2023 (8) TMI 926 - AAR - GST

Valuation - inclusion of reimbursement of expenses - pure agent or not - inclusion of value of material and cost of execution work for installation of lines in the value of supply for determination of taxable value under GST where all such cost are taken as reimbursement while our supply is only supervision charges - inclusion of value of material and cost of execution work for installation of lines in the value of supply for determination of taxable value under GST where all such costs are born by the recipient of service and we charge only supervision charges. HELD THAT - All the work including cost of material and its supervision is being done by the applicant. The GST charged on the cost of material and supervision charge is tenable. In case materials have to be provided by the applicant including supervision charge the GST shall be charged under single invoice raised by the applicant. The customers of the Applicant purchase the material and arrange installation work and they advise applicant to do only supervision work. Here taxable value of supply for applicant is only supervision work and GST liable to be charged and payable on the transaction value i.e. supervision charge (as charged by applicant on total cost of work/material excluding GST on total taxable value of work/material) collected from customers by the applicant - Further, value of material and cost of execution work for installation of lines will be included in the value of supply for determination of taxable value under GST liable to be charged by the Customers of the Applicant. The GST liable to be charged and payable for the work with material arranged by customers of Applicant and should be collected by the firm/authority/person on the basis of invoice raised for the work/Service done - GST liable to be charged and payable for installation work done by the contractors hired by Customers on the basis of invoice raised for the work/service. All the work including cost of material and its supervision is being done by the applicant. The GST charged on the cost of material and supervision charge is tenable. In case materials have to be provided by the applicant including supervision charge, the GST shall be charged under single invoice raised by the applicant. In other case, if the materials is to be provided by the Consumers/recipients/Contractors hired by Consumers/recipients and they have GST invoice of materials and same is submitted to the applicant after completion of Project. Accordingly, applicant should raise invoice and charge GST for supervision charge only. To avoid double taxation, applicant should not charge GST on the cost of materials, as there is no provision in CGST Act 2017 and rules made thereunder for double taxation.

Issues Involved:
1. Inclusion of value of material and cost of execution work in the value of supply for GST determination where costs are taken as reimbursement.
2. Inclusion of value of material and cost of execution work in the value of supply for GST determination where costs are borne by the recipient of service and only supervision charges are levied.

Summary:

Issue 1: Inclusion of value of material and cost of execution work for GST determination where costs are taken as reimbursement

The applicant, an Electricity Distribution Company, supervises the installation of electricity lines, with the entire cost borne by the customers. The applicant charges only supervision fees and seeks reimbursement for material and installation costs incurred on behalf of the customers. The applicant contends that the value of supply should only include supervision charges, as the other costs are reimbursed expenses.

The Authority examined the provisions under Section 7 of the GST Act, 2017, defining "supply" and the definition of "goods" under Section 52. It was determined that the constructed power transmission lines are immovable property and do not fall under the definition of goods. The Authority also referred to Rule 33 of CGST Rules 2017, which excludes costs incurred by a supplier as a pure agent from the value of supply, provided specific conditions are met.

The Authority concluded that GST is payable only on the supervision charges billed by the applicant, as the costs of material and installation are reimbursed expenses incurred in a pure agent capacity.

Ruling: The value of material and cost of execution work for installation of lines will be included in the value of supply for GST determination where all such costs are taken as reimbursement while the supply is only supervision charges. Reply in affirmative.

Issue 2: Inclusion of value of material and cost of execution work for GST determination where costs are borne by the recipient of service

In scenarios where customers arrange the material and installation work, and the applicant's role is limited to supervision, the applicant argues that the value of supply should only include supervision charges. The Authority referred to Section 15 of the CGST Act, 2017, which defines the value of taxable supply as the transaction value, i.e., the price actually paid or payable for the supply of goods or services.

The Authority concluded that in cases where the cost of installation and material is borne by the recipient of service, the value of supply will be the supervision charges paid to the applicant. The GST is payable on the transaction value, which is the supervision charges.

Ruling: The value of material and cost of execution work for installation of lines will not be included in the value of supply for GST determination where all such costs are borne by the recipient of service and only supervision charges are levied. Reply in Negative.

Validity:

This ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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