Petitioner gets time to rebut valuation under Section 15(1) CGST Act on sole consideration for supply

HC considered a petition challenging the determination of transaction value under Section 15(1) of the CGST Act, where the issue was whether transaction value is the sole consideration for supply. The court did not adjudicate on the merits and instead granted time to petitioner to file a rejoinder affidavit. Petitioner was permitted to file the rejoinder on or before 17 June 2025 and directed to serve copies on Respondent No. 2 and Respondent No. 4. The matter was ordered to be listed on 23 June 2025, and the case was stood over to that date.

---

---

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter include:

• Whether the transaction value, as defined under Section 15(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), is determinable and applicable in this case, or whether the provisions of Section 15(4) of the CGST Act read with Rule 27(c) of the Central Goods & Services Tax Rules, 2017 (CGST Rules) apply due to the transaction value being non-ascertainable.
• Whether the demand and penalty imposed by the Respondent No. 2, based on the application of Section 15(4) and Rule 27(c), is justified, particularly in light of the policy decision taken by the State Government in 2008 concerning the valuation of supplies under a Build, Own, Operate and Transfer (BOOT) co-generation project.
• Whether the consideration for supply of goods and services in the form of free supply of electricity and steam, as per the policy, should be included in the transaction value for GST levy or excluded as per the Petitioners' contentions.
• The validity and enforceability of the impugned order demanding Rs. 6,41,31,908/- and an equal penalty, and the correctness of the demand calculation methodology.
• Whether interim relief in the form of stay on the operation of the impugned order is warranted pending final adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 15(1) vs. Section 15(4) of the CGST Act and Rule 27(c) of the CGST Rules in Determining Transaction Value

The legal framework governing the valuation of supplies under GST is primarily Section 15 of the CGST Act, 2017. Section 15(1) mandates that the transaction value shall be the price actually paid or payable for the supply of goods or services. However, Section 15(4) empowers authorities to determine transaction value when the price is not ascertainable or when the consideration is not wholly in money.

Rule 27(c) of the CGST Rules provides specific guidance on situations where the transaction value cannot be determined under Section 15(1), allowing the tax authorities to adopt alternative valuation methods.

The Petitioners argued that the transaction value was determinable and fixed by the State Government policy dated 18th October 2008. This policy mandated that co-operative sugar factories supply bagasse free of cost to a private company (Shree Renuka Sugars Limited), which would generate electricity and steam on a BOOT basis. The policy further stipulated that 50% of the generated electricity and steam would be supplied back to the sugar factory free of cost, and a sugarcane crushing royalty would be paid by the private company to the sugar factory at specified rates.

The Petitioners maintained that this arrangement constituted the sole consideration for the supply and had been the basis for VAT, service tax, and GST payments historically. Therefore, reliance on Section 15(4) and Rule 27(c) to re-determine the transaction value was improper.

The Court, however, noted that the Respondent No. 2 contended that the transaction value was not ascertainable in the conventional sense because of the free supply of electricity and steam, which constituted non-monetary consideration not accounted for in the declared transaction value. This triggered the applicability of Section 15(4) and Rule 27(c).

The Court recognized that the legal framework permits the tax authorities to invoke Section 15(4) and Rule 27(c) when the transaction value is not determinable or when consideration includes non-monetary elements. The Court did not, at this stage, conclusively rule on the applicability but acknowledged the contesting positions.

Issue 2: Validity of the State Government Policy and Its Effect on Transaction Value

The Petitioners relied heavily on the policy decision of the Committee of Ministers dated 18th October 2008, which structured the co-generation project on a BOOT basis and fixed the terms of supply and royalty payments. They contended that this policy effectively fixed the transaction value and that the free supply of electricity and steam was an integral part of the consideration agreed upon and thus should not be treated as additional or separate consideration for GST purposes.

The Court noted that the policy had been the basis for earlier tax payments under VAT, service tax, and GST regimes, suggesting a longstanding acceptance of the transaction value as fixed by the policy. However, the authorities' recent reassessment challenged this understanding, leading to the present dispute.

The Court recognized that the policy's validity as a basis for transaction value depends on whether the consideration, including free supplies, was adequately reflected in the declared value for GST. If the free supply of electricity and steam had economic value and was not accounted for, the authorities could legitimately reassess the transaction value under the CGST Act.

Issue 3: Inclusion of Free Supply of Electricity and Steam in Transaction Value

The crux of the dispute was whether the free supply of electricity and steam to the sugar factory should be included in the transaction value for GST levy. The Petitioners argued that this was not additional consideration but part of the overall arrangement under the policy and hence not liable to be separately valued or taxed.

The Respondent No. 2 contended that since the supply of electricity and steam was free of cost and had not been included in the transaction value, it constituted non-monetary consideration that had to be valued and included under Section 15(4) and Rule 27(c).

The Court acknowledged that under the CGST Act, any non-monetary consideration or supply made for free but having economic value must be included in the transaction value. The Court indicated that this principle justified the authorities' approach to include such free supplies in the valuation.

Issue 4: Legitimacy of Demand and Penalty Imposed

The impugned order demanded Rs. 6,41,31,908/- along with an equal penalty on the Petitioners. The Petitioners challenged the demand as unjustified, arguing that the transaction value was correctly declared and that the penalty was unwarranted.

The Court did not delve into the merits of the penalty and demand at this stage but acknowledged the Petitioners' challenge and directed the Respondents to file affidavits in reply for detailed examination. The Court also granted interim relief, indicating prima facie merit in the Petitioners' contentions.

Issue 5: Grant of Interim Relief

The Court considered whether to stay the operation of the impugned demand and penalty order pending final adjudication. The Petitioners sought an injunction to prevent enforcement of the demand.

Finding prima facie substance in the Petitioners' arguments, the Court granted ad-interim relief by staying the operation of the impugned order subject to the Petitioners depositing Rs. 64 Lakhs with the Court. The Court made it clear that failure to deposit the amount would result in automatic vacation of the stay.

This interim order balanced the Petitioners' right to challenge the demand with the State's interest in securing revenue.

3. SIGNIFICANT HOLDINGS

The Court's significant legal reasoning and principles established include:

"The transaction value under Section 15(1) of the CGST Act is the price actually paid or payable for the supply. However, where the transaction

---