TMI Blog2022 (5) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... the service recipient in the engaged chartered (dedicated) vehicles, would form part of value of supply of service charged by the Appellant and whether GST would be leviable on value of diesel filled free of cost by the service recipient or otherwise under GTA service? 2. Facts of the case:- 2.1 M/s Shree Jeet Transport (Appellant) is a GTA service provider, engaged in providing services of transportation of goods by road. The Appellant intends to enter into contract with the service recipient for providing GTA services. As per the terms of the draft agreement:- The scope of service of the Appellant is to provide the truck/ trailer along with the driver and report at the unit of the service recipient. The Appellant is only responsible for the safe delivery of the consignment. Further, any accident or damage arising out of accident is the responsibility of the Appellant. The Appellant is also responsible to the drivers. The component of the fuel is not the responsibility of the Appellant nor is the same is in its scope of supply/work/service. The Appellant will be issuing consignment note/bilty (by whatever name called) for each vehicle load/consig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise under GTA service? 3.2 The Appellant submitted that the issue involved in valuation of GTA service, wherein the Appellant would charging freight as consideration for the service provided by them to the recipient of service. The charging of freight consideration by Appellant is based on terms of contract between Appellant and the service recipient. Broadly speaking, the terms of the contract provides that the fuel (diesel), which would be required in providing the transport services, is in the scope of the recipient of service and not in the scope of the Appellant. Considering this contractual position, whether GST would be chargeable on the value of diesel used in transportation of goods belonging to the recipient of service. The Appellant contends that value of diesel, being not in Appellant's scope, is not part of freight consideration and hence is not exigible to GST, in support of their contention the Appellant has made elaborative submissions, which are summarized as under:- a) Relevant terms of draft Contract with regard to diesel: 2.1 Fuel, a consumable, is in the scope of the Company and would be provided to the truck, for use exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recipient of supply. The freight so charged represents the consideration for the service provided. That since Appellant is not liable for the diesel and no activity will be performed and no responsibility will be assigned to the Appellant for such diesel, no debit note/credit note will be issued by the Appellant on the service recipient towards the diesel. e) That the charging of freight by the Appellant will be on completion of service i.e. delivery of the goods to the destined place. Towards the provision of service, the Appellant will issue Bilty/Consignment note signifying the transfer of responsibility on the Appellant to deliver the goods. The Bilty will contain the requisite details about the consignment and other relevant details. The Appellant on successful completion would raise invoice, wherein GST on the total amount of freight charged by the Appellant will be invoiced and on the total freight so charged/invoiced, the Appellant would be charging GST at the applicable rate under forward charge mechanism. 3.3 That for the purposes of levy of GST, Section 9 is the charging section. The levy of GST is on supply of goods or services which is in contrast to the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing goods for the recipient of supply, are outside the scope of section 15(2)(b) and hence not exigible to GST. 3.5 That the transaction is otherwise revenue neutral as the recipient of service is eligible to avail input tax credit of GST chargeable on the GTA service provided by the Appellant. However, eligible to input tax credit cannot be the basis to charge GST which is otherwise not chargeable. 3.6 That the Appellant is otherwise prevented from charging GST on account of impossibility of compliance, as because the diesel in this case would be procured by the recipient of supply as it is in recipient's scope and considering that the diesel will not be issued to the Appellant, but filled directly in the fuel tank of the truck after loading of the material, the Appellant will be unware of the rate and quantity of diesel so filled, it will not be possible for him to charge GST on the value of diesel. That such impossibility of compliance is impermissible and cannot be the intention of GST law. 3.7 The Appellant furthermore submitted that under the GST law deeming fiction has been created to charge FOC supplies i.e. supply made without consideration. Such deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has mis-read and misapplied the charging section under GST laws. Because unlike the erstwhile regime of Excise, VAT and Service Tax, GST laws is an activity-based tax. The charge is only on the activity a supplier/ service provider undertakes to carry out. The tax is on value addition of the supplier/ service provider. Hence, as the Appellant's activity to undertake transportation without being responsible for diesel cost; the charge and the value of tax can only be restricted to that part of the amount received by the Appellant from the service receivers. The Order erred in disregarding settled judicial pronouncements to hold that diesel being an essential input, will form part of the value of service irrespective to the fact that it is not in scope of Appellant. It is relevant to reiterate that in the judgments relied upon the Appellants, this very issue had been raised by the Department Authorities, but it has been consistently held by judicial forums that value of FOC diesel cannot be added in the value of service. The Impugned Order has mis-applied the business process test. It is settled law by the Hon'ble Supreme Court that commercial expediency has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court given in the case of UOI v. Intercontinental Consultants and Technocrats Private Limited 2018 (10) GSTL 401 (SC). As per this decision, gross amount charged can only be the value attributable to the work/service carried out by a service provider. The Impugned Order has failed to apply the GST Circular dated 08.06.2018. This Circular clearly decides the issue in favour of the Appellant. The Impugned Order erred in brushing aside the submissions of the Appellant that 'free of cost diesel' was a standard practice in various trades, be it transportation, mining activities etc. Various decisions in the Service tax regime dealing with identical issues were explained to the Authority as referred above. However, the Authority erred in side stepping rationale of these decisions. The impugned order has ignored the aspect that transaction is revenue neutral as the service recipient is entitled to input tax credit of GST charged. However, admissibility of input tax credit cannot be the reason for levying GST beyond the provisions of law. Further, the aspect of revenue neutrality also makes it clear that the Appellant cannot have any intention to circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(1) of the Central Goods and Service Tax Act, 2017 and the CGGST Act, 2017 by the Appellant Mr. Arvinder Singh Bhatia, M/s Shree Jeet Transport, 127, Ward 15, Kharora, Raipur, Chhattisgarh and GSTIN, against the Advance Ruling Order No. AD220820000440, dated 04.01.2021. 5.2 The Appellant is providing GTA services. It is seen that the Appellant is about to enter into contract for providing GTA services of transportation of goods by road to service recipient(s). The terms of contract provide that the Appellant would be providing transportation services to transport goods belonging to the service recipients. Such transportation services will be provided by the Appellant by engaging vehicles. The Appellant/Transporter would be charging freight for the GTA services provided. The terms of contract state that the diesel required in providing the transport services shall be in the scope of service recipient and that procedure described in the contract elaborately explains that the diesel, as required for the trip, will be directly filled into the truck/vehicle by the service recipient. Relevant terms of draft Contract with regard to diesel are produced below:- 2.1 Fuel, a consumabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the deposit as consideration for the said supply; Section 7 (1) of CGST Act, 2017: For the purposes of this Act, the expression supply includes,- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration -whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; (d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Section 15 of CGST Act 2017: 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) persons shall be deemed to be related persons '' if,- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognized partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent, or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term person also includes legal persons: (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. 5.5 I have examined the copy of Draft Model Agreement submitted by the appellant. Para 3.4 of the Draft Model Agreement is reproduced below The Transporter will ensure that specific LR/GR book and prenumbered machine serial are iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice actually paid or payable for the goods or services or both. 5.8 In view of the above, I find 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 price actually paid or payable for the goods or services or both is includible in value. 5.9 I find that the Appellant, has cited various case laws in support of their contention- Jain Carrying Corporation v. CCE Jaipur [2019 (3) TMI 864] CESTAT New Delhi, R.K. Transport Company v. CCE [2020 (11) TMI 34] CESTAT New Delhi, Heligo Charters Pvt. Ltd. v. CST Mumbai-VI [2020 (4) TMI 182] CESTAT Mumbai, Ganpati Associates, Munshi Lal Durga Prasad v. CCE Jaipur 2019 (5) TMI 1233 - CESTAT New Delhi, Karamjeet Singh Co Ltd v. CCE [2017 (9) TMI 1125] CESTAT New Delhi. 5.10 I have carefully examined the aforesaid judgments. All the above case laws pertain to the erstwhile service tax regime, i.e. prior to April'2012. I find that out of the five judgments, only three i.e. Jain Carrying Corporation v. CCE Jaipur [2019 (3) TMI 864] CESTAT New Delhi, R.K. Transport Company v. CCE [2020 (11) TMI 34] CESTAT New Delhi and Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Chapter, service tax chargeable on any taxable service with reference to its value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces shall be limited to the gross amount charged by the service provider for the service provided or to be provided by him. Section 15(2)(b) of the CGST Act, however, stipulates that the value of supply shall also include 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 price actually paid or payable for the goods or services or both. In GTA service, Diesel is an essential component/expense for supply of GTA service. In absence of fuel/ diesel, the appellant will not be able to provide GTA service. It becomes incumbent upon the GTA service provider to bear the cost of fuel in order to provide the service of GTA. Merely because the service recipient is providing fuel to the truck which was used by the GTA service provider to provide the requisite service, in terms of the contract, does not take the price of fuel outside the value of supply and nor does it go outside the purview of Section 15(2)(b) of the CGST Act. This view has been held in para 5.6 5.7 of the signed order copy of AAAR, as referred above. Since the contents of Section 15(2)(b) of the CGST Act, 2017 is diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of moulds/dies was not to be incurred by the component manufacturer and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act for short). 1.3 However, if the contract between OEM and component manufacturer was for supply of components made by using the moulds/dies belonging to the component manufacturer, but the same have been supplied by the OEM to the component manufacturer on FOC basis, the amortised cost of such moulds/dies shall be added to the value of the components. In such cases, the OEM will be required to reverse the credit availed on such moulds/ dies, as the same will not be considered to be provided by OEM to the component manufacturer in the course or furtherance of the former's business. 5.18 It may be seen that the circular no. 47/21/2018-GST dated 08.06.2018 issued by the CBIC clarifies a specific situation where moulds and dies owned by Original-Equipment Manufacturers (OEM) are sent free of cost (FOC) to a component manufacturer The circular clarifies that in case the component manufacturer was supposed to supply components manufactured out of his own moulds 8s d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account and will not go unaccounted in the books of the service receiver. 5.20 Further, I find that the argument advanced by the appellant is that the cost of raw material / consumables should not be added in the value of the final product if it has been supplied FOC by the recipient. In GTA service, the fuel is the most important input for providing the transportation service. Chemical energy in the fuel is converted into kinetic energy via combustion in the IC Engine of the vehicle. This Kinetic energy of fuel finally propels the vehicle. Therefore, it is the energy of fuel which enables the movement of vehicles. Without the input of fuel, the applicant will not be able to move his vehicles or in other words, he will not be able to provide the GTA service. As per arguments of the applicant, if a recipient supplies free steel to a steel casting manufacturer who makes steel castings and then supplies them back to the recipient, then the cost of steel should not be added to the value of steel casting. This is just not acceptable. The GST laws and in fact the Central Excise and Service Tax laws before that have always envisaged that the cost of inputs and consumables s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision was removed. The draft GST law stated that the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly 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 , but in enacted GST law it was deleted. In my view this makes clear that the Section 15 as contained in the CGST Act 2017 does not include the value of FOC goods supplied by service recipient as per terms of contract. My view gets affirmed from the fact that both the draft GST law and enacted GST law contain the provision 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................; . 6.3 Scope of supply is provided in Section 7 of CGST Act read with schedules thereto. FOC supply made without consideration has been included in the scope of supply vide Section 7(1)(c) read with the First Schedule to the CGST Act. Perusal of the First Schedule makes clear that FOC supply made between unrelated parties under the terms of contract are not taxable supplies. Further, having considered section 15(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and dies provided on FOC basis by the recipient of supply is not consideration. The Board circular has been relied upon by AAR Maharashtra in GST-ARA-19/2018-19/B-80 given in case of Lear Automotive, in this order similar issue of FOC goods supplied by recipient of supply to the supplier as per the terms of the contract was decided. While deciding the issue, AAR Maharashtra had taken on record Australian GST ruling 2001/6 for reasons that the definition of consideration given in section 2(31) of CGST Act, 2017 is identical in Australian GST and AAR, Maharashtra after examining the issue has held that FOC goods supplied by recipient of supply are not includible in the value of supply. Similar decision has been given by co-ordinate bench of AAAR, Karnataka in case of Nash Industries Ltd. in KAR/AAAR/07/2018-19. 6.7 Therefore, in light of the above, in my view the value of diesel which is in the scope of service recipient would not be included in taxable value of supply of the service provider. 7. Having regard to the facts and circumstances of the case and discussions as above, and in view of the fact that both members are not in agreement, we dispose of the instant app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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