2022 (8) TMI 1241 - AAR - GST

Valuation - transaction value - inclusion of cost / expenditure / supply received on which GST has been paid - Double charging of GST or not - contract involving supply of equipment/ machinery erection, installation commissioning services with civil work is correct as per the present GST regime or not - Section 15 of the Central Goods and Services Tax Act, 2017 - HELD THAT - Section 15 of the Central Goods and Services Tax Act, 2017 provides common provisions for determining the value of goods and services. It provides the mechanism for determining the value of a supply which is made between unrelated persons and when price and only the price is the sole consideration of the supply. In the C.B.E. C. Flyer No. 29, dated 1-1-2018 it has been clarified that Compulsory Inclusions- Any taxes, fees, charges levied under any law other than GST law, expenses incurred by the recipient on behalf of the supplier, incidental expenses like commission packing incurred by the supplier, interest or late fees or penalty for delayed payment and direct subsidies (except government subsidies) are required to be added to the price (if not already added) to arrive at the taxable value . It is observed that M/s UPCL M/s PITCUL are correctly including all the components of the cost incurred by them for arriving at the pricing of goods. Furthermore, inclusion of other components namely Contingency Charges, 0/H Supervision Charges, Labor Cess on Centralised Mat., etc. by M/s UPCL M/s PITCUL, appears to be in terms of the agreement entered between the applicant and the said two entities. And in view of the provisions of Section 15 of the CGST Act, 2017, M/s UPCL M/s PITCUL are correctly adding up all the other agreed upon components, to arrive at the transaction value for the purpose of payment of GST - the component of the GST paid by M/s UPCL M/s PITCUL on the supplies received by them from their vendors, is the cost for them and is one of the many components which constitutes the transaction value for the supply in question and is the price actually payable (transaction value) for the said supply of work contract to the applicant. Therefore, the transaction value arrived by M/s UPCL M/s PITCUL is in consonance with the provisions of the GST Act, 2017 and the GST is payable on transaction value so arrived.

Summary

Issues:
Double charging of GST in draft estimates submitted by entities for works contract.

Analysis:
The application sought an advance ruling on the correctness of double charging of GST in draft estimates by two entities involved in works contracts. The applicant highlighted that these entities were not eligible for Input Tax Credit (ITC) and charged GST twice - firstly on the value from vendors and then on the total value including other components. The issue was whether this double charging was correct under the present GST regime.

The Authority for Advance Rulings admitted the application under Section 97(2)(c) of the CGST/SGST Act, 2017. The applicant presented their case during a personal hearing, emphasizing the double charging of GST by the entities. The concerned officer also supported the applicant's request for a decision on the merits.

The Authority examined the provisions of Section 15 of the CGST Act, 2017, which determines the value of taxable supply. It clarified that the transaction value includes various components such as taxes, fees, charges, and expenses. The value is based on the price actually paid or payable when the supplier and recipient are unrelated, and price is the sole consideration.

Referring to relevant circulars and FAQs, the Authority reiterated that transaction value is the price paid for the supply of goods or services. In this case, the entities correctly included all cost components, including GST paid to vendors, in determining the transaction value for the works contract. The inclusion of additional charges was in accordance with the agreement between the parties.

The Authority concluded that the GST paid by the entities on supplies received from vendors was a cost component forming part of the transaction value. Therefore, the transaction value arrived at by the entities, inclusive of GST, was in compliance with the GST Act, 2017. Consequently, the double charging of GST in the draft estimates for works contracts was deemed correct and in line with the statutory provisions.

In the ruling, the Authority affirmed that the component of GST in the draft estimates submitted by the entities for the works contract was a legitimate cost forming part of the transaction value. It was considered the price actually payable for the supply of goods and services, aligning with the provisions of the GST Act, 2017.