2022 (10) TMI 911 - AAR - GST

Free diesel provided to goods transport agencies must be included in GST value under Section 15

The AAR Uttarakhand ruled that free diesel provided by service recipients to goods transport agencies (GTAs) under contractual agreements must be included ... Levy of GST - valuation of Supply - transport of goods - inclusion of value of free diesel filled by service recipient under the accepted terms of contractual agreement in the fleet(s) placed by GTA service provider - HELD THAT:- Section 15 of the CGST Act, 2017 provides that the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply - Section 15 of the CGST Act, 2017 mandates that the value of supply shall include among other things, any other amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both. In the instant case although the supplier i.e. the applicant in the course of normal business transaction was required to include the cost of fuel, but for the wordings (read terms and conditions which apparently suites themselves) inserted in the agreement that too between two private entities, are trying to circumvent the statute, which appears was not the intent of the Parliament - It is observed that without the fuel the vehicle does not operate (run) and without running i.e. moving from one place to another, the act of transportation of goods by road does not happen. The goods transport service has the integral component of moving of goods from one place to another and for this to undertake a vehicle in running condition, an operator etc. are required. The running condition of a vehicle cannot be achieved without the fuel, as in absence of fuel the vehicle cannot move from one place to another to transport the goods. The input i.e. fuel, to run and operate the vehicle, provided free of cost by the recipient of the service, for transportation of goods, shall form part of value of supply in view of Section 15 of the CGST Act, 2017, as the cost of this input has to be paid by supplier of services but incurred by the recipient (as per the terms and condition of the agreement) as for the purpose of levy of GST, cost of all the inputs, whether provided free of cost or not, has to be included in the value of supply - the value of free diesel filled by service recipient will be subjected to the charge of GST by adding the free value diesel in the value of GTA service, under the Central Goods and Services Tax Act, 2017 & Uttarakhand Goods and Service Tax Act, 2017. Issues Involved:1. Valuation of supply under GST.2. Inclusion of free diesel provided by the recipient in the value of GTA service.Detailed Analysis:1. Valuation of Supply under GST:The applicant sought an advance ruling on whether the value of free diesel filled by the service recipient should be added to the value of GTA service for GST purposes. The application was admitted under Section 97(2)(c) of the CGST/SGST Act, 2017, which pertains to the determination of the value of supply of goods or services.The applicant argued that GST should be levied only on the freight charges as per the contract, and not on the value of the free diesel provided by the recipient. They cited Section 15 of the CGST Act, which defines the transaction value as the price actually paid or payable for the supply of goods or services, provided the supplier and recipient are unrelated and the price is the sole consideration.2. Inclusion of Free Diesel in the Value of GTA Service:The applicant contended that the free diesel provided by the recipient should not be included in the value of the GTA service. They argued that since the fuel is not a consideration under the contract and is the liability of the recipient, it should not be added to the freight charges for GST purposes. They cited various judicial precedents, including decisions by the Hon'ble Supreme Court and AAR Karnataka, to support their claim that free goods or materials provided by the recipient should not be included in the value of the service.However, the authority observed that Section 15 of the CGST Act mandates the inclusion of any amount that the supplier is liable to pay in relation to the supply but which has been incurred by the recipient. The authority noted that without fuel, the vehicle cannot operate, and therefore, the fuel is an integral component of the GTA service. They emphasized that the value of supply should include any amount that the supplier is liable to pay but has been incurred by the recipient.The authority further noted that the term 'consideration' under Section 2(31) of the CGST Act includes any payment made or to be made, whether in money or otherwise, for the inducement of the supply of goods or services. They concluded that the free diesel provided by the recipient constitutes a part of the value of the supply, as it is essential for the performance of the GTA service.Conclusion:The authority ruled that the value of free diesel filled by the service recipient in the vehicle(s) provided by the applicant should be included in the value of the GTA service for GST purposes. The ruling emphasized that the cost of all inputs, whether provided free of cost or not, must be included in the value of supply as per Section 15 of the CGST Act, 2017.Ruling:The value of free diesel filled by the service recipient in the vehicle(s) provided by the applicant will be subject to the charge of GST by adding the free value of diesel to arrive at the transaction value of GTA service.