The Uttarakhand Authority of Advance Ruling (AAR) in the case of Tara Genset Engineers (Regd) vide Advance Ruling No. 11/2022-23 dated 31.10.2022, has ruled that 18% GST is applicable on the cost of the diesel incurred for running diesel generator (DG) set in the course of providing DG rental service.
In this case, the applicant is a partnership firm in the business of renting DG sets to various customers in different districts of Uttarakhand and has entered into an agreement with them to install diesel generators on a hire basis for rent with reimbursement of diesel costs on the usage of the DG sets. The applicant has been discharging the 18% tax on DG Set hiring charges plus reimbursement of diesel costs incurred for running DG Set.
However, one of the recipients of the service is of the opinion that the taxes charged and collected by them on the component of the reimbursement of diesel charges for running the diesel generator were erroneous, as the said commodity, i.e., the diesel, does not come under the purview of the GST. Since diesel is a non-GST good as per Section 9 of the CGST/SGST Act, 2007, the service recipient has requested the applicant reimburse the wrongly collected taxes.
The applicant has sought an advance ruling on the issue of the GST applicability of the cost of the diesel incurred for running a DG set in the course of providing a DG rental service.
The AAR noted that the contract entered into between the applicant and the recipient is for the hiring of DG Set and is a comprehensive contract with the consideration of having a fixed component and a variable component. The fixed component is the monthly fixed rent charged in the invoice for the DG set, and the variable charge (running charges) is the charge for the diesel used. Both are part of the same consideration and are for the contract of renting out DG sets.
The AAR opined that the recipient is not paying for the diesel only but for the services of the DG Set, which has been hired on rent, and the diesel is an integral part of the supply of the DG Set rental service. There is no separate contract for the supply of diesel, and even a single invoice is issued for the supply of rental service for DG sets, although both components are shown separately. Hence, the reimbursement of expenses as the cost of the diesel for running the DG set is nothing but an additional consideration for the renting of the DG set and attracts 18% GST.
