2020 (4) TMI 691 - AAR - GST

Valuation of taxable supply - inclusion of subsidy amount granted to the farmer - or to the supplier on behalf of the farmer - by Horticulture / Agriculture / Sericulture Department of Government of Karnataka under PMKSY scheme or any other Central / State Government approved schemes - refund of input tax credit accumulation. HELD THAT - The receipt of any amount received by the farmer from the Government Department has no bearing on the price or value of the supply of goods and/or services by the applicant. The Bank or Government Department makes payment to the applicant only on behalf of the farmer. As per sub-section (1) of section 15, it is very clear that the value of supply is the transaction value and the transaction value is defined as the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient are not related and the price is the sole consideration for the supply - In the pertinent case, it is clearly evident that the applicant and the farmer are not related persons and the price is payable by the farmer irrespective of the fact that he receives assistance from the government department or not or whether the Bank makes the payment or not. The consideration of the contract is not fixed taking into the account the amount receivable by the farmer as financial assistance and the entire amount is invoiced. Hence price is the sole consideration for supply and the entire invoice value would be the transaction price. Subsidy - HELD THAT - the amount receivable or received from the Government is received by the farmer and this amount may be received by him directly in option 1 or by the Bank in case of option 2 or by the applicant in option 3 - the method of receipt of payment has no bearing on the price of the supply and also the receipt of payment by the applicant from the Bank or the Government Department (on the authorization of the farmer concerned) is on the account of the farmer only. Hence the price is independent of the assistance amount and hence would not be covered under clause (e) of sub-section (2) of section 15 of the CGST Act.

Summary

Issues Involved:
1. Inclusion of subsidy amount in the value of taxable supply under Section 15(2)(e) of the CGST Act.
2. Impact of subsidy on the transaction value.
3. Entitlement to refund of input tax credit accumulation.

Issue-wise Detailed Analysis:

1. Inclusion of Subsidy Amount in the Value of Taxable Supply:
The primary issue revolves around whether the subsidy amount granted to farmers by various government departments under schemes like PMKSY, but disbursed to the supplier, should be treated as "subsidy" in the hands of the supplier and excluded while ascertaining the "transaction value" under Section 15(2)(e) of the CGST Act. The applicant, a manufacturer and supplier of LLDPE pipes and micro-irrigation systems, contends that the subsidy should not be considered part of the taxable value as it is granted to the farmer and merely disbursed to the supplier for administrative convenience. The ruling clarifies that the value of supply is the transaction value, which is the price actually paid or payable for the supply of goods or services where the supplier and recipient are not related and the price is the sole consideration. Since the subsidy provided by the government is directly linked to the farmer and not the supplier, it does not affect the transaction value. Therefore, the subsidy amount is not included in the value of taxable supply.

2. Impact of Subsidy on the Transaction Value:
The applicant argues that the subsidy does not impact the transaction value, which is the price paid by the customer (farmers) for the supply of goods. The ruling supports this view, stating that the financial assistance received by the farmer has no bearing on the price of the contract. The contract is solely between the farmer and the supplier, and the consideration is the full value of the goods or services. The payment received by the supplier from the bank or government department on behalf of the farmer does not alter the transaction value. The ruling emphasizes that the price is the sole consideration for the supply, and the entire invoice value constitutes the transaction price, irrespective of the subsidy.

3. Entitlement to Refund of Input Tax Credit Accumulation:
The applicant questions whether the supplier would be entitled to a refund of input tax credit accumulation if the subsidy is not treated as part of the taxable value. The ruling concludes that since the subsidy is not included in the value of taxable supply, the question of excluding the subsidy amount from the transaction value does not arise. Consequently, there is no entitlement to a refund of input tax credit accumulation. The ruling clearly states that the method of receipt of payment has no bearing on the price of the supply, and the amount received from the government or bank is credited against the liability of the farmer with the supplier.

Ruling:
1. The subsidy amount received by the farmer or on behalf of the farmer from the government department does not affect the price or value of supply made by the applicant to the farmer and is not covered under Section 15(2)(e) of the CGST Act, 2017.
2. There is no question of excluding the subsidy amount from the transaction value or value of taxable supply.
3. The question of entitlement to a refund of input tax credit accumulation does not arise.