2022 (7) TMI 405 - AAR - GST

Exemption from GST - intra-state supply of services - Services by way of access to a road or a bridge on payment of toll charges falling under the heading 9967 - inclusion of value of toll charges in the value of outward supply of service - liability to pay tax on the toll charges also by adding to outward value of supply of service - HELD THAT - The question regarding exemption from GST is not admissible in as much as the applicant is only a recipient of such toll services. To ascertain if the toll charges are to be treated as reimbursement or disbursement as claimed by the applicant, the meaning of the word 'reimbursement' is analysed. In general parlance, the term reimbursement refers to the recovery of an expense that a person (the service provider) incurs as a principal from another party. On the other hand, the recovery of a payment made on behalf of the recipient of service by the provider of such service as an agent is termed as a disbursement . A disbursement does not constitute a supply and hence, is not subject to GST. A reimbursement, on the other hand, is subject to GST if it is consideration for a supply of goods or services. Here the toll charges are consideration paid for access to a road which is incurred while performing the renting of road vehicles service undertaken by the applicant - the toll charges are incurred by the applicant while performing the agreed supply and is a cost for the applicant. Further for a reimbursement, the relationship between the service provider and recipient needs to be that of mere provider and receiver and not that of an agent. It is established that the applicant has been engaged by their clients only as a service provider of transportation services and not as an Agent. The Applicant, being the service provider of transportation service, is the recipient of the service provisioned on payment of toll. Such charges are costs incurred, so that his vehicles can access roads/bridges to provide transportation services to the recipient. Hence they are the beneficiary and liable to pay the toll, which is compulsorily levied on the vehicles. The expenses so incurred are, therefore, cost of the service provided to their service recipients - the cost of toll charges which are paid by the applicant and later reimbursed by their clients should be included in the value of supply and tax shall, therefore, be payable at the applicable rate on the entire value of the supply, including toll charges paid. Thus, the Applicant is a service provider of transportation services to their clients and the toll charges incurred by them and later reimbursed from the service recipients should be included in the value of supply and tax be paid at the appropriate rates on the entire value of supply.

Summary

Issues Involved:
1. Applicability of GST exemption on intra-state supply of services related to toll charges.
2. Inclusion of toll charges in the value of outward supply of service.
3. Tax liability on toll charges added to the outward value of supply of service.

Issue-wise Detailed Analysis:

1. Applicability of GST Exemption on Toll Charges:
The applicant sought clarification on whether the GST exemption for intra-state supply of services, specifically for access to a road or bridge on payment of toll charges as per Notification No. 12/2017-CT (Rate) dated 28.06.2017, applies to them. The ruling clarified that the exemption is available to the service provider of toll services and not to the recipient of such services. Since the applicant is a recipient of toll services and not a provider, this question was deemed inadmissible.

2. Inclusion of Toll Charges in the Value of Outward Supply of Service:
The applicant argued that toll charges reimbursed by their clients should not be included in the value of their outward supply of transport services. However, the ruling referred to Section 15 of the CGST Act, which states that the value of supply includes incidental expenses such as toll charges. The toll charges are considered an incidental expense incurred during the supply of rental services of road vehicles. Therefore, these charges must be included in the value of the outward supply of services.

3. Tax Liability on Toll Charges:
The ruling further clarified that the applicant, being a service provider of transportation services, must include toll charges in the value of their supply. These charges are not considered disbursements but rather reimbursements, which are subject to GST. The applicant is liable to pay tax on the entire value of the supply, including the toll charges.

Conclusion:
- Question 1: Not admitted as the applicant is a recipient, not a provider of toll services.
- Question 2: Toll charges are incidental expenses and must be included in the value of outward supply.
- Question 3: The applicant is liable to pay tax on toll charges added to the outward value of the supply of service.

Ruling:
1. The exemption of GST on toll charges is not applicable to the applicant as they are the recipient of the service.
2. Toll charges must be included in the value of the outward supply of service.
3. The applicant is liable to pay tax on the toll charges by adding them to the outward value of the supply of service.