Subsidy receipt from government

[Ramanathan Seshan]

Dear Experts,

We have received the Integrated Development of Leather Sector (IDLS) subsidy from the government, which we treated as income. However, during our departmental audit GST officers inquired why we have not charged or discharged GST on this subsidy. Our understanding is based on section 2(31) of the GST Act, which excludes government subsidies from GST. 

Unfortunately, the officers are not accepting this explanation. To resolve this issue, we would like to ask if you could provide any notifications or circulars that clarify the GST treatment of government subsidies and confirm that they should not be subjected to GST charges.

Regards,

S Ram

[Sadanand Bulbule]

Keeping in mind the provisions of Section 2(31) read with Section 15(2)(e), CBIC Circular No. 190/02/2021-GST dated 13/01/2023 reiterates that such subsidies/incentives are not includible in the value of supply and hence not liable to GST. Circular instructions being statutory in nature are binding on the authorities working under the CGST Act and they cannot escape from complying them.

Judicial precedents such as Indian Institute of Management, Nagpur [2020 (33) G.S.T.L. 140 (AAR-Mah.)] have held that government grants/subsidy not linked to price. So it is outside the GST domain. Many AARs are in favour of the taxpayers on this count.

[Sadanand Bulbule]

Refer Karnataka Advance Ruling No. KAR. ARDG 32/2023 dated 15/09/2023 rendered in the case of M/s. Hitze Boilers Pvt Ltd, - 2023 (9) TMI 1122 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA Kunigal Industrial Area,Kunigal, Tumakuru-572 130. Held that subsidy is not part of value of supply.

[KASTURI SETHI]

I support the views of Sh.Sadanand Bulbule,  Sir. It is added that circulars have no statutory force but these are binding on the department, if contrary to the letter and spirit of GST Acts.      

Section 15(2)(e) is very much clear.  No need of case law.

Since the department is raising objection, you must check the definition of "Govt.". Do you qualify to the definition ?

[MAHARISHI BUSINESS ADVISORY PRIVATE LIMITED]

Despite th e decisiosn of SC in ratan smelting where it is held that circulars contrary to the law does not bind anyone. 

[Sadanand Bulbule]

Refer the following landmark judgment on circular instructions: 

Supreme Court in Bengal Iron Corporation Vs. Commercial Tax Officer reported in 1993 (4) TMI 277

[Sadanand Bulbule]

Also refer the following judgment on circular instructions: 

Supreme Court in Glaxo Smithkline Pharmaceuticals Vs. Union of India & Others reported in 2014 (3) TMI 113 

[Ramanathan Seshan]

Thanks sir

[Shilpi Jain]

Also refer to section 15(2)(e)

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

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

Subsidies by Govt. not includible in value on which GST to be paid

AI Summary

Leather sector subsidy treated as income; dispute over GST exclusion under section 15(2)(e) and subsidy definition A taxpayer received a government leather-sector subsidy and treated it as income without charging GST; tax officers disputed this. Forum respondents noted statutory language excluding government subsidies from taxable value (section 15(2)(e) read with the GST definition of subsidy) and pointed to a central board circular reiterating that central/state government subsidies are not includible in supply value. Several advance rulings and higher-court decisions have supported taxpayers, though authorities may challenge whether the payer qualifies as 'government' or question reliance on circulars; resolving the dispute hinges on facts and applicable precedents.