Diesel provided free by service recipient cannot be added to transporter's payment for GST calculation

The HC set aside the Appellate Authority's order regarding GST valuation on free diesel supply in goods transport services. The court held that where diesel is provided free of cost by the service recipient under contractual agreement and not included in the GTA service value, the fuel cost cannot be added to the transporter's payment for GST calculation. Relying on SC precedents, the court determined that free supplies by service recipients do not constitute consideration for services rendered and cannot be included in taxable supply value under Sections 15(1) and 15(2)(b) of CGST Act, 2017.

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Issues Involved:

1. Whether the value of free diesel supplied by the service recipient should be included in the value of Goods Transport Agency (GTA) service for the purpose of GST under the Central Goods and Services Tax Act, 2017 and Uttarakhand Goods and Services Tax Act, 2017.

Issue-wise Detailed Analysis:

1. Inclusion of Free Diesel in GST Valuation:

The petitioner, a proprietorship firm providing Goods Transport Agency (GTA) services, challenged the order of the Appellate Authority for Advance Ruling, Uttarakhand, which upheld that the value of diesel supplied by the service recipient should be included in the value of GTA service for GST purposes. The petitioner argued that under the contractual agreement, the service recipient was responsible for supplying diesel, which was not part of the consideration for the GTA service. The petitioner contended that the only consideration was the freight charges, and the cost of fuel was borne by the service recipient, thus should not be included in the taxable value.

2. Legal Provisions and Interpretation:

The petitioner referenced Section 7(1)(a) and Section 15 of the CGST Act, 2017, emphasizing that the supply of goods or services for consideration should not include the cost of diesel, as it was not part of the transaction value agreed upon. According to Section 15(1), the value of a supply is the transaction value, which is the price actually paid or payable, excluding costs borne by the recipient, such as fuel. The petitioner argued that under Section 15(2)(b), the cost of fuel could not be added to the transaction value since it was not incurred by the petitioner.

3. Judicial Precedents and Circulars:

The petitioner cited various judgments, including Supreme Court rulings in CST Vs Bhayana Builders and Union of India Vs Intercontinental Consultants, where it was held that free supplies by the service recipient should not be included in the value of service. The petitioner also referred to Circular No. 47/21/2018, which clarified that items supplied free of cost should not be added to the value of supply. These precedents supported the argument that the free supply of diesel should not be part of the taxable value.

4. Respondent's Argument and Counter-Affidavit:

The respondents argued that the free supply of diesel was integral to the transportation service and should be included in the value of supply as per Section 15(2)(b) of the CGST Act, 2017. They contended that the omission of fuel costs in the agreement should not exempt it from GST, as all elements of supply must be considered in determining the value.

5. Court's Decision:

The court, referencing Supreme Court judgments, concluded that the value of free diesel supplied by the service recipient should not be included in the value of GTA service for GST purposes. It held that the cost of fuel, borne by the service recipient, was not part of the consideration for the service and thus could not be added to the transaction value. Consequently, the court set aside the order of the Appellate Authority for Advance Ruling, allowing the writ petition.

In summary, the judgment emphasized the principle that free supplies by the service recipient, such as diesel in this case, should not be included in the taxable value of services under GST, aligning with established legal precedents and interpretations of the CGST Act.

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