GST not leviable on Government Subsidy to Farmers: AAR [Read Order]

The authority of Advance Ruling (AAR) ruled that the subsidy Amount received by farmers from the government cannot be covered under the ‘Value of taxable supply’.

The applicant, MeghaAgrotech Private Limited is engaged in the business of manufacturing and supplying of LLDPE Pipes and micro-irrigation systems and its accessories. Under PMKSY Scheme, Karnataka Government departments such as horticulture or agriculture or sericulture department are sanctioning 90% subsidy to eligible farmers who install micro-irrigation systems in their farmland.

The applicant filed an application seeking clarification on the issue that whether under Section 15(2)(e) of CGST Act, for calculating “value if taxable supply”, the subsidy amount granted to the farmer by Horticulture/ Agriculture/ Sericulture Department of Government of Karnataka under PMKSY scheme or any other Central/ State Government approved schemes but disbursed to the supplier to be treated as “subsidy” in the hands of the supplier and to be excluded while ascertaining the “transaction value”?

The other issue which the applicant put forth was Whether the question of inclusion or exclusion of subsidy amount to the farmers in the value of taxable supply would arise under Section 15(2) of the CGST Act when such subsidy is not impacting the transaction value, which is the price actually paid or payable for the supply of goods by the customer i.e., farmers and when the subsidy is disbursed by Horticulture / Agriculture / Sericulture Department to the supplier on behalf of the recipient of the supply (farmers) and Whether supplier would be entitled to refund of input tax credit accumulation, which may arise if the subsidy is not treated as part of taxable value?

The authority consisting of members Dr. Ravi Prasad and Mashhood Ur RehmanFarooqui held that the assistance Amount received by farmers from govt. cannot be covered under  Section 15(2)(e) of the CGST Act, 2007 which speaks of ‘Value of taxable supply’.

“There is no question of excluding the amount of assistance or subsidy received from the transaction value or value of taxable supply and the question of entitlement of refund does not arise,” the authority further ruled.