2019 (10) TMI 755 - AAR - GST

Valuation - subsidy given by the Central Government or a State Government - Whether the subsidy received from the state government would form part of consideration under section 2(31) of the CGST Act? - HELD THAT - T he amount of subsidy given by the Central Government or a State Government is not a part of the consideration as per the section 2(31) of the CGST Act - A Subsidy or government incentive is a form of financial aid or support extended to an economic sector generally with the aim of promoting economic and social policy. As per provisions of the 2(31) of SGST/CGST consideration received in the form of subsidy given by the State Government or Central Government for the supply of service of food and drinks to the end-user is excluded from the definition of consideration and hence would not form the part of the consideration and in consequence does not form the part of the turnover - But the amount collected for the supply from the beneficiaries, which is inclusive of tax, would form the consideration on which the turnover is to be calculated after deducting the proportionate tax as the collected consideration is inclusive of tax.

Summary

Issues:
1. Whether the subsidy received from the state government would form part of consideration under section 2(31) of the CGST Act?

Analysis:
The applicant, a Partnership firm engaged in supplying food and beverages, sought an advance ruling regarding the treatment of subsidies received from the Government of Karnataka in relation to their contract for supplying food in various districts. The applicant believed that the subsidy received should not be considered as part of the valuable consideration for GST liability calculation. The applicant's concern was whether the subsidy amount should be included while computing the "consideration" liable to GST.

During the personal hearing, the applicant's representative argued that the subsidy was provided by the government as part of a program to offer low-cost subsidized food to the weaker sections of society through the Indira Canteen scheme. The applicant maintained that they were discharging GST liability based on the actual price collected from the beneficiaries, excluding the subsidy amount received from the government.

The Authority for Advance Ruling examined the agreements entered into by the applicant with the Deputy Commissioners of the districts for providing food services at the Indira Canteen. It was observed that the applicant collected a specified amount from beneficiaries, along with the subsidy available from the government, and submitted a consolidated bill at the end of each month.

Referring to the definition of "consideration" under section 2(31) of the CGST Act, the Authority concluded that the subsidy provided by the State Government for the supply of food and drinks to end-users should be excluded from the consideration. The ruling clarified that the consideration collected from the beneficiaries, inclusive of tax, would be the basis for turnover calculation, with the tax fraction deducted as the collected amount already included tax.

Therefore, the ruling stated that the subsidy amount received from the Government of Karnataka for supplying food to beneficiaries at the Indira Canteens would not form part of the turnover subject to tax. The consideration collected from the beneficiaries, inclusive of tax, would be liable to tax after deducting the tax fraction, as the collected amount already included tax.