Transportation service providers must include toll charges in GST supply value as reimbursements not disbursements

AAR TamilNadu ruled that a transportation service provider must include toll charges in the value of outward supply for GST purposes. The applicant argued toll charges should be treated as disbursements exempt from GST, but AAR held these constitute reimbursements as the applicant incurs toll costs as principal while providing transportation services, not as agent. Since toll charges are consideration for road access necessary to perform contracted services, they represent service costs that must be included in supply value with GST payable on entire amount including reimbursed tolls.

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Issues Involved:
1. Applicability of GST exemption on intra-state supply of services related to toll charges.
2. Inclusion of toll charges in the value of outward supply of service.
3. Tax liability on toll charges added to the outward value of supply of service.

Issue-wise Detailed Analysis:

1. Applicability of GST Exemption on Toll Charges:
The applicant sought clarification on whether the GST exemption for intra-state supply of services, specifically for access to a road or bridge on payment of toll charges as per Notification No. 12/2017-CT (Rate) dated 28.06.2017, applies to them. The ruling clarified that the exemption is available to the service provider of toll services and not to the recipient of such services. Since the applicant is a recipient of toll services and not a provider, this question was deemed inadmissible.

2. Inclusion of Toll Charges in the Value of Outward Supply of Service:
The applicant argued that toll charges reimbursed by their clients should not be included in the value of their outward supply of transport services. However, the ruling referred to Section 15 of the CGST Act, which states that the value of supply includes incidental expenses such as toll charges. The toll charges are considered an incidental expense incurred during the supply of rental services of road vehicles. Therefore, these charges must be included in the value of the outward supply of services.

3. Tax Liability on Toll Charges:
The ruling further clarified that the applicant, being a service provider of transportation services, must include toll charges in the value of their supply. These charges are not considered disbursements but rather reimbursements, which are subject to GST. The applicant is liable to pay tax on the entire value of the supply, including the toll charges.

Conclusion:
- Question 1: Not admitted as the applicant is a recipient, not a provider of toll services.
- Question 2: Toll charges are incidental expenses and must be included in the value of outward supply.
- Question 3: The applicant is liable to pay tax on toll charges added to the outward value of the supply of service.

Ruling:
1. The exemption of GST on toll charges is not applicable to the applicant as they are the recipient of the service.
2. Toll charges must be included in the value of the outward supply of service.
3. The applicant is liable to pay tax on the toll charges by adding them to the outward value of the supply of service.

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