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TMI Blog2022 (4) TMI 814X X X X Extracts X X X X X X X X Extracts X X X X ..... hould 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 GS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in do not always get a fair share of the benefits of trade. The system of Fair Trade ensures that the farmers who are at the beginning point of the supply chain are adequately compensated as being part of the Fair Trade community. The concept of Fair Trade has been in vogue as early as the 1970s but it assumed a structured and organised format governed by standards and certifications in the 1990s. Fair Trade operates mainly on the following ten principles; (1) Opportunities for disadvantaged producers; (2) transparency accountability; (3) Fair Trade practices; (4) Fair payment: (5) No child labour, no forced labour; (6) No discrimination, gender equity, freedom of association; (7) Good working conditions; (8) Capacity building; (9) Promote fair trade; (10) Respect for the environment. These goals are achieved through the active contribution and participation of Fair Trade Enterprises involved in every limb of the production/supply chain. Fair Trade sets social, economic and environmental standards for both companies and the farmers and workers who grow the food. For farmers and workers, the standards include protection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium, farmers receive differs from product to product and across regions. The price is reviewed every three to four years by the regulatory bodies to adjust to local inflation. The fair-trade premium is generally fixed on parameters as a certain fixed percentage of minimum fair trade price etc. The list of the fair trade price for the commodities coffee, cashew nuts and coconut for the period 2017-18, 2018-19 were also submitted by the applicant. The fair trade premium is not paid by any institution or organization but is a burden borne by the ultimate consumer. It is reflected in the higher market price they pay for the fair trade labelled product picked up from the shop shelves. The importer of Fair Trade products in the consuming country is the payer of the Fair Trade Premium and the exporter from the producing country is the conveyor of the FT premium to the Farmer s / producers organisation. The percentage of such components is worked out as per the rates fixed by the relevant Fair Trade scheme. The amount paid as a fair trade premium by the ultimate consumer travels down the line of the supply chain and reaches the farmer/worker through an established system. The use of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is has been hailed as an innovative effort to -manage man-animal conflict and the UK charity, The Elephant Family characterized the cashews sourced from FTAK as Elephant Friendly Nuts. Another instance pointed out is that the premium has been invested in a disaster management fund. It is very important, especially for the farmers on the hillsides. At monsoon time there are landslides that can wreak havoc. Government aid is often delayed and inadequate and the farmers need immediate assistance, especially when they are left homeless and their crops destroyed. Premium is also used to create a common infrastructure for the organisation and has been invested in the construction of office premises. Other purposes of premium include the flagship project of applicant known as Jaiva jeevadhara project, community drinking water schemes, interest-free loans for ancillary farm income activities, creation of indigenous seed banks and a host of activities that promote Bio-Diversity, Food Security and Gender Justice. 4.6. The applicant reproduced the sections and rules, which are relevant for the decision of the issue for which the application is filed. The component of Fair Trade Premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch amounts which are made towards or in respect of sale alone can be treated as consideration . 4.10. The starting point of the transaction is the procurement of agricultural produce from the farmers. The goods are procured by the applicant as per the price applicable for products involved in the fair trade scheme. The price paid is almost invariably above the market price and under no circumstances below it. At the second stage of the transaction, such goods are sold in the aggregate to the buyer, who is an exporter. The amount at which the buyer is purchasing is also above the market value. A sample copy of invoices issued to the buyer is enclosed. The third stage of the transaction is when the exporter, effects export supplies. An invoice is raised on the foreign buyer, which would have a break up of sale price as well as a component of Fair Trade Premium. The component of Fair Trade premium is shown in the invoice because the exporter is in a position to know the value of Premium applicable for the product at the time of supply as the same is prefixed for the respective products by the international regulatory bodies on Fair Trade. The exporter receives consideration from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant is to be used only for the developmental activities of the farmer community who are members of the applicant association. Further, the amount representing consideration comes with a legal right of recovery. It means, if the buyer is not paying the amount of consideration as agreed between them, the supplier has a legal right to sue the buyer for violation of the contract of sale. But in the case of fair trade premium, the supplier is not having a legal right to sue anyone, if no premium is received for the products. This is because the fair trade premium is a component contributed by the end customer by willingly participating in the system of Fair Trade. Further, it applies only if eventually the goods purchased from the applicant are sold by the purchaser/exporter as Fair Trade certified. it is entirely likely that all of it or a portion of it does not attract a Fair Trade buyer and the same is sold on non Fair Trade terms eventually. The consideration as agreed between the parties exclusive of Fair Trade Premium is the value of supply of applicant as per Section 15 of the CGST Act, 2017. Section 15 provides that the value of the supply of goods or services shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the subsidy and the goods or services at issue. The price payable by the purchaser must be fixed in such a way that it diminishes in proportion to the subsidy granted to the seller or supplier of the goods or services, which therefore constitutes an element in determining the price demanded by the latter. These components are completely absent in the case of the Fair Trade Premium. The price payable by the buyer remains the same, irrespective of whether the premium is received or not. The amount of Fair Trade Premium is in no way intended to reduce the price of a commodity. The applicant is procuring goods from the farmers at a value higher than the market price and is selling the same at a price higher than the market price. Therefore, there is no reduction of the price at any stage, which should be compensated by a component of Fair Trade Premium . The payment of premium is not intended as any kind of support price for the agricultural produce and is hence not in nature of subsidy . Even in the case of government subsidies, it has consistently been held under the erstwhile tax regime that they are not liable to form part of the turnover of suppliers. The principle laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by way of reimbursement of balance price, it is applicable only in the case where the dealer purchases goods and then sells the same at a price lower than the price at which it is purchased and that in case of the appellant, the goods are always sold above the purchase price. 5. Remarks of the Jurisdictional officer 5.1, The application was forwarded to the jurisdictional officer as per provisions of Section 98 (1) of the CGST Act. The jurisdictional officer submitted that the applicant is dealing with agricultural produce viz; Cashew nut, Coffee, Pepper, Copra etc on the strength of fair trade certification. The applicant used to purchase agricultural produce from farmers and such goods are sold in the aggregate to the buyer who is an exporter and also a fair trade certified buyer. When the exporter effects export supplies, the exporter receives consideration from the foreign buyer, which price constitutes a component of the sale price and fair trade premium. The exporter passes on such element of fair trade premium to the applicant as and when it is received. On verification of the statutory audit report in GSTR 9C and GSTR 9 filed by the applicant for the years 2017-18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Gout, or a State Govt.: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply . 7.3. The provisions governing the value of supply of goods and/or services that are contained in Section 15 of the CGST Act reads as follows:- Value of taxable supply.--( 1) The value of a supply of goods or services or both shall be the transaction value, which is 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. (2) The value of supply shall include,- (a) any taxes, duties, cesses, fees and charges levied under any law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction as revealed from the submissions made by the applicant are as follows; The starling point of the transaction is the procurement of agricultural produce from the farmers. The goods are procured by the applicant from farmers at the fair trade minimum price; i.e., as per the price applicable for products involved in the fair trade scheme. According to the applicant, the price paid is almost invariably above the market price. The second stage of the transaction is that the goods procured in the first stage are sold in the aggregate to the buyer/exporter by the applicant. As per the applicant, the amount at which the buyer/exporter is purchasing is also above the market value. The buyer/exporter is further exporting the products by raising an invoice to the buyer abroad for a price that is inclusive of the Fair Trade Premium at the percentage prescribed for each product. 7.5. On a combined reading of the above provisions, 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 defini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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