The Uttarakhand Authority of Advance Ruling (AAR) in the case of M/s Gurjinder Singh Sandhu vide Advance Ruling No. 10/2022-23 dated 26.09.2022, has ruled that when the transaction value of the goods transport agency (GTA) service is added to the free value of diesel, the value of free diesel filled by the service recipient in the vehicle(s) provided by the applicant will be subject to GST.
The AAR has observed that the input, i.e., fuel, to run and operate the vehicle, provided free of cost by the recipient of the service, for transportation of goods, shall form part of the value of supply in view of Section 15 of the CGST Act, 2017. The cost of the input has to be paid by the supplier of services but incurred by the recipient, as for the purpose of the levy of GST, the cost of all the inputs, whether provided free of cost or not, has to be included in the value of supply.
The applicant is in the process of discussing providing transport of goods service by road to a recipient who is not a related person, for which a consignment note will be issued by the applicant.
As per the draft agreement, the applicant will have to transport the goods from the factory of the recipient to the destination specified by the recipient by deploying a vehicle with a driver/staff to run/operate exclusively for the transport of their goods. However, the fuel required to transport the goods shall not be within the scope of work of the applicant and shall be borne by the recipient of the service. As a result, while charging GST at the applicable rate on the freight consideration charged to the recipient under the forward charge mechanism, the cost of the fuel consumed or used for the transport of the goods would be excluded.
The applicant seeks advance ruling on whether the value of free diesel filled by the service recipient in the fleet(s) placed by the GTA service provider under the accepted terms of the contractual agreement will be subject to the charge of GST by adding the value of GTA service under the CGST Act, 2017.
The applicant has contended that the transaction is revenue neutral in nature, but we observe that this argument is devoid of any merit as the dues to the government are payable as per the provisions of the Act and cannot be set off. There is an impossibility of compliance at the end of the applicant.
The AAR rejected the contention of the applicant and has held that the cost price/procurement price of the fuel, i.e., diesel in the instant case, is open to all in the market and even the business houses, industries, etc., consuming diesel for any reason, book the expenses incurred by them as per the norms of the industry.
“For “GTA service” to come into play, the transportation of goods has had to be undertaken by the applicant only, and hence the amount on account of the price of fuel that the supplier was liable to pay in the normal course of business operation and in relation to such supply, which has been drafted to be incurred by the recipient of the supply (as per the agreement supra) and not included in the price actually paid for the goods or services or both, is included in the value of a supply of services to arrive at the transaction value,” the AAR observed.
