Recipient-supplied free diesel in goods transport services counted in taxable value under CGST ss. 7(1)(a), 15(2)(b)

A GTA challenged inclusion, in the taxable value of transportation services, of diesel filled by the recipient free of cost. Applying ss. 7(1)(a) and 15(2)(b) CGST Act, the HC held that "consideration" and "value of supply" cannot be confined to contractual labels where the recipient undertakes a component essential to performance of the GTA's business obligation. Diesel is integral to providing transport service and cannot be segregated to avoid tax; delegating fuel responsibility makes the recipient act as a functional component of the supply. The relied circular was held inapplicable on these facts. The writ was dismissed and inclusion of diesel value was upheld.

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Issues Involved:
1. Legality of the orders passed by the Appellate Authority for Advance Ruling (AAAR) and Authority for Advance Ruling (AAR) regarding GST on free-of-cost diesel.
2. Constitutionality of Section 101(3) of the CGST and CHGST Acts.
3. Inclusion of free-of-cost diesel in the value of Goods Transport Agency (GTA) services for GST purposes.

Summary:

Issue 1: Legality of AAAR and AAR Orders
The petitioner, a Goods Transport Agency (GTA), challenged the orders of the AAAR and AAR which held that GST is leviable on the value of diesel provided free of cost (FOC) by the service recipient. The AAR initially ruled that the petitioner must include the cost of FOC diesel in the value of GTA services for GST purposes. The petitioner appealed to the AAAR, which resulted in a difference of opinion between the CGST and SGST members. The CGST member upheld the AAR's decision, while the SGST member disagreed, stating that the value of FOC diesel should not be included in the taxable value of supply.

Issue 2: Constitutionality of Section 101(3) of CGST and CHGST Acts
The petitioner also challenged the constitutionality of Section 101(3) of the CGST and CHGST Acts, which provides that no decision will be rendered by the AAAR in case of a difference of opinion between its members. The petitioner argued that this provision is arbitrary and leaves the parties without any remedy, thus violating Articles 14 and 19(1)(g) of the Constitution of India.

Issue 3: Inclusion of FOC Diesel in the Value of GTA Services
The court examined whether diesel provided FOC by the service recipient should be included in the value of GTA services for GST purposes. The court referred to Section 15(2)(b) of the CGST Act, which states that any amount the supplier is liable to pay but is incurred by the recipient should be included in the value of supply. The court concluded that the diesel, being an integral part of the transportation service, must be included in the value of GTA services for GST purposes, as the business of the GTA is dependent on the fuel provided.

Observations and Order:
The court observed that the petitioner's business of providing transportation services is inherently dependent on the supply of fuel. Therefore, the cost of diesel provided FOC by the service recipient should be included in the value of the GTA services for GST purposes. The court upheld the initial order of the AAR dated 04-01-2021, which included the value of FOC diesel in the taxable value of GTA services. The court dismissed the petition, stating that no relief could be granted to the petitioner.

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