2021 (5) TMI 1044 - AAR - GST

Valuation of supply - water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL CFFP to the applicant - to be included in the value of supply of oxygen gas by the applicant or not? - HELD THAT - This authority has no doubt that Oxygen gas is emerged out as a new product by extracting it from the atmospheric air with the help of refrigerator, compressors, separators etc. and during this process electricity and water is constantly used. It is categorically stated that value of supply is the transaction value i.e. the price actually paid or payable for the said supply of goods and the price is the sole consideration for the supply. Further, value of supply shall also include any amount that the supplier Is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both - consideration includes any payment whether in money or otherwise made or to be made or monetary value of any act or forbearance for the inducement of the supply of goods. The value of supply is the price actually paid/payable and price is the sole consideration and consideration includes monetary value of any act or forbearance. In the instant case BHEL CFFP are providing rent free land and free electricity water to the applicant and thus tolerating all the expenditure incurred on these free of cost items. Therefore, inputs provided free of cost by the recipient of resultant goods shall also form part of value of supply in view of Section 15(1) and Section 15(2)(b) of the Act as the cost of these inputs has to be paid by the supplier of goods but actually incurred by the recipient and this cost is also not include in the price actually paid/payable by the recipient - In the instant case also, BHEL CFFP are also providing rent free space alongwith free water free electricity to the applicant for manufacturing supply of Oxygen gas to them. The applicant has contended that the ownership of land, water and electricity remains with BHEL CFFP during all stages of the process till receipt of manufactured oxygen by it. In no circumstances, would the ownership of the said rent free space or water or electricity would pass on to the applicant. In such a case, all the said facilities provided by BHEL CFFP cannot be said to be a consideration for the applicant and thus, would not form part of the value of manufactured oxygen within the boundaries of Section 15(1) of the CGST Act. The value of rent free space alongwith free water free electricity will form part of value of oxygen supply.

Issues Involved:
1. Whether the water and electricity charges, as well as the notional rent of the land provided free of charge by BHEL CFFP to the applicant, shall form part of the value of supply of oxygen gas by the applicant.

Issue-wise Detailed Analysis:

1. Determination of Value of Supply:
The primary issue is whether the water and electricity charges, along with the notional rent of the land provided free of charge by BHEL CFFP to the applicant, should be included in the value of the supply of oxygen gas. The applicant argued that since the ownership of these resources remains with BHEL CFFP and is never transferred to the applicant, they should not form part of the value of the supply. The applicant also highlighted that these resources are provided free of charge and are essential for the manufacturing process.

Relevant Provisions of the CGST Act:
- Section 15(1): The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
- Section 15(2)(b): The value of supply shall include any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both.

Authority's Analysis:
The Authority for Advance Rulings (AAR) examined the provisions of the CGST Act and noted that the value of supply includes the transaction value, which is the price actually paid or payable. Additionally, any amount that the supplier is liable to pay but is incurred by the recipient of the supply must be included in the value of the supply.

Consideration and Supply:
- Section 2(31) of the CGST Act: Defines 'consideration' to include any payment made or to be made, whether in money or otherwise, for the inducement of the supply of goods or services or both, whether by the recipient or by any other person.
- The AAR concluded that the water and electricity provided by BHEL CFFP, as well as the notional rent of the land, are essential inputs for the manufacturing process of oxygen gas. These inputs are provided free of charge, and their cost is borne by BHEL CFFP. Therefore, these costs should be included in the value of the supply of oxygen gas as per Section 15(2)(b) of the CGST Act.

Conclusion:
The AAR ruled that the water and electricity charges, as well as the notional rent of the land provided free of charge by BHEL CFFP to the applicant, shall form part of the value of the supply of oxygen gas by the applicant in accordance with Section 15 of the CGST Act, 2017. This inclusion is necessary because these resources are essential for the manufacturing process and their cost is incurred by the recipient (BHEL CFFP) but not included in the price actually paid or payable for the goods.

Ruling:
The water and electricity charges, as well as the notional rent of the land provided free of charge by BHEL CFFP to the applicant, shall form part of the value of the supply of oxygen gas by the applicant in view of Section 15 of the CGST Act, 2017.

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