AAR, Andhra Pradesh - M/s. PULLURI MINING & LOGISTICS PRIVATE LIMITED - Sec 15(2)(b)

[Ganeshan Kalyani]

Section 15 of CGST Act, 2017 provides for determination of value of taxable supply. The value of supply of goods or services or both shall be the transaction value which is the price paid or payable by the recipient of the supply. However, in terms of clause (b) of sub-section 2 of section 15, any amount that the supplier is liable to pay in relation to the supply made by him but which has been incurred by the recipient of the supply shall be added to the value of taxable supply.

AAR, Andhra Pradesh:

Recently, a ruling has been passed by the Authority for Advance Ruling, Andhra Pradesh clarifying the question raised by the applicant on the applicability of the provision u/s 15(2)(b) for the HSD Oil received free of cost by the applicant from his service recipient.

APPLICANT:

IN RE: M/S. PULLURI MINING & LOGISTICS PRIVATE LIMITED [2020 (7) TMI 409 - AUTHORITY FOR ADVANCE RULING, ANDHRA PRADESH], registered under GST Act, in the State of Andhra Pradesh, filed an application seeking advance ruling on whether the HSD Oil issued free of cost by the service recipient to him would form part of the value of supply of service as per section 15(2)(b) of CGST Act, 2017.

FACT OF THE CASE:

The applicant has received work order from M/s. Sree Jayajyothi Cements Private Limited for executing mining contract at various place in Andhra Pradesh. The above works are to be carried out by using the heavy equipment and vehicles. HSD Oil required for operating the said heavy equipment and vehicles will be under the scope of the service recipient and Oil is issued free of cost from service recipient’s storage tank.

CLARIFICATION SOUGHT:

Whether the HSD Oil issued free of cost by the service recipient to the applicant would form part of the value of supply of service as per section 15(2)(b) of CGST Act, 2017.

APPLICANT’S SUBMISSION:

The applicant’s contention is that the value of HSD Oil supplied free of cost by the service recipient to the applicant shall not form part of value of taxable supply. This is because the supply of HSD Oil is not in the scope of the supplier of service. According to the applicant the provision u/s 15(2)(b) is applicable where the contract price is inclusive of HSD Oil but due to some reason that has been supplied by the recipient on cost recovery basis. 

In the current situation since the HSD Oil has been supplied free of cost the title of the goods is with the service recipient. The applicant has to provide accounts of usage of each drop of oil because the title in HSD Oil always remains with the service recipient. Hence, the service recipient has not supplied the Oil to the applicant and therefore, the value of Oil shall not be included in the value of taxable supply. 

The applicant also submits that what is liable to be included in the contract price is that the amount that the supplier is liable to pay in relation to such supply but which has been paid by the recipient. In the current situation the service provider is not liable to pay the cost of HSD Oil because the applicant has not purchased HSD Oil from any person.

PERSONAL HEARING:

Person hearing was held on 19.12.2019.

DISCUSSION AND FINDINGS:

The authority examined the applicant’s application for advance ruling and also visited section 7(1) of CGST Act which provides for scope of supply and section 15(2)(b) which provides for value of taxable supply. The authority also referred section 2(31) which provides for ‘consideration’ in relation to supply of goods or services or both. 

After examination of the application and relevant section, the authority has stated that the diesel so provided by the service recipient to the applicant forms an important and integral component of this business process, without which the process of excavation of limestones at different mines, transportation and delivery of Limestone to the premises belonging to the recipient cannot happen.

The authority stated that the provision u/s 15(2)(b) is amply clear that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the contract value shall be added to the contract value.

RULING:

Question - Whether the HSD Oil issued free of cost by the service recipient to the applicant would form part of value of supply of service by the applicant as per Section 15 of the CGST Act, 2017? And more particularly under sub-section (2) (b) of Section 15 of the CGST Act”.

Answer - The HSD Oil issued free of cost by the service recipient to the applicant would form part of value of supply of service by the applicant.

Ruling passed on 05.05.2020