2023 (11) TMI 206 - HC - GST

Valuation - Scope of the term 'Consideration' - inclusion of value of diesel provided by the service recipient Free of Cost (FOC) in the truck of the GTA - HELD THAT - The Supreme Court in the matter of UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. 2021 (9) TMI 626 - SUPREME COURT has defined the constitutional scheme of GST. Mainly it demonstrates that the idea which permeates GST legislation globally is to impose a multi stage tax under which each point in a supply chain is potentially taxed. Suppliers are entitled to avail credit of tax paid at an anterior stage. As a result, GST fulfills the description of a tax which is based on value addition. The predominant object is for supply of goods and services, except those which are kept out of the purview of the goods and services tax - Indisputably, the petitioner is a Goods Transport Agency (GTA) in terms of GST. In so far as the service of GTA is concerned, if the services (of goods transportation) are provided by GTA to specified class of persons, the tax liability falls on such recipients under the reverse charge mechanism, In terms of Notification dated 28.06.2017. In the case in hand, as per the proposed agreement/contract, the fuel (diesel) is not in the scope of the service of the petitioner. The agreement purports that the fuel would be free of cost basis for transportation of the goods and fuel would be filled by the service recipient for transportation. In the instant case, the scope of supply as defined in section 7 of the GST Act purports all forms of supply of services made or agreed to be made for consideration in the course or furtherance of business . The words used in Section 7(1)(a), in course or furtherance of business would point out about service to be provided by the transporter as a GTA. The contention of petitioner that the consideration is required to be confined as per the terms of agreement cannot be given a literal interpretation - The recipient is not a GTA or engaged in business of transport. Consequently it is the petitioner GTA in course or furtherance of business has agreed to supply the goods or service for consideration. When it is the primary business of the GTA, in order to allow running the vehicles by fuel, it is a potential combination. If that part of responsibility is delegated by way of an agreement to the recipient, in such a case, the recipient would step into the shoes of GTA as its component and would be playing central role in setting narratives. In the instant case, the value of service agreed to be provided necessarily will depend on the nature of service and the nature of business. The petitioner who can survive to run the business of goods transport on fuel therefore cannot claim that the diesel is supplied by the service recipient free of cost, as such, it cannot be included as the fuel is an integral part used in providing the Transportation Service and is essential for GTA provider. Without fuel the entire business of GTA cannot survive. Therefore, fuel being an integral part cannot be bifurcated to over come a tax liability - the Circular dated 8th June 2018 on which the petitioner tried to rely upon would not be of any help especially considering the nature of business and the provisions of Section 7(1)(a) and 15(2)(b) of CGST Act. Thus, no relief can be granted in favour of the petitioner. Accordingly, the petition is dismissed.

Summary

Issues Involved:
1. Legality of the orders passed by the Appellate Authority for Advance Ruling (AAAR) and Authority for Advance Ruling (AAR) regarding GST on free-of-cost diesel.
2. Constitutionality of Section 101(3) of the CGST and CHGST Acts.
3. Inclusion of free-of-cost diesel in the value of Goods Transport Agency (GTA) services for GST purposes.

Summary:

Issue 1: Legality of AAAR and AAR Orders
The petitioner, a Goods Transport Agency (GTA), challenged the orders of the AAAR and AAR which held that GST is leviable on the value of diesel provided free of cost (FOC) by the service recipient. The AAR initially ruled that the petitioner must include the cost of FOC diesel in the value of GTA services for GST purposes. The petitioner appealed to the AAAR, which resulted in a difference of opinion between the CGST and SGST members. The CGST member upheld the AAR's decision, while the SGST member disagreed, stating that the value of FOC diesel should not be included in the taxable value of supply.

Issue 2: Constitutionality of Section 101(3) of CGST and CHGST Acts
The petitioner also challenged the constitutionality of Section 101(3) of the CGST and CHGST Acts, which provides that no decision will be rendered by the AAAR in case of a difference of opinion between its members. The petitioner argued that this provision is arbitrary and leaves the parties without any remedy, thus violating Articles 14 and 19(1)(g) of the Constitution of India.

Issue 3: Inclusion of FOC Diesel in the Value of GTA Services
The court examined whether diesel provided FOC by the service recipient should be included in the value of GTA services for GST purposes. The court referred to Section 15(2)(b) of the CGST Act, which states that any amount the supplier is liable to pay but is incurred by the recipient should be included in the value of supply. The court concluded that the diesel, being an integral part of the transportation service, must be included in the value of GTA services for GST purposes, as the business of the GTA is dependent on the fuel provided.

Observations and Order:
The court observed that the petitioner's business of providing transportation services is inherently dependent on the supply of fuel. Therefore, the cost of diesel provided FOC by the service recipient should be included in the value of the GTA services for GST purposes. The court upheld the initial order of the AAR dated 04-01-2021, which included the value of FOC diesel in the taxable value of GTA services. The court dismissed the petition, stating that no relief could be granted to the petitioner.