2020 (7) TMI 409 - AAR - GST

Inclusion of Free HSD Oil in Service Value under CGST Act: Ruling Analysis

The Authority for Advance Ruling determined that the HSD Oil issued free of cost by the service recipient to the applicant should be included in the value ... Value of supply - inclusion under Section 15(2)(b) - consideration - supplied goods forming an integral component of the serviceValue of supply - inclusion under Section 15(2)(b) - supplied goods forming an integral component of the service - consideration - The HSD oil issued free of cost by the service recipient is includible in the value of the applicant's supply of services under Section 15(2)(b) of the CGST Act. - HELD THAT: - The Authority examined the contractual arrangement and statutory definitions. The supply of diesel by the recipient for use in the applicant's equipment was held to be an integral component of the excavation, transportation and delivery services; the process could not be carried out without that fuel. Section 15(2)(b) provides that the value of a supply includes any amount which the supplier is liable to pay in relation to such supply but which has been incurred by the recipient and not included in the price. Applying that provision, the cost of HSD borne by the recipient, though supplied free of cost to the applicant, falls within the value of the service because it is an amount incurred in relation to the supply and forms part of the business process necessary to render the service. The applicant's submission that title did not pass or that no separate liability to pay existed was considered but the Authority treated the delivered fuel as an includible element of consideration for valuation purposes under Section 15(2)(b).The HSD oil supplied free of cost by the service recipient is includible in the value of the applicant's supply of services under Section 15(2)(b).Final Conclusion: Advance Ruling: the HSD oil issued free of cost by the service recipient forms part of the value of the service supplied by the applicant and is includible under Section 15(2)(b) of the CGST Act. Issues involved:- Interpretation of Section 15 of the CGST Act regarding the inclusion of HSD Oil issued free of cost by the service recipient in the value of supply of service by the applicant.Detailed Analysis:The case involved an application filed by a mining and logistics company seeking an advance ruling on whether the HSD Oil issued free of cost by the service recipient should be included in the value of supply of service by the applicant as per Section 15 of the CGST Act. The applicant argued that since the HSD oil was provided free of cost by the service recipient and was not part of the consideration for the services rendered, it should not be included in the value of supply. The applicant contended that as per the work order, the HSD oil was essential for operating heavy equipment and vehicles, and it was provided at no additional cost. The applicant emphasized that they had quoted a comprehensive price for their services excluding the fuel cost, indicating that the value of HSD oil should not be considered in the total price payable. The applicant relied on Section 15(2)(b) of the GST Act, which states that any amount that the supplier is liable to pay but has been incurred by the recipient and not included in the price paid should be considered. The applicant argued that since they were not liable to pay for the HSD oil separately, it should not be included in the value of supply.Upon examination of the relevant provisions of the CGST Act, the Authority for Advance Ruling found that the value of supply includes any amount that the supplier is liable to pay in relation to the supply but has been incurred by the recipient and not included in the price paid. The Authority noted that the HSD oil provided by the service recipient was essential for the applicant's business operations, forming an integral part of the mining process. Therefore, based on Section 15(2)(b) of the CGST Act, the Authority ruled that the HSD Oil issued free of cost by the service recipient to the applicant would indeed form part of the value of supply of service by the applicant. The ruling emphasized the importance of considering all elements essential for the supply of services, even if provided without a separate charge, in determining the value of supply for GST purposes.