TaxTMI 
TaxTMI 
2021 (10) TMI 118
X X X X Extracts X X X X
X X X X Extracts X X X X
....rocure the fuel on behalf of the customers and subsequently the cost of the fuel is reimbursed by customers at actual (without charging any mark-up); that GVHL undertakes the activity of procurement of fuel as a 'pure agent' on behalf of the customers. 2. The appellant has filed their submission along with the appeal filed on 21.08.2020 against Advance Ruling Order No. GUJ/GAAR/R /21/2020 dated 14.07.2020 passed by the Gujarat Advance Ruling Authority (herein after referred to as the 'GAAR'). In their submissions, the appellant has mentioned that the relevant clauses of Contract No. ONG / COL / HMM / CSR / AL / CH / HELICOPTER / CREW CHANGE / 09 / 2014 / P76BC4008-GR-1 dated 31.07.2015 with M/s. Oil and Natural Gas Corporation Ltd.(ONGC) are as under: * Clause 10 - PROVISIONS OF SERVICES AND FUEL - Clause 10.2 - By Charterer - Clause 10.2.1(iii) "ATF shall be provided as free supply item by ONGC at Mumbai and Offshore. For other locations, ATF charges shall be reimbursed as per actuals on production of original vouchers from the ATF supplier of the concerned Airport. In case due to any reason ONGC is unable to supply ATF at Mumbai, op....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appeal. 7. The appellant has referred to the various provisions of the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as the CGST Act, 2017 and the GGST Act, 2017 respectively and the GST Acts, 2017 collectively) and the Central Goods and Services Tax Rules, 2017 and the Gujarat Goods and Services Tax Rules, 2017 (herein after referred to as the CGST Rules, 2017 and the GGST Rules, 2017 respectively and GST Rules, 2017 collectively). The appellant has referred to section 2(31) of the GST Acts, 2017 providing the definition of consideration, section 9 and section 15 of the GST Acts, 2017 and rule 33 of the GST Rules, 2017. 8. The appellant has inter-alia submitted that in the instant case, it was agreed between the appellant and the customer that (only) Rental services would be provided, and the consideration for the same would be fixed as monthly charges and flying hourly charges; that it was also contractually agreed between the parties that ATF would be provided by the Customer to the appellant on free of cost basis. It was never agreed between the parties that ATF would be supplied by the appellant to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such reimbursements have not been treated as service income; that fuel purchased by appellant are not debited to the P&L account as the same are not expenses of the appellant, are treated as receivables from the customers and on recovery of such receivables, the amounts recovered are adjusted against the receivables; that the books of accounts have been prepared and audited as per accounting standards as required under the Companies Act, 2013. 12. The appellant has submitted that as per section 15(2)(b) of the GST Acts, 2017, where it is agreed between two contracting parties that certain amounts would be incurred by the service recipient in relation to the service to be provided by the service provider, the same cannot be included in the value of services provided. They relied upon the decision in the matter of Rolex Logistics [2009 (13) STR. 147 (Tri-Bang)] in this regard. 13. The appellant has referred to Section 67 of the Finance Act, 1994 and has submitted that the principles of determining value of taxable service are similar under the Finance Act, 1994 and the under the GST Acts, 2017 and therefore the principles of determining value of taxable service under the pre-GS....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. Vs. UOI [2008 (11) STR 3 (Del.)]. The appellant has submitted that the provisions of Section 67 of the Finance Act, 1994 are pari materia with Section 15 of the GST Acts, 2017 hence, the ratio laid down in these decisions is applicable in the present case. 16. The appellant has submitted that the value of goods supplied by the service recipient is includable in the taxable value only in specific situations covered under Section 15(2)(b), as follows - i. Where any amount is required to be incurred by the supplier in relation to a supply. ii. However, the same is incurred by the recipient of the supply and iii. The said amount is not included in the price actually paid or payable for supply of goods/services or both. The appellant has submitted that in the instant case, the cost of ATF was always required to be borne by the customer. Further, the arranging of ATF was not in relation to the rental services agreed to be provided by the appellant. Thus the essential condition (i) specified above is not fulfilled. Further, the amount of reimbursements charged by the appellant for ATF is not in respect of supply of services that were agreed to be pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as reimbursement of costs only. 22. The appellant has submitted that before proceeding to ascertain the value of supply, what is supply is required to be determined. It has been submitted that the supply in the present case is renting of helicopters and the obligation to procure fuel is of ONGC. The reliance is placed on the decision of House of Lords in the case of Customs and Excise Comrs v. British Telecommunications plc. [1999] 1 WLR 1376. 23. The appellant has submitted that the GAAR has assumed that each time the helicopter flies, the supply takes place. The appellant has further submitted that the supply in the present case is renting of helicopters and not transportation service, therefore, the supply takes place when the helicopters are made available to ONGC. Thus any amount charged by way of reimbursement for ATF made available after the supply of services by way of renting of helicopters is made, is not includible in the value of supply. 24. The appellant has further submitted that as per Section 9(2) of the GST Acts, 2017, no tax is leviable on supply of aviation turbine fuel. It will be levied from a date to be notified by the Government on the recommendatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....can be included in the value of the supply under Section 15(2)(c) of the GST Acts, 2017. 27. The appellant has submitted that the appellant is providing services of hire of helicopters with operator to ONGC which cannot be used for any other person/other supply by the appellant. When the appellant procures ATF on behalf of the ONGC, then it provides the helicopter registration number to the ATF supplier. This clearly indicates that the ATF procured by the appellant is on behalf of the ONGC and will be used in that particular helicopter which is given on hire to ONGC. This satisfies the conditions of Rule 33 of the GST Rules, 2017 and therefore, the cost of ATF cannot be included in the value of supply provided by the appellant. 28. The appellant has also placed reliance on HMRC Guidelines (VAT Notice 700) on costs or reimbursements passed to customers under the UK VAT law and has referred to the decision of the House of Lords in the case of Neil Gwynn House Maintenance Fund Trustees v. Customs and Excise Commissioner [(1999) STC 79] and in the case of De Danske Bilimporter v. Skatterministeriet [(2006) ECR 1-4945]. 29. The appellant has submitted that the fuel procured on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services; (d) ...... (e) ...... Explanation. - ...... 34.2 Regarding the contention of the appellant that from section 15(2)(b), it emerges that where it is agreed between two contracting parties that certain amounts would be incurred by the service recipient in relation to the service to be provided by the service provider, the same cannot be included in the value of services provided', we find that the appellant has misread or misinterpreted Section 15(2)(b) of the GST Acts, 2017. In respect of "Rental service of aircraft", as per the terms of the contract, the appellant is required to make arrangements for fuel, except at Mumbai and Offshore, where the ONGC would provide fuel as free supply. Even at Mumbai, as per the terms of the contract, it is the responsibility of the appellant to arrange for the fuel where the ONGC is unable to provide fuel. It is, thus apparent that it is the appellant who is primarily liable to arrange for fuel at all the places, which is required for flying of Helicopters in respect of which appellant would get considera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of a supply and any amount charged for anything done by the supplier in respect of supply of goods or services or both at the time of, or before delivery of goods or supply of services', and comparing the same to the issue in hand has stated that the reimbursement of fuel cost by the customer to the appellant is not covered under 'incidental expenses' as fuel costs are not incidental expenses; that it is also not covered under 'any amount charged for anything done by the supplier in respect of supply of goods or services or both at the time of, or before delivery of goods or supply of services; that in the impugned order, it has been held as "in the instant case, the applicant is filling ATF fuel in the aircraft before the supply of services to the customer i.e. "Rental services of aircraft including passenger aircrafts, freight aircraft and the like with or without operator" and the amount of the ATF fuel is being charged from the customer, which the applicant is receiving in the form of consideration, which has been received by them as reimbursement. This act of the applicant would be considered as 'any amount charged for anything done by the supplier in respect of the supply ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... plus flying hourly charges and that the amount of reimbursements charged by the appellant for ATF is not in respect of supply of services that were agreed to be provided to the customer in terms of the rental agreement. In this regard, we find that the supply of services provided by the appellant are 'rental services of aircrafts' and for providing this supply of services, the appellant is being paid monthly rental charges and flying hourly charges by the customer. As per the contract, the helicopters of the appellant are required to carry passengers/and or cargo of the customers to various destinations in India. These aircrafts/helicopters cannot fly to the various required destinations without ATF filled in them. In short, it is impossible for the appellant to provide the supply of 'rental services of aircrafts' without ATF being filled in the aircrafts and therefore, the appellant's contention that the amount of reimbursements charged by them for ATF is not in respect of supply of services is unacceptable as even a layman can make out that aircrafts cannot fly without fuel. Further, we also do not agree with the contention of the appellant when he states that 'the impugned orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which has been arranged for by the appellant and filled in the aircrafts. This means that payment made or to be made by the recipient to the appellant would not only include the payment for the supply of services i.e. "Rental services of aircraft including passenger aircrafts, freight aircraft and the like with or without operator" but would also include the amount for the ATF (fuel) filled in the aircraft by the appellant. Therefore, the amount of ATF, which is received as reimbursement by the appellant will undoubtedly form a part of the 'consideration' i.e. the value of the services provided by the appellant and GST is liable on the same. 36. From a plain reading of the clauses 10.2.1. and 11 of the contract/agreement in Schedule-A (under the head 'Scope of Work & 'Special Conditions of Contract'), it is observed that although it has been agreed upon by ONGC that they will provide ATF as free supply at Mumbai and offshore, condition of clause 10.2.1.(iii) specifically mentions that in case of any reason, ONGC is unable to supply ATF at Mumbai also, operator has to make arrangement for ATF. Further, as per the agreement/contract, ONGC will supply fuel free of cost only at 2 lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on his own account. Explanation. - For the purposes of this rule, the expression "pure agent" means a person who - (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. Illustration. - Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clear that ONGC will arrange for the ATF fuel only on 2 locations i.e. at Mumbai and offshore whereas at all other locations in India, it is the responsibility of the appellant to arrange for ATF. Also in case of failure of ONGC to arrange for ATF for any reasons in Mumbai, the appellant has to arrange for it. Thus, it is very much clear that it is by and large, the responsibility of the appellant only to arrange for the ATF for their customer. It is also apparent that the appellant has entered into a contractual agreement with the recipient of supply to incur expenditure or costs in the course of supply of goods or services or both. (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; We do not agree with the contention of the appellant since it is apparently clear from the conditions of the contract that ONGC will arrange for the ATF fuel only on 2 locations i.e. at Mumbai and offshore whereas at all other locations in India, it is the responsibility of the appellant to arrange for ATF. Also in case of failure of ONGC to arrange for ATF for any reasons in Mumbai, the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the contention of the appellant that the aircrafts were to be flown as per the directions/schedule provided by the customer, we do not agree with their contention that ATF for flying the aircraft was the responsibility of the customer i.e. ONGC. It is apparently clear from the conditions of the contract that ONGC will arrange for the ATF fuel only on 2 locations i.e. at Mumbai and offshore whereas at all other locations in India, it is the responsibility of the appellant to arrange for ATF. Also in case of failure of ONGC to arrange for ATF for any reasons in Mumbai, the appellant has to arrange for it. Thus, it is very much clear that it is by and large, the responsibility of the appellant only to arrange for the ATF for their customer. We also do not agree with the contention of the appellant when they say that 'the scope of Charter Hire Services does not include provision of fuel and it has been abundantly established that renting of aircraft services(with pilots) was never dependent upon provision of ATF as appellant would have received the fixed monthly charges even if the aircraft was not in use, although the rentals were also partly chargeable based on the flying hours of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is own account.: Although the appellant have mentioned about the accounting method followed by them stating that they have only been reimbursed the actual amount without markup from their customers, they have not produced the relevant evidence/documents to prove this point. 40. We therefore, find that since none of the conditions envisaged in the provisions of Rule 33 of the GST Rules, 2017 for being a 'Pure Agent' have been fulfilled/satisfied by the appellant, they cannot be said to be 'pure agent' in this case and therefore the amount of reimbursement received by the appellant will undoubtedly be included in the value of supply of 'Rental Services of Aircraft' provided by them. 41. We may also examine whether the conditions mentioned in Rule 33 of the CGST Rules, 2017 have been satisfied in the present case in respect of the expenditure or costs incurred by the appellant in respect of ATF so that the said expenditure or cost may be excluded from the value of supply. (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; As already mentioned herein abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndent upon provision of ATF as appellant would have received the fixed monthly charges even if the aircraft was not in use, although the rentals were also partly chargeable based on the flying hours of the aircraft. However, we fail to understand how the appellant would be able to provide the supply of 'Rental services of Aircrafts' without filling the ATF in their aircrafts/helicopters or as to how the renting of aircraft services can be considered as never dependent upon the provision of ATF. We also do not agree with the contention of the appellant when they say that 'ATF was procured by the appellant from the vendors as a pure agent of the customers and are in addition to the rental of aircraft services' since the terms of the conditions of the contract, especially Clause 10 and 11 of Schedule-A of the contract of the appellant with ONGC (customer) specifically mentions about the supply/provision of ATF for the aircrafts/helicopters and forms a crucial part of the contract and is certainly not in addition to the rental of aircraft services as contended by the appellant. We, therefore, conclude that the ATF procured by the appellant for the aircraft is not in addition to the ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e recipient that the service recipient shall provide certain goods to the service provider on free of cost basis, which are to be used by the service provider for provision of services, the value of the said goods cannot be included in the value of services provided/agreed to be provided by the service provider; that the above clarification squarely covers the issue on hand, as (in the instant case) customer is responsible to provide ATF on free of cost basis to the appellant and only in cases where the recipient is unable to provide the ATF, the appellant is required to procure the fuel and cost of ATF is merely reimbursed by customer at actual. A separate debit note is raised by the appellant for recovering this cost of ATF, which does not form part of the consideration paid for rendering rental services and accordingly, no GST is payable on same; that reliance is placed on M/s. Nash Industries Pvt. Ltd. [2019 (3) TMI 435 AAAR], Karnataka and M/s. Lear Automotive India Pvt. Ltd. [2018 (12) TMI 766-AAR], Maharashtra, wherein the above Circular dated 8.6.2018 has been followed and it has been held that the amortised value of tools supplied free of cost by the recipient of the suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has been laid down in the context of Section 67 of the Finance Act, 1994. The appellant has placed reliance on the Mumbai Tribunal judgement in the case of Inox Air Products ltd. vs. CCE, Nagpur [2015 (38) STR. 20(Tri.Mum)] wherein the air separation plant owned by the appellant and lying in Customer's premises was leased to their customer, and by a separate agreement, the appellant undertakes the operation and maintenance of the air separation plant at the customer's place, receives service charges for the same and no separate charges are paid by the appellant for the electricity used for the operation of the air separation plant. In the above case, the adjudicating authority held that the value of electricity should be included for determining the taxable value for purpose of service tax in terms of Section 67 of the Act read with Rule 3 of the Valuation rules on the ground that electricity is essential for the operation of the plant and is therefore integral to the service of operation and maintenance provided to the customer. However, the Mumbai Tribunal did not agree with the above view of the adjudicating authority and held that electricity cannot be considered as an input f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pply. Sub-section (2) of Section 15 itself starts with the words "The value of supply shall include---" and goes on to elaborate the items/things required to be included in the value of supply. Sub-section (3) of Section 15 specifies the items/things which are not to be included in the value of supply. Thus, all the aspects of valuation of supply have been covered in the GST Acts, 2017 itself which is not the case with Section 67 of the Finance Act, 1994 which contains a more general description of valuation of services. Also, 'consideration' has been clearly defined in Section 2(31) of the GST Acts, 2017 and it has already been discussed in details in above para that the amount received as reimbursement by the appellant from their customer i.e. ONGC (towards arrangement/provision of ATF to their customer) is covered under the definition of 'consideration'. Further, as discussed earlier, this issue pertains to the inclusion of reimbursement of ATF in the value of supply wherein the aspect of 'Pure Agent' comes into play. In such instances, such reimbursements can be excluded from the value of supply of 'Rental services of aircrafts' if and only if, all the conditions envisaged in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he definition of 'Transaction value' in Section 4 of the Central Excise Act, 1944 includes any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of sale or at any other time. The Hon'ble Court relying on the decision of PSI Data Systems ltd. v. Collector of Central Excise - 1997 (89) ELT 3(SC) held that although a computer may not be capable of effective functioning unless loaded with software, the same would not tantamount to bringing them within the purview of the part of the computer so as to hold that if they are sold along with the computer their value must form part of the assessable value thereof for the purpose of excise duty and when an exemption has been granted from levy of excise duty on software, excise duty cannot be levied on it by including it indirectly in the value of supply. Accordingly, the Court decided in favour of the assessee. The appellant has submitted that applying the above ratio in the present case, what is taxable is hiring of helicopters by the appellants to ONGC, that ATF is not covered within the purview of GST as of now and adding the value of ATF in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on entire amount (including transport and other charges) received from the Railways. Hon'ble Court considering the facts of the case observed, where the assessee is being paid price for the ballast separately and is being separately paid for the transport and other charges, the assessee cannot be taxed on anything other than the price of the ballast than he has been paid which had necessarily to be included in his turnover. The appellant has stated that applying the ratio of the above decision to the present case, the cost of ATF is reimbursed by ONGC to the appellant and the appellant have not 'charged' the cost of ATF to ONGC which can be included in the value of the supply under Section 15(2)(c) of the GST Acts, 2017. However, we find that the issue mentioned in the above case pertains to VAT and pertains to the pre-GST era and therefore cannot be made applicable to issues in the GST era where value of supply is governed by the provisions of Section 15 of the GST Acts, 2017 which elaborately discusses the valuation aspect of supply. Further, it has already been discussed in the foregoing paras, that the activity of reimbursement of amount of ATF received by the appellant from th....