Fair Trade Premium received by farmers' association constitutes additional consideration for supply and is liable to GST under Section 15(1)

AAR Kerala ruled that Fair Trade Premium received by farmers' association constitutes additional consideration for supply of agricultural goods and is liable to GST. The Premium, calculated as percentage of produce volume sold and collected from ultimate consumers as part of product price, has clear nexus with goods supply. Since payment is made in response to supply and forms part of transaction value under Section 15(1) CGST Act, it cannot be treated as ex gratia payment exempt from GST. Premium must be added to taxable value and taxed at same rate applicable to respective goods supplied.

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Issues Involved:
1. Liability to pay GST on the component of "Fair Trade Premium."
2. Whether the "Fair Trade Premium" constitutes consideration or additional consideration for the supply of goods.
3. Whether the "Fair Trade Premium" can be treated as an ex gratia payment not liable for GST.

Detailed Analysis:

1. Liability to pay GST on the component of "Fair Trade Premium":
The applicant, an association of farmers, sought clarification on whether they are liable to pay GST on the "Fair Trade Premium." The applicant argued that the premium is an additional sum received by the farmers and workers for their produce or labor, in addition to the price of the commodity. They contended that the premium is not a consideration for the supply of goods but an ex gratia payment used for developmental activities within the farming community. However, the jurisdictional officer noted that the fair trade premium constitutes consideration or additional consideration for the supply of goods made by the applicant, as it is linked with the supply of goods. The ruling concluded that the "Fair Trade Premium" forms part of the consideration and value of taxable supply, making the applicant liable to pay GST on it at the same rate as the respective goods supplied.

2. Whether the "Fair Trade Premium" constitutes consideration or additional consideration for the supply of goods:
The applicant argued that the "Fair Trade Premium" does not form part of the consideration for the supply of goods, relying on the definition of "consideration" under Section 2(31) of the CGST Act. They claimed that the premium is not integrally connected with the supply and is not part of the price bargain between the applicant and the buyer. However, the ruling emphasized that any payment made in respect of or in response to the supply of goods or services forms part of the consideration. The "Fair Trade Premium" is calculated as a percentage of the volume of produce sold and is collected from the ultimate consumer as part of the product price. Therefore, the premium is considered an additional consideration received in respect of the supply of goods and is to be added to the taxable value of the respective goods supplied.

3. Whether the "Fair Trade Premium" can be treated as an ex gratia payment not liable for GST:
The applicant contended that the "Fair Trade Premium" is an ex gratia payment, a goodwill gesture not liable for GST. They argued that the premium is used for developmental activities and is not a legal obligation of the payee. However, the ruling clarified that the premium has a clear nexus with the supply of goods, as it is calculated as a prescribed percentage of the volume of produce sold. The premium is collected from the ultimate consumer as part of the product price, making it an additional consideration for the supply of goods. Therefore, the "Fair Trade Premium" cannot be treated as an ex gratia payment and is liable for GST.

Conclusion:
The ruling determined that the "Fair Trade Premium" forms part of the consideration and value of taxable supply of goods supplied by the applicant. Consequently, the applicant is liable to pay GST on the "Fair Trade Premium" at the same rate as the respective goods supplied. The premium is not considered an ex gratia payment and is subject to GST.

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