GST Case 20 of Ashok Kumar Basu

GST Case 20 of Ashok Kumar Basu 

In the GST case of Ashok Kumar Basu, the applicant has raised the query regarding the taxability of the Printing of Examination Question Papers.  Because Printing of Examination Question Papers is the supply of service to an Educational Institution relating to the conduct of the examination. 

1. Facts of the Case:

Applicant was providing services by way of printing question papers for various examinations, conducted by the Councils/Boards/Universities/Institutions. The modus operandi of the entire process was as follows:

• Applicant procures inputs required for provisioning the service of printing Question Papers.
• The content for printing, of course, is provided by the Boards/Institutions.
• Applicant does not hold the right to the property of the printed question papers.
• The Boards/Institutions prepare the question papers for conducting examinations and also fix the format in which the applicant is required to print the content.
• The applicant provides paper, ink, other inputs, manpower, machinery, etc to print the given matter in appropriate question paper format.

2. Observation:

Why these question papas are not goods:

• The content is specific to the customer.
• The matter is not pre-printed.
• The applicant does not have any ownership to the content at any point of time. Thus, he cannot transfer title of the above printed matters. In other words, Question Papers are not the property of the Applicant.
• Question Papers supplied by the Applicant to their customers are not marketable commodities in the open market and as goods they have no legitimate value to persons other than the specific customer who provides the input content.
• Every transaction is a contract, but open market transactions in Question Papers as goods, being illegal, are not enforceable by law and void contracts in terms section 2(g) of the Indian Contract Act, 1872, and, therefore, beyond the ambit of the GST Act. It follows that classification under the Tariff Act, for the purpose of the GST Act, is also not applicable in such cases.

Why Supply is not covered under Heading 9989:

• Section 8 of the GST Tariff-Services deals with Business and Production Services which include printing services under Heading 9989 where “only content is supplied by the publisher and physical inputs including paper used for printing belongs to the printer”.
• The service is taxable under serial no. 27 of Notification No. 11/2017-CT (Rate) dated 28/06/2017, as amended from time to time, provided the materials being printed are goods classifiable under Chapter 48 or 49 of the Tariff Act and taxable under the GST Act.
• As transactions in Question Papers as goods is beyond the ambit of the GST Act, they are neither classifiable under Chapter 48 or 49 nor taxable under the GST Act. Service of printing Question Papers is not, therefore, classifiable under Heading 9989.

Why Supply is covered under Heading 9992

• Section 9 of the GST Tariff-Services includes Education Services (covering services related to admission to or conduct of examination by Educational Institutions) under Heading 9992.
• Since the Applicant has specified the printing of question papers for Educational Institutions, supply of service under Section 9 of the GST Tariff is found to be appropriate.
• Serial No. 66(b)(iv) of Notification No. 12/2017–CT(Rate) dated 28/06/2017, as amended from time to time, as applicable, wholly exempts services provided to an Educational Institution relating to conduct of examination.
• AAR observed that the phrase ‘relating to’ expands the scope of the entry to include such support services without which conduct of the examination is not possible, unless they are specifically mentioned under any other entry. Thereby an important observation is that if an entry has been specifically provided in any other heading then in such case, general entry would not prevail.

Whether Educational Boards are Educational Institution for the purpose of Heading 9992

• Explanation (iv) to Notification No. 12/2017-CT (Rate) dated 28/06/2017, inserted vide Notification No. 14/2018-CT(Rate) dated 26/07/2018, clarifies that Central and State Educational Boards shall be treated as Educational Institution for limited purpose of services by way of conducting examinations.
• Therefore Serial No. 66(b)(iv) includes services provided to such Boards relating to the conduct of examinations.

Whether the applicant is entitled for Input Tax Credit on Inputs, services and Capital Goods used for Supply of Printed Question Paper:

• Supply of Question Papers to Educational Institutions if provided, for a particular examination is an exempt supply under Serial No. 66(b)(iv) of Notification No. 12/2017-CT (Rate) dated 28/06/2017, as amended, as applicable, the Applicant is not eligible to avail of Input Tax Credit.

3. Comment:

• Legality or Illegality of a transaction cannot determine taxability under taxation laws

Relevant Entry No. 27 of Notification No. 11/2017 dated 28th June 2017 as amended from time to time is as follows:

“Services by way of printing of all goods falling under Chapter 48 or 49 [including newspapers, books (including Braille books), journals and periodicals], which attract CGST @ 6 per cent. or 2.5per cent. or Nil, where only content is supplied by the publisher and the physical inputs including paper used for printing belong to the printer”

The reason why AAR did not held it under the was the fact that open market transactions in Question Papers as goods, being illegal, are not enforceable by law and void contracts in terms section 2(g) of the Indian Contract Act, 1872, therefore as transactions in Question Papers as goods is beyond the ambit of the GST Act, they are neither classifiable under Chapter 48 or 49 nor taxable under the GST Act. Service of printing Question Papers is not, therefore, classifiable under Heading 9989. AAR seems to have considered the legality of transaction as the main stay for categorization for the purpose of levy of tax.

In this context Rajasthan High Court in the matter of Hindustan Zinc Ltd. vs Commercial Taxes Officer on 29 February, 2008

We may recapitulate here, if the sale is illegal, it may not pass on title to the vendee-the purchaser and the purchaser may not get full benefit of that purchased property and that is subject matter relating to the title to the property and consequential rights of the purchaser, which is governed by general law governing the subject of sale of property. As stated above, the sale is defined in the Rajasthan Sales Tax Act, 1994. Tax Act is for specific purpose and and do not depend upon other law for the purpose of levy of tax or for finding out the nature of transaction, if the taxing law itself has defined the transaction and included the transaction in any of the category of transaction for the purpose of levy of tax. The taxing law may not be a substantive law determining the property rights of the parties involved in the transaction and, therefore, the separate definition of sale has been given in the Act of 1994. Certain transactions, which may fall short of sale in general law have been included in the transaction of sale statutorily in the Act of 1994 and that is why the transaction in question is deemed sale and may not be actual sale so as to pass on title in property to the vendee-the purchaser.

Further same view was taken in the case of Y. Laxman v. Commercial Tax Officer, 1st Circle, Udipi and Anr. , the Karnataka High Court held that “

the expression “buying, selling, supplying or distributing goods” used in Section 2(1)(k) of the Act does not exclude buying, selling, supplying or distributing goods in an illegal way. The liability to pay sales tax does not depend upon whether the business carried on by the dealer is lawful or not. Even when buying, selling, supplying or distributing goods is not authorised by law, a person who carries on those activities would be liable to pay sales tax under the Act.”

By this measure, if reasoning of AAR is adopted then illegal sale of question papers would not be leviable to tax under the GST Act as the transactions is illegal. Hon’ble Rajasthan High Court in the matter of Hindustan Zinc Ltd. vs Commercial Taxes Officer on 29 February, 2008 observed that

“In the case of Hiram K. Undercofler, Commissioner v. Veterans of Foreign Wars Post 4625 139 South Eastern Reporter, 2nd Series 776 Ga. it has been held that “We find nothing in the Act which indicates any intention on the part of the legislature to differentiate between legal and illegal sales, and the general language of the Act should not be limited to legal sales only merely because the Act does not specifically tax illegal sales by referring to them as such.”

Therefore classification of supply on the basis of legality of transaction might have to be reconsidered as supply has to be defined under the four corners of the legislation irrespective whether the transaction is legal or illegal under other contracts.

Further it might be relevant to refer minutes of 22nd meeting of GST Council held on 6th October 2017 wherein this entry was inserted in the statute:

It may be clarified that the supply of books, pamphlets, brochures, envelopes, cartons, boxes, etc. printed with logo, design, name, address or other content supplied by the recipient of such printed goods, are composite supplies and the question, whether such supplies constitute supply of goods or services would be determined on the basis of what constitutes the principal supply. Principal supply has been defined in Section 2(90) of the CGST Act as supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. In case of printing of books, brochures, annual reports, leaflets, pamphlets etc., where only content is supplied by the publisher and the physical inputs including paper used for printing belong to the printer, supply of printing of the content supplied by the recipient of supply is the principal supply and therefore such supplies would constitute supply of service falling under heading 9989 of the scheme of classification of services. In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wall paper, etc. falling under chapter 48 and 49, printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content supplied by the recipient of supply is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective headings of chapter 48 and 49 of the Customs Tariff.

Therefore, view that printing of question papers would not be falling under 9989 on the ground of holding selling of question paper not being legal under the law, seems to be questionable.

• Printing of Question Paper can be classified as a service supplied to Educational Institution in relation to conduct of Examination

Services of printing of Question Paper can also fall under supply of services to an Educational Institution relating to conduct of examination taxable under Entry 9992. The fact that the word “relating to “ has been used makes the entry very wide and Hon’ble Apex Court in the matter of Doypack Systems Pvt Ltd v. Union of India: AIR 1988 SC 782, observed meaning of expressions “in relation to” as under:-

“49. The expression “in relation to” (so also “pertaining to”), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context…” “…

In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term “relate” is also defined as meaning to bring into association or connection with. It has been clearly mentioned that ” relating to” has been held to be equivalent to or synonymous with as to “concerning with” and “pertaining to”. The expression “pertaining to” is an expression of expansion and not of contraction.” (emphasis supplied)

Thus, Hon’ble Apex Court has observed that the words “in relation to” have both direct as well as indirect significance. It is a very broad expression and the wordings have to be given meaning of expansion rather than contraction.

• Assessee entitled to opt for the more beneficial entry in case of two or more options

If a particular supply falls under two tax rates then it might be a case for the assessee opting for the beneficial one as has been settled that if benefits under more than one provision are lawfully available, assessee can enjoy the one more beneficial to him.. [Collector of Central Excise –.v- Indian Petro Chemicals [1997] 92 ELT 13 (SC); HCL Ltd –v.- Collector of Customs [2001] 130 ELT 405 (SC); Commissioner of Central Excise and Service Tax –v.- Orient Bell Ltd (CEA – 65/2016 before the High Court of Karnataka); Winsome Yarns Ltd (Excise Appeal No. 55317-55318 of 2013 before CESTAT, Delhi)]

Therefore, if both the tax rates are applicable upon the services supplied by the assessee, he can opt for the more beneficial one, which in the given case is 9992.