with registration specifically excludes “a charitable, religious or educational institution, carrying on the activity of manufacturing, buying, selling or supplying goods, in performance of its functions, for achieving its avowed objects, which are not in the nature of business”. Similar exclusion clauses are not enshrined under the CGST Act 2017.
AAR contended that the applicant is a charitable trust which appears under the definition of ‘person’ and falls at clause(m) of sub-section 84 of Section 2 of the CGST Act, 2017.As per definition, a charitable trust is a person as per clause (m) of sub section 84 of section 2 of CGST Act, 2017.
The applicant is providing medicines from its medical store at lower rate, so activity of dealer is to provide medicines with less pecuniary benefit. As per the definition of ‘business’ any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit is termed as business. Hence, it is clear that any trade carried out whether for pecuniary benefit or not is a business as per CGST Act, 2017. Therefore, the applicant is carrying out business activity as per CGST Act, 2017.
Applicant is selling medicines from its medical store. Medicine is goods as per subsection 52 of Section 2 of the CGST Act, 2017. Medicine is a taxable supply as per sub section 108 of section 2 of CGST Act, 2017 and GST is leviable on medicine as per Chapter-30 of HSN code. Therefore, sale of medicine by the applicant is a taxable supply of goods. Applicant is providing medicines from its medical store at lower rate so price paid by the customers is consideration for the applicant as defined in sub-section 31 of Section 2 of the CGST Act, 2017. Further, the activity of supply of goods by the applicant does not fall under the list appearing in Schedule-III of the CGST Act, 2017.
The AAR resonates the view taken in the case of M/s Kasturba Health Society and is evident from the fair discussion of the Gujarat AAR that the applicant has to get registration under the relevant provisions of the CGST Act, 2017. Therefore, the applicant is making taxable supply from its medical store, so as and when aggregate turnover (here medicine) of applicant exceeds threshold limit as specified in sub-section(1) of Section 22 of 6 the CGST Act, 2017, the applicant has to obtain registration under the relevant provisions of the CGST Act, 2017.
There are certain criteria for a charitable trust or an NGO to be exempted from the Goods and Services Tax. The charitable trust or NGO must be registered under Section 12AA of the Income Tax Act, and the services provided by the charitable trust or the NGO must be for a charitable cause only. Only the following activities are termed as charitable activity and exempt from GST:

Services relating to public health like:
- Care or counselling 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 programmes or skill development relating to:
- Abandoned, orphaned or homeless children;
- Physically or mentally abused and traumatized persons;
- Prisoners; or
- Persons over the age of 65 years residing in a rural area;
Preservation of environment including watershed, forests and wildlife.

Hence, if a charitable trust or NGO does not satisfy any of the two conditions, then GST would be applicable and the entity must be registered under GST.

This is solely for educational purpose.
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GST Update on Requirement of registration where medical stores are run by charitable trusts 75/2020-21

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