2022 (4) TMI 814 - AAR - GST

Levy of GST - Fair Trade Premium - association of farmers, engaged in supply of agricultural produce through concept of fair trade - component of Fair Trade Premium constitutes consideration or additional consideration for supply of goods made by the applicant? - component of Fair Trade Premium can be treated as an ex gratia payment which is not liable for GST either as supply of goods or as supply of services? - HELD THAT - As per Section 15(1) of the CGST Act, the value of a supply of goods or services or both shall be the transaction value, which is explained as the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Sub-sections (2) and (3) of Section 15 list out the inclusions and exclusions to the value of supply. It is clear that any payment made or to be made whether in money or otherwise in respect of or in response of inducement of supply of goods or services or both forms part of the consideration and should form part of the value of taxable supply. The definition of the term consideration is inclusive which not only includes the payment received by the supplier in relation to the supply from the recipient but also from any other person. The Fair Trade Premium is calculated as a percentage of the volume of produce sold. The amount of premium farmers receive differs from product to product and across regions. The statement of facts in the instant case reveals that the applicant receives the fair trade premium from the recipient of supply itself and fair trade premium has a clear nexus with the supply of goods as it is determined/calculated as a prescribed percentage of the volume/quantity of each produce/commodity sold and it is collected from the ultimate consumer as a component of the price of the product itself. Therefore, the fair trade premium received by the applicant is nothing but part of the price that is actually paid/received in response to the supply of the goods made by the applicant and invariably constitutes an additional consideration received in respect of the supply of goods and is to be added to the taxable value of the respective goods supplied and liable to GST at the same rate as applicable to the goods supplied. The Fair Trade Premium forms part of the consideration and value of taxable supply of the goods supplied and the applicant is liable to pay GST on the same rate as the rate applicable to the respective goods supplied - the Fair Trade Premium forms part of the consideration for the goods supplied.

Issues Involved:
1. Liability to pay GST on the component of "Fair Trade Premium."
2. Whether the "Fair Trade Premium" constitutes consideration or additional consideration for the supply of goods.
3. Whether the "Fair Trade Premium" can be treated as an ex gratia payment not liable for GST.

Detailed Analysis:

1. Liability to pay GST on the component of "Fair Trade Premium":
The applicant, an association of farmers, sought clarification on whether they are liable to pay GST on the "Fair Trade Premium." The applicant argued that the premium is an additional sum received by the farmers and workers for their produce or labor, in addition to the price of the commodity. They contended that the premium is not a consideration for the supply of goods but an ex gratia payment used for developmental activities within the farming community. However, the jurisdictional officer noted that the fair trade premium constitutes consideration or additional consideration for the supply of goods made by the applicant, as it is linked with the supply of goods. The ruling concluded that the "Fair Trade Premium" forms part of the consideration and value of taxable supply, making the applicant liable to pay GST on it at the same rate as the respective goods supplied.

2. Whether the "Fair Trade Premium" constitutes consideration or additional consideration for the supply of goods:
The applicant argued that the "Fair Trade Premium" does not form part of the consideration for the supply of goods, relying on the definition of "consideration" under Section 2(31) of the CGST Act. They claimed that the premium is not integrally connected with the supply and is not part of the price bargain between the applicant and the buyer. However, the ruling emphasized that any payment made in respect of or in response to the supply of goods or services forms part of the consideration. The "Fair Trade Premium" is calculated as a percentage of the volume of produce sold and is collected from the ultimate consumer as part of the product price. Therefore, the premium is considered an additional consideration received in respect of the supply of goods and is to be added to the taxable value of the respective goods supplied.

3. Whether the "Fair Trade Premium" can be treated as an ex gratia payment not liable for GST:
The applicant contended that the "Fair Trade Premium" is an ex gratia payment, a goodwill gesture not liable for GST. They argued that the premium is used for developmental activities and is not a legal obligation of the payee. However, the ruling clarified that the premium has a clear nexus with the supply of goods, as it is calculated as a prescribed percentage of the volume of produce sold. The premium is collected from the ultimate consumer as part of the product price, making it an additional consideration for the supply of goods. Therefore, the "Fair Trade Premium" cannot be treated as an ex gratia payment and is liable for GST.

Conclusion:
The ruling determined that the "Fair Trade Premium" forms part of the consideration and value of taxable supply of goods supplied by the applicant. Consequently, the applicant is liable to pay GST on the "Fair Trade Premium" at the same rate as the respective goods supplied. The premium is not considered an ex gratia payment and is subject to GST.

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