The applicability of GST on FOC supply of material by recipient to the supplier has been a debatable issue since long. The Andhra Pradesh Authority of Advance Ruling (AAR) has in its recent ruling has adjudged that that HSD Oil issued free of cost by the service recipient to the applicant would form part of the value of supply of service by the applicant under Section 15(2)(b) of CGST Act, 2017.
Facts of the case:
- The applicant, M/s Pulluri Mining & Logistics Private Limited is a service provider rendering the support services relating to mining. The applicant has received work through an order from M/s Shree Jayajyothi Cement Pvt. Ltd. for executing mining contract at Srinagar in the nature of raising of Limestone (excavation) at Yanakandla Limestone Mines, and other such mines in Andhra Pradesh and to deliver Limestone to Yanakandla Limestone Hopper belonging to Sree Jayajothi Cements Private Limited.
- The works are to be carried out by using the listed equipment and vehicles. The listed heavy equipment & vehicles will be deployed for exclusive usage of this contract and shall not move out of the service recipient premises unless it is essential for the performance of the contract. HSD oil required for operating the above heavy equipment and vehicles will be under the scope of the service recipient and HSD oil is issued free of cost from the service recipient’s storage tank.
Question on which ruling is sought:
Whether the HSD Oil issued free of cost by the service recipient to the applicant would form part of the value of supply of service to the applicant as per Section 15 of the CGST Act, 2017, and more particularly under sub-section (2) (b) of Section 15 of the CGST Act.
Andhra Pradesh AAR: Ruling
- In the instant case, the service recipient is providing diesel to the equipments and vehicles used by the applicant for executing the mining contracts at different places stipulated in the work order. Diesel so provided by the service recipient to the applicant for use in the equipments and vehicles of the applicant forms an important and integral component of this business process, without which the process of excavation of limestone at different mines , transportation and delivery of limestone to limestone hopper belonging to recipient would not be possible.
- As per Section 15(2)(b) of CGST Act, 2017 the value of supply includes “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.
- It gets amply clear 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.
In view of above, the Authority ruled that HSD Oil issued free of cost by the service recipient to the applicant would form part of the value of supply of service by the applicant.
Our view:
In our view this ruling is not on right footing, considering the fact that as per Section 15(2)(b), any amount which the supplier is liable to pay in relation to a supply but has been incurred by the recipient is included in the value. The liability to pay is determined by the terms of the contract entered into between supplier and recipient.
In the instant case the contract itself had stated that HSD Oil will be provided by the recipient, free of cost and the price has accordingly been quoted by the supplier.Accordingly as per contract, the supplier is not liable to pay for HSD Oil and thus the value of same in our view should not be added to the value of supply under Section 15(2)(b) of the CGST Act,2017.
Our above view is further corroborated by Circular No. 47/21/2018- GST dated 08.06.2018 wherein it was inter-alia it was clarified that while calculating the value of the supply made by the component manufacturer, the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of such supply because the cost 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 CGST Act,2017.
READ ORDER:
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