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2022 (7) TMI 1103 - AAR - GSTValuation of taxable supply - inclusion of cost of Diesel - providing service of transportation of goods by road using trucks - contractual scope of the customer - Whether the value of Diesel as filled in the vehicle by applicant, is not required to be included in the value of freight charged by Applicant for the said transportation? - HELD THAT - The Applicant is about to enter into contract/ Agreement with service recipient for providing GTA services. As per the terms of the draft agreement, the Applicant is required to transport the goods belonging to the service recipient by deploying trucks/ trailers. The scope of service of the Applicant is to provide the truck/ trailer along with the driver and report at the unit of the service recipient Apart from above, the term of agreement provides that the fuel required for carrying out the transport of goods is in the scope of the service recipient and not in the scope of work of the Applicant. That fuel will be in the scope of the service recipient and the Applicant is not concerned, in any manner, with reference to the free of cost fuel. The jurisdictional officer in his report has given the views that GST is not leviable on Free of Cost (FOC) material provided by service recipient to applicant when such goods are in the scope of service recipient as per contractual terms. Transportation Activities - HELD THAT - GTC has capacity of arranging trucks/trailers listed in Annexure-1 hereto. GTC will undertake transportation activities for ABC and the required trucks/trailers along with the driver and assistant will report at the day/time and place directed by ABC. The trucks/trailers so placed by GTC along with driver and assistance will be required to undertake transportation of the goods in accordance with the instructions of ABC - The activity of safe transportation is critical, and it is incumbent on GTC to ensure that goods are safely transported from point of origin to point of destination. For this, GTC ensures that it has experienced drivers and assistants who have the capacity to undertake transportation of industrial goods on trucks/trailers listed in Annexure-1 and understand load bearing capacity of the given trucks/trailers, maintenance of speed limit on full load, adequate safeguard measures on bad roads and all other measures warranted for safe transportation of goods. GTC is strictly instructed that under no circumstances would any quantity of goods carried in the truck/trailer be disposed of, other than by way of delivery of the goods to the destination against receipt. For any reason, if the consignment is not accepted at the destination point, GTC will take necessary directions from ABC on the next steps. Under no circumstance, the consignment it to be brought back without prior written approval of ABC - Responsibility for any deviation and consequent losses during transportation vests solely on GTC. Consideration - HELD THAT - The value of fuel, which is in the scope of ABC, shall neither be adjusted with nor by any means affect the payment to be made by ABC against the bills issued by GTC - All payment will be subject to deduction of income tax (TDS/TCS), wherever applicable any other taxes/levies which may be levied by Government from time to time. Responsibilities of GTC - HELD THAT - GTC would arrange to get all the trucks/trailers weighed first and then place the trucks/ trailers for loading. Before loading the material, dispatch instruction should be handed over along with tare weight slip, thereafter only, truck will be loaded. After loading the truck, the truck should be again weighed, and net weight of the material would be arrived at for preparation of Tax Invoice - GTC will ensure to obtain acknowledgement at the point of destination. At the destination place, goods carrying truck/trailer will be gross weighted and after unloading goods truck/trailer will be tare weighted. Net Quantity would be receipted by ABC. the said results obtained at the destination would be final and no dispute in respect thereof would be entertained by ABC. Responsibilities of ABC - HELD THAT - It is seen that as per the proposed agreement/contract, the fuel (diesel) is not in the scope of service of the Applicant. The proposed agreement/contract also provides that fuel (diesel) shall not be adjusted with nor affect the payment to be made by the service recipient against the bills issued by the applicant. Given this, as per the proposed contractual terms, the scope of service of the Applicant does not include the fuel (diesel) which is sought to be tilled by the service recipient on free of cost (FOC) basis for the given transportation. As per section 7 CGST Act, all forms of supply of services are considered as supply . It is also seen that Schedule I CGST Act which provides the levying GST on supplies made without consideration. In any case, it stood submitted by the Applicant that the proposed transaction is not being planned with related parties and therefore also Schedule I CGST Act is not applicable. It is seen that section 15 (2)(b) only includes the amount that the supplier is liable to pay in relation to such supply, but which has been incurred by the recipient and not included in the price actually paid or payable. Hence, trigger of section 15 (2)(b) CGST Act can be said to apply when the contractual liability is that of the supplier, but the same stands paid by the recipient. In the issue at hand, it is seen that the contractual liability of FOC diesel is not that of the Applicant. Therefore, FOC diesel cannot be included in the scope of supply proposed to be made by the Applicant. There is no economic gain made by the Applicant and no consideration received in reference to FOC diesel. Since contractual liability of FOC diesel is not proposed to be vested on the Applicant, the present proposed transaction cannot fall under section 15(2)(b) CGST Act. FOC diesel is a condition of the contract and not a consideration of the contract. It is also seen that the Draft GST law proposed to include the following in section 15 (2) CGST Act the value, appropriated as appropriate, of such goods and/or services as a supplied directly and directly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued - the intent of the legislation is required to be seen. Therefore, the present section 15(2)(b) CGST Act cannot be used to include the given transaction since contractual liability on FOC diesel is not being vested on the Applicant. Revenue Neutrality - HELD THAT - The issue is also revenue neutral inasmuch as even if the value of the free of cost diesel was required to be included in the value of GTA service then also the service recipient of the Applicant would be in a position to take input tax credit of the GST charged on such an invoice raised by the Applicant. The Hon ble Supreme Court in COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. 2018 (2) TMI 1325 - SUPREME COURT has held that where the service provider receives free of cost goods/material from the service recipient, no amount is charged for such goods/material and, therefore, the value of such goods/ materials cannot be included in the gross amount charged by the service provider for the service provided by him. The value of diesel filled free of cost (FOC) by the service recipient is not includable in the value of the GTA service proposed to be provided by the Applicant in the facts and circumstances of the present application subject to conditions as mentioned in draft Transport Service Agreement/ contract incorporated in the body of this decision/ruling.
Issues Involved: Determination of time and value of supply of goods or services, specifically whether the value of diesel provided by the customer (service recipient) to the trucks should be added to the freight charged by the Applicant for GST purposes.
Issue-Wise Detailed Analysis: 1. Nature of the Contract and Scope of Services: The Applicant, a Goods Transport Agency (GTA), is about to enter into a contract with a customer for providing transportation services. According to the contract, the diesel required for transportation is within the customer's scope and is provided free of cost. The Applicant is responsible for transporting goods using trucks filled with diesel by the customer, but the diesel remains the property of the customer and is not included in the freight charges. 2. Applicant's Interpretation of Law: The Applicant contends that the value of diesel provided by the customer should not be included in the value of freight charged. They argue that under Section 15 of the CGST Act, the value of supply includes the transaction value, which is the price actually paid or payable. Since the diesel is provided free of cost and is not within the Applicant's scope, it should not be included in the value of the supply. 3. Legal Provisions and Clarifications: Section 15(2) of the CGST Act specifies that the value of supply includes any amount that the supplier is liable to pay but has been incurred by the recipient. The Applicant argues that since they are not liable to pay for the diesel, it should not be included in the value of the supply. The deletion of a provision in the Model GST Law that included the value of free issue materials further supports their position. 4. Jurisdictional Officer's Comments: The Jurisdictional Officer concurs with the Applicant, stating that GST is not leviable on free of cost (FOC) materials provided by the service recipient when such goods are within the recipient's scope as per contractual terms. 5. Analysis of the Agreement: The proposed agreement clearly states that the diesel is not within the Applicant's scope and will not affect the payment for transportation services. The agreement emphasizes that the diesel remains the property of the customer and is not considered additional consideration for the transportation service. 6. Relevant Sections and Circulars: Section 7 of the CGST Act defines supply, and Section 9 is the charging section. Section 15(2)(b) specifies that the value of supply includes amounts the supplier is liable to pay but incurred by the recipient. Since the diesel is not the Applicant's liability, it should not be included in the value of the supply. Circular No. 47/27/2018-GST clarifies that the value of free of cost materials provided by the recipient should not be included in the value of supply. 7. Judicial Precedents: The Supreme Court in CST v. Bhayana Builders and other cases under the Service Tax regime held that the value of free of cost goods/materials provided by the recipient should not be included in the value of the service. These precedents are relevant as the provisions under the GST Act are similar. 8. Revenue Neutrality: The transaction is revenue-neutral since the service recipient can claim input tax credit for the GST charged on the GTA service. Conclusion: Based on the analysis, the value of diesel provided free of cost by the customer should not be included in the value of the GTA service provided by the Applicant. The contractual terms clearly state that the diesel is the customer's responsibility and is not additional consideration for the transportation service. Therefore, the Applicant is not required to include the value of diesel in the freight charges for GST purposes. Order: The value of diesel filled free of cost by the service recipient is not includable in the value of the GTA service provided by the Applicant, subject to the conditions mentioned in the draft Transport Service Agreement/contract.
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