Is subsidy from CG/ SG - exclusion from value of supply or Exempted supply under Entry 9C of notification 12/2017?

[Guest]

Greetings to Everyone!

My Query - There is a state 'Government Entity' and it receives grants through state budgets against which it provide certain services to the State Government. In such case, how shall the value of the transaction be determined?

If suppose the services cost ₹ 10,000/- and which is entirely charged by such govt. entity to the grants received. How will the value of supply determined?

Will be as follows:

Case-1

Value of services -------- ₹ 10,000/-

Less: Govt. Subsidy ---- ₹ 10,000/-

Total Invoice Value ------ Rs.NIL

Or

Case-2

Shall this transaction be treated as Exempt supply according to entry No. 9C of Notification No.12/2017-C.T.(R) dated 28.06.2017.

It must be noted that in case of case-1 the value would be excluded from the value of supply and there would be no impact on the ITC of the Govt. Entity.

However, if it is to be treated as exempt supply, then the Govt Entity might have to go for proportionate reversal of ITC as per Section 17(2) of the CGST Act, 2017.

I kindly request everyone to guide me on this query and broaden my understanding on the subject.

Thanks in advance for your attention & help!

[KASTURI SETHI]

Go through the definition of, "Exempt supply" as provided under Section 2(47) of CGST Act, 2017which is extracted below:-

(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

SECTION 2(31) of CGST Act, 2017

(31) “consideration” in relation to the supply of goods or services or both includes -

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government :

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Subsidy means grant or grant-in-aid. Hence it is exempt supply.

In Case 1 above, you cannot write as invoice value NIL. Its value is not nil. Invoice value is ₹ 10000/-

[Guest]

Greetings for the day!

@Kasturi Sethi Sir, Thank you for giving me your valuable time and replying to my query.

Sir, i understand that invoice value cannot be written as NIL, since income has to be booked for the financial purpose.

However, i still have this confusion regarding CGST Act provisions, as mentioned by you, consideration excludes grants from CG/SG, then for the purpose of GST, the value of supply would be NIL, right?

Even if the supply is considered exempt, the value would still be nil.

Further, Section 15(2)(e) of the CGST Act, 2017 reads as follows (relevant extract given below):

(2) The value of supply shall include ----

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government
and State Governments.

So, The CGST Act, itself provides that the value of supply shall not include subsidies received from CG/ SG. Then, treating such transaction as

The confusion is on one hand the Act intends to exclude grants from the CG/SG from the 'consideration' definition itself thereby intending to remove it from the turnover of the entity as neither taxable nor exempt.

However, on the other hand as per exempt supply definition it is to be included in exempt turnover?

I believe on a harmonious reading of both the provisions, the Act does not intend to consider grants as exempt turnover, since the definition of exempt supply is in generic in nature whereas the exclusion of grants from the definition of 'consideration' itself and value of supply is specific and intentional.

As i lack the experience in the field, not sure if my conclusion is tenable in the eyes of law. Request you to guide me.

Special Thanks to Kasturi Sethi Sir!

Thanks to everyone for reading!

[KASTURI SETHI]

Dear Sh.Niraj Jain Ji,

You are overwhelmed with gratitude. O.K. should be. Courtesy demands. But I want to bring to your notice that most of the querists in this forum do not have courtesy to thank either TMI or experts. Such expression of gratitude costs nothing.

Now I come to your point.

I understand very well that you want to come out of the definition of 'exempt supply' in order to avoid reversal of ITC. Pl. note that I am using the word,"avoid" and not, "evade". Avoidance of tax is legal and evasion of tax is illegal. For that purpose, you will have to come out not only from "Exempt supply" but also from "Supply of service" . You will also have to come out of scope of Schedule-1under Section 7 of CGST Act, 2017. So the issue has to be examined afresh. Let me know the nomenclature of service, constitution of the firm and status of relationship between the supplier of service and receiver of service..

 

 

[KASTURI SETHI]

Also read reply against Issue ID 114819. You can analyse whether you are covered up in this situation or not.

[Prakash Kabadagi]

Thanks for information sir.

My query, Is subsidy received by film producer from State government is GST applicable?. Kindly clarify sir.

AI Summary

Subsidy exclusion from consideration: government grants excluded from taxable value but may trigger ITC reversal if supply is exempt. Subsidies or grants given by the Central or State Government are excluded from the statutory definition of consideration and from the value of supply, so a government-funded service's taxable value should exclude such subsidies even though the supplier should record the full service amount for accounting. However, if the services qualify as exempt supplies under the applicable exemption entry, the supplier may face input tax credit reversal obligations, making factual and legal analysis of supply scope and exemption applicability necessary.