Government subsidies cannot be excluded from GST valuation when determining supply value under Section 15(2)(e)

AAR Karnataka ruled that subsidies received from Central/State Government cannot be excluded from GST valuation when determining supply value. The supplier invoiced the full contract price to the recipient, with subsidies paid into an escrow account as part of the price payable by the recipient. Since the subsidies were not directly linked to or affecting the supply price, and the contract price remained recoverable regardless of subsidy provision, Section 15(2)(e) exclusion was inapplicable. The transaction value constituted the full value of supply for GST liability purposes.

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Issues Involved:
1. Whether the subsidy received from the Central/State Government is to be excluded from the value for the purpose of arriving at the GST liability.

Summary:

Admissibility of the Application:
The application is admissible under Section 97(2)(e) of the CGST Act, 2017 as it pertains to the "determination of the liability to pay tax on any goods or services or both."

Brief Facts of the Case:
The applicant, a manufacturer of machineries and industrial boilers, intends to supply plant and machineries to a recipient eligible for a 90% subsidy from the Central and State Governments. The recipient insists that the supplier charge GST on the total invoice amount minus the subsidy, in line with Section 2(31) and Section 15(2)(e) of the CGST Act.

Findings and Discussion:
- Section 2(31) of the CGST Act: Defines 'consideration' and explicitly excludes any subsidy given by the Central or State Government from being considered as part of the consideration.
- Section 15(2)(e) of the CGST Act: Stipulates that the value of supply shall include subsidies directly linked to the price, excluding those provided by the Central or State Governments.

The applicant contends that the subsidy amount (90% of the total cost) should be excluded from the value of supply as per the aforementioned sections. However, the authority finds that:
1. The contract for supply is between the applicant and the recipient, and the full contract price is recoverable from the recipient regardless of the subsidy.
2. Subsidies provided in the escrow account are part of the price payable by the recipient and are not separately recoverable by the applicant.
3. The subsidy does not affect the price of supply, thus the exclusion provided in Section 15(2)(e) is not applicable.

Ruling:
The subsidy received from the Central/State Government cannot be excluded from the value of supply as it does not affect the price of supply.

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