2024 (10) TMI 443 - HC - GST

Valuation for GST - free supply of fuel can be included / added to the freight consideration? - Whether GST to be charged on value of free diesel filled by service recipient under the accepted terms of contractual agreement in the fleet(s) placed by GTA service provider by adding this free value diesel in the value of GTA service, under the Central Goods and Services Tax Act, 2017 Uttarakhand Goods and Service Tax Act, 2017 or not? HELD THAT - The Supreme Court in the case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT was examining Section 67 of the Finance Act, 1994, with respect to the goods / materials supplied by the service recipient while procuring the taxable service of construction if the amount charged is not included in the gross amount charged by the service provider for providing such service under a composite contract of service and supply of goods, then it will lead to the obvious conclusion that the value of the goods / materials provided by the service recipient free of charge is not to be included while arriving at the gross amount simply because no price is charged by the assessee / service provider from the service recipient in respect of such goods / materials. The service tax has to be calculated on the gross amount that was charged from the service recipient. UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT was another case where the Supreme Court was examining the validity of the expenditure / cost incurred by the service provider in the course of providing taxable services. The Supreme Court in this case also was examining Section 67 of the Finance Act, 1994 which relates to the expenditure / cost incurred by the service provider in the course of providing taxable services. In para 26 of the above said judgment, the Supreme Court held that the value of free supplies of diesel and explosives in respect of service of Site Formation and Clearance Service can be included for the purpose of assessment to service tax under Section 67 of the Act. The Supreme Court further held that the value of such material which is supplied free by the service recipient cannot be treated as gross amount charged and it is not the consideration for rendering the services. In this backdrop, the value of free supplies of diesel and explosives would not warrant inclusion while arriving at the gross amount charged on the service tax to be paid, and all the appeals filed by the Union of India were dismissed. The Supreme Court in the judgments referred to hereinabove has consistently held that where diesel is filled free of cost (FOC) by the service recipient and is not included in the value of GTA service, then the cost of fuel cannot be added to the payment made by the service recipient to the transporter, and further GST be charged from the transporter. Hence, as per the consistent view taken by the Supreme Court in the judgments referred to above the cost of fuel cannot be added in the account of the petitioner, who was a transporter, and was governed by the GST rules. Thus, in the case of the petitioner, as per the agreement (Annexure-2), the cost of fuel was to be borne by the service recipient and this cost of this fuel cannot be subjected to charge of GST by adding the value of free diesel in the transaction value of GTA service done by the petitioner. Hence, value of free fuel cannot be added to value of taxable supply under Section 15 (1) and Section 15 (2) (b) of the CGST Act, 2017. The order dated 30.01.2023 (Annexure-1), passed by the Appellate Authority for Advance Ruling for the State of Uttarakhand Goods and Service Tax is, hereby, set aside - Petition allowed.

Summary

Issues Involved:

1. Whether the value of free diesel supplied by the service recipient should be included in the value of Goods Transport Agency (GTA) service for the purpose of GST under the Central Goods and Services Tax Act, 2017 and Uttarakhand Goods and Services Tax Act, 2017.

Issue-wise Detailed Analysis:

1. Inclusion of Free Diesel in GST Valuation:

The petitioner, a proprietorship firm providing Goods Transport Agency (GTA) services, challenged the order of the Appellate Authority for Advance Ruling, Uttarakhand, which upheld that the value of diesel supplied by the service recipient should be included in the value of GTA service for GST purposes. The petitioner argued that under the contractual agreement, the service recipient was responsible for supplying diesel, which was not part of the consideration for the GTA service. The petitioner contended that the only consideration was the freight charges, and the cost of fuel was borne by the service recipient, thus should not be included in the taxable value.

2. Legal Provisions and Interpretation:

The petitioner referenced Section 7(1)(a) and Section 15 of the CGST Act, 2017, emphasizing that the supply of goods or services for consideration should not include the cost of diesel, as it was not part of the transaction value agreed upon. According to Section 15(1), the value of a supply is the transaction value, which is the price actually paid or payable, excluding costs borne by the recipient, such as fuel. The petitioner argued that under Section 15(2)(b), the cost of fuel could not be added to the transaction value since it was not incurred by the petitioner.

3. Judicial Precedents and Circulars:

The petitioner cited various judgments, including Supreme Court rulings in CST Vs Bhayana Builders and Union of India Vs Intercontinental Consultants, where it was held that free supplies by the service recipient should not be included in the value of service. The petitioner also referred to Circular No. 47/21/2018, which clarified that items supplied free of cost should not be added to the value of supply. These precedents supported the argument that the free supply of diesel should not be part of the taxable value.

4. Respondent's Argument and Counter-Affidavit:

The respondents argued that the free supply of diesel was integral to the transportation service and should be included in the value of supply as per Section 15(2)(b) of the CGST Act, 2017. They contended that the omission of fuel costs in the agreement should not exempt it from GST, as all elements of supply must be considered in determining the value.

5. Court's Decision:

The court, referencing Supreme Court judgments, concluded that the value of free diesel supplied by the service recipient should not be included in the value of GTA service for GST purposes. It held that the cost of fuel, borne by the service recipient, was not part of the consideration for the service and thus could not be added to the transaction value. Consequently, the court set aside the order of the Appellate Authority for Advance Ruling, allowing the writ petition.

In summary, the judgment emphasized the principle that free supplies by the service recipient, such as diesel in this case, should not be included in the taxable value of services under GST, aligning with established legal precedents and interpretations of the CGST Act.