In a recent ruling, the Uttarakhand High Court held that the cost of free fuel provided by a service recipient cannot be added to the value of taxable supply by a Goods Transport Agency (GTA) for GST purposes. The dispute arose over whether the value of this fuel should be included in the calculation of GST.
The petitioner, M/s New Jai Hind Transport Service, had entered into an agreement where the service recipient supplied fuel free of charge for the transportation services.
A proposed draft agreement (Annexure-2 to the writ petition) was entered between the petitioner and the service recipient.
Get a Copy of GST on Services Ready Reckoner, Click here
The salient features of the proposed draft agreement are as under :
“(i) Scope: – Petitioner will transport the goods belonging to the service recipient from its factory to the specified destination within in a specified period (reasonable) of time taking specified route. Petitioner will be assuming transit risk of the goods being transported.
(ii) Exclusivity: – The vehicle, deployed by the petitioner, shall exclusively transport the goods belonging to the service recipient for the trip, i.e., the vehicle deployed by the petitioner for the particular trip cannot transport the goods for any other person.
Get a Copy of GST on Services Ready Reckoner, Click here
(iii) Consignment Note: – Petitioner will issue consignment note, serially numbered, signifying the receipt of goods from service recipient for the purposes of transportation. The consignment note, inter alia, will contain details of the date of consignment note, registration number of the goods carriage deployed by the applicant, name and address of the consigner, name and address of consignee, quantity and type of goods loaded for transportation, upon successful delivery of the consignment, the petitioner will obtain proof of delivery from the consignee, which shall signify completion of service by the petitioner.
(iv) Fuel: – Fuel required to transport the goods of service recipient shall be in the scope of the service recipient and not in the scope of work of the petitioner. In other words, fuel will be supplied by the service recipient, free of cost to the petitioner. Fuel will be supplied in required quantity depending on load and trip. Ownership of the fuel shall always remain with the service recipient.
(v) Consideration: – Petitioner will raise tax invoice towards freight charges for the GTA service provided to service recipient. Freight charges shall be the only consideration and sole consideration that will flow between the parties under this agreement. Freight charges shall not include any element of value / cost of the fuel because under the agreement between the parties, fuel required for transport is within scope of the service recipient and shall be supplied by the service recipient in required quantity for exclusively transporting the goods of the service recipient.”
Get a Copy of GST on Services Ready Reckoner, Click here
Vide an order dated 26.09.2022, the Goods and Services Tax Advance Ruling Authority Uttarakhand ruled that the value of diesel filled by service recipient in the vehicle(s) provided by the petitioner, on FOC basis as per the terms of the agreement, will be subject to the charge of GST by adding the free value of diesel to arrive at the transaction value of GTA service.
The petitioner challenged the order and vide impugned order, the learned Appellate Authority for Advance Ruling Uttarakhand upheld the earlier order dated 26.09.2022, passed by Goods and Service Tax Advance Ruling Authority Uttarakhand by observing as under :
“The value of diesel supplied / filled by the service recipient in the vehicle(s) provided by the applicant will form part of the value of GTA service and the same will attract GST in terms of Section 15 of the CGST Act, 2017 and Uttarakhand Goods and Service Tax Act, 2017.”
Get a Copy of GST on Services Ready Reckoner, Click here
The petitioner challenged the order passed by the Appellate Authority for Advance Ruling for the State of Uttarakhand Goods and Service Tax.
The bench of Justices Ritu Bahri and Rakesh Rakesh Thapliyal reviewed Section 15 of the Central Goods and Services Tax (CGST) Act, 2017, particularly focusing on Section 15(1) and 15(2)(b), which detail how the value of taxable supply should be determined.
According to the ruling, the value of any amount incurred by the recipient but not included in the price of the service may be added to the taxable value. However, the court found that in this case, the agreement clearly specified that the cost of fuel was the responsibility of the service recipient and was not part of the service provider’s obligations or charges. Therefore, the cost of free fuel did not constitute “consideration” for the service and could not be taxed under GST.
This ruling aligns with similar precedents from other courts, including the Supreme Court in Bhayana Builders Pvt. Ltd., which established that goods or services provided free of charge by the recipient are not subject to tax if they are not part of the agreed contractual consideration.
It was explicitly held that, “value of free fuel cannot be added to value of taxable supply under Section 15(1) and Section 15(2)(b) of the CGST Act, 2017.”
Get a Copy of GST on Services Ready Reckoner, Click here
Thus, the High Court set aside the ruling of the Advance Ruling Authority and confirmed that the cost of free fuel provided by the recipient should not be included in the GST valuation of GTA services.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
