Free diesel provided by service recipient to transport agency excluded from GST valuation under Section 15(2)(b)

AAR Rajasthan ruled that free-of-cost diesel provided by service recipient to goods transport agency need not be included in taxable value of transportation services. The contractual terms clearly placed fuel responsibility on service recipient, not the applicant transport company. Since applicant had no contractual liability for diesel costs and received no economic benefit, Section 15(2)(b) CGST Act was inapplicable. The ruling emphasized that FOC diesel constituted a contract condition rather than consideration, making it excludable from GST valuation.

---

---

Issues Involved: Determination of time and value of supply of goods or services, specifically whether the value of diesel provided by the customer (service recipient) to the trucks should be added to the freight charged by the Applicant for GST purposes.

Issue-Wise Detailed Analysis:

1. Nature of the Contract and Scope of Services:

The Applicant, a Goods Transport Agency (GTA), is about to enter into a contract with a customer for providing transportation services. According to the contract, the diesel required for transportation is within the customer's scope and is provided free of cost. The Applicant is responsible for transporting goods using trucks filled with diesel by the customer, but the diesel remains the property of the customer and is not included in the freight charges.

2. Applicant's Interpretation of Law:

The Applicant contends that the value of diesel provided by the customer should not be included in the value of freight charged. They argue that under Section 15 of the CGST Act, the value of supply includes the transaction value, which is the price actually paid or payable. Since the diesel is provided free of cost and is not within the Applicant's scope, it should not be included in the value of the supply.

3. Legal Provisions and Clarifications:

Section 15(2) of the CGST Act specifies that the value of supply includes any amount that the supplier is liable to pay but has been incurred by the recipient. The Applicant argues that since they are not liable to pay for the diesel, it should not be included in the value of the supply. The deletion of a provision in the Model GST Law that included the value of free issue materials further supports their position.

4. Jurisdictional Officer's Comments:

The Jurisdictional Officer concurs with the Applicant, stating that GST is not leviable on free of cost (FOC) materials provided by the service recipient when such goods are within the recipient's scope as per contractual terms.

5. Analysis of the Agreement:

The proposed agreement clearly states that the diesel is not within the Applicant's scope and will not affect the payment for transportation services. The agreement emphasizes that the diesel remains the property of the customer and is not considered additional consideration for the transportation service.

6. Relevant Sections and Circulars:

Section 7 of the CGST Act defines supply, and Section 9 is the charging section. Section 15(2)(b) specifies that the value of supply includes amounts the supplier is liable to pay but incurred by the recipient. Since the diesel is not the Applicant's liability, it should not be included in the value of the supply. Circular No. 47/27/2018-GST clarifies that the value of free of cost materials provided by the recipient should not be included in the value of supply.

7. Judicial Precedents:

The Supreme Court in CST v. Bhayana Builders and other cases under the Service Tax regime held that the value of free of cost goods/materials provided by the recipient should not be included in the value of the service. These precedents are relevant as the provisions under the GST Act are similar.

8. Revenue Neutrality:

The transaction is revenue-neutral since the service recipient can claim input tax credit for the GST charged on the GTA service.

Conclusion:

Based on the analysis, the value of diesel provided free of cost by the customer should not be included in the value of the GTA service provided by the Applicant. The contractual terms clearly state that the diesel is the customer's responsibility and is not additional consideration for the transportation service. Therefore, the Applicant is not required to include the value of diesel in the freight charges for GST purposes.

Order:

The value of diesel filled free of cost by the service recipient is not includable in the value of the GTA service provided by the Applicant, subject to the conditions mentioned in the draft Transport Service Agreement/contract.

---