ORDER

Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.

The issue raised by M/s Sunil Giri, Near Swami Dharmshala, ward 12, Suratgarh, 335804- Rajasthan. – (hereinafter the applicant) is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (c) given as under:

(c) Determination of time and value of supply of goods or service or both.

A. SUBMISSION AND INTERPRETATION OF THE APPLICANT:

1.0 The Applicant i.e. Sunil Giri, (the Proprietor of M/s. Giri Transport Company) is a Goods Transport Agency (‘GTA’ for short) having its registered place of business at Swami Dharmashala, 12 Unnamed Road, Suratgarh, having GST Registration number 08CRBPG5309N1ZM.

1.1 The Applicant is about to enter into contract with its customer for providing service of transportation of goods by road.

1.2 In terms of the contract to be executed with the customer, the diesel to be consumed in providing the service of transportation of the goods is within the scope of the customer and/or is provided on free of cost basis. The said diesel required for the trip, will be filled in the truck deployed by the Applicant for the transportation, the parties have clear understanding that the said diesel shall be used/consumed exclusively for the transportation of goods belonging to the customer and that the property in the diesel will not pass to the Applicant. The freight for the transportation is fixed based on the scope of transportation service, which excludes diesel. In the light of the above arrangement, while undertaking the activity of transportation of the goods, the truck placed by applicant would be filled up with the diesel required to be consumed for the said transportation trip. The said agreement is always for full truck load and for transportation to specific destinations only. The Applicant would be neither required to nor would be liable to pay for the diesel that would be filled in the trucks by the said customer.

1.3 As far as the Applicant is concerned, the Applicant will be required to send the trucks to the customer’s factory. The trucks will report to the factory and after loading of goods, diesel required, calculated on the basis of load and distance, for the transportation of the said consignment to the destination, will be filled in the fuel tank of the truck.

1.4 The truck is then ready to commence its journey and a consignment note is to be issued by the Applicant. The consignment note shall contain details of the consignor and the consignee, the nature and quantity of the goods being carried and the freight chargeable for the transportation. On completion of the transport service (successful delivery of goods to the service recipient), the Applicant will raise invoice, charging freight, as indicated in the consignment note, for the GTA service. The freight chargeable will not include the value of diesel since it is in the scope of the customer and/or is provided on free of cost basis. The invoice will contain details of consignment notes that are issued as an acceptance of the contractual obligation for undertaking transportation at the agreed freight rate.

1.5 The Applicant will account the freight charged from the customer as business revenue and diesel filled in the trucks by the customer will not be accounted in the books of the Applicant, this is for the simple reason that according to the terms of the agreement the Applicant is not responsible for the diesel and also the Applicant will not be aware of the quantity and the value of diesel (rate at which it is procured by the customer) since it is filled directly in the fuel tank of the truck. The Applicant would be charging GST (under forward charge) on the freight charged. Considering that diesel is in the scope of the customer, nothing is chargeable by the Applicant from the customer for such diesel and no consideration for the diesel is paid or is payable by the Applicant to the customer and/or no adjustment from any amount payable to the Applicant is made / to be made by the customer. The payment against the service invoices are settled through bank transfer by the customer.

APPLICANT’S INTERPRETATION OF LAW

1.0 In the above backdrop, it is the bona fide understanding of the Applicant that value of diesel, which is in the scope of the customer, and as filled in the vehicle by them is not required to be included in the value of freight charged by Applicant for the said transportation. The interpretation of law and/or of the facts in this context is explained hereinafter.

2.0 Diesel is to be filled in the trucks is in contractual scope of the customer;

2.1 In view of the above facts and the terms of the agreement diesel is in the scope of the customer and would be filled in the truck without any charge or cost. As explained in the facts enumerated hereinbefore, the Applicant does not have any obligation to provide diesel and is also not liable to make any payment for diesel provided to the trucks by the customer. Hence, considering the apparent tenor of the agreement, there is no requirement to include the value of the diesel in the value of freight charged by the Applicant for the transportation service.

3.0 The legal provisions for valuation and clarifications issued under the GST law:

3.1 Sec. 15 of the CGST Act, 2017, provides that the value of supply of goods or services shall be the transaction value, which is the price actually paid or payable. Sub-section (2) of the said section provides for a list of inclusions in the value of supply, which interalia 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.

3.2 Sec. 15(2) does not require inclusion, in the taxable value of the supply, of the value of goods provided by the recipient without cost or charge and which is not in the scope of the service provider or in respect of which the service provider is not liable to make payment. In the instant case also the Applicant is not liable to pay any amount for the diesel filled in the truck free of charge or cost by the customer for transporting their goods and hence, the value of diesel is not includible in the value of service provided by the Applicant under Sec. 15(2) of the CGST Act, 2017.

3.3 The position as explained above is in line with the letter and spirit of the GST law as finally introduced w.e.f. 01-07.2017. In this regard, it is respectfully pointed out that prior to its introduction, a Model GST law was circulated in public inviting comments/suggestions from stake holders. In the Model GST Law, issued by the empowered committee of State Finance Ministers in June 2016, there was a proposal to include the value of any goods and/or services provided by the recipient on free of cost basis. In view thereof, specific provision under Sec. 15 (Model Law) was also inserted. However, when GST was finally enacted and made applicable with effect from 01-07-2017, the requirement of inclusion of value of free issue material was deleted. Relevant extract of the Model GST law is reproduced here-in-below:

“Sec 15 : Value of taxable supply

(1) ……

(2) The transaction value under sub-section (1) shall include:

(a) ….

(b) the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued, to the extent that such value has not been included in the price actually paid or payable;

……..”

Considering that the above provision was deleted and did not find place in the enacted GST Act, 2017, it is clear that the legislature, in its wisdom, does not seek to levy GST on such free of cost goods/ services and hence the value of diesel provided free of cost to the trucks of the Applicant is not includible in the value of service provided by him.

Vide additional submission dated 14.06.2022, the Applicant produced following written submissions in support of their application:

1. That the Applicant who is a GTA service provider is about to enter into an agreement/contract with service recipient for transport of their goods/material to specified locations/depots for captive consumption. The service recipient registered under GST laws is engaged in manufacturing activities and supply of goods exigible to GST. The service recipient avails inputs tax credit of inward supply of goods and services and regularly deposits GST payable. As per the terms of the draft agreement, the Applicant is required to transport the goods belonging to the service recipient by deploying trucks/ trailers. The scope of service of the Applicant is to provide the truck/trailer along with the driver and report at the unit(s) of the service recipient The service recipient loads the goods on the truck deployed by the Applicant which are to be delivered at the specified destination(s) within reasonable period of time. Upon loading of the goods on the truck deployed, the Applicant will issue consignment note containing the details of goods being transported, including the quantity thereof as well the freight consideration receivable by the Applicant for providing the services. Upon successful delivery of the goods at the specified destination, the Applicant would be required to obtain proof of delivery by getting the consignment note acknowledged for deliver)’ of the goods. Thereafter the Applicant can raise his bill/invoice charging the freight consideration as agreed. Payment of the freight consideration would then be made by the service recipient through bank transfer (refer clauses 3 and 4 of the draft agreement).

Apart from above, the terms of draft agreement provides that the fuel required for carrying out the transport of goods is in the scope of the service recipient and not in the scope of work of the Applicant. The diesel required for transporting the goods from a specified location to another specified location shall be filled by the service recipient at its own location from its captive diesel pump and the Applicant is only required to make sure that the concerned trucks/trailers have that much quantity of diesel in their tanks that they reach the location of service recipient. The Service Recipient shall devise a mechanism to calculate the consumption of diesel for transportation between two specified locations and shall fill that much quantity in the trucks/trailers as required.

The terms of the draft agreement clearly provide that the Applicant is only responsible for the safe delivery of the consignment. Further, any accident or damage arising during the course of providing the transport service is the responsibility of the Applicant. The Applicant is also responsible to the drivers.

The fuel will be in the scope of the service recipient and the Applicant is not concerned, in any manner, with reference to the free of cost fuel.

As succinctly mentioned in the draft agreement, the Applicant will be issuing consignment note for each vehicle load/consignment. The consignment note, inter-alia, will bear information such as the consigner, consignee, name of goods (raw material) being transported, quantity of material loaded for transportation and freight consideration.

On completion of the transport service i.e. the successful delivery of raw materials to the service recipient, the applicant will raise invoice, charging freight for the GTA service provided. The invoice will carry the details of consignment notes for the GTA service provided.

The Applicant will be accounting the freight charged from the service recipient as business revenue. Further the applicant will be charging GST (under forward charge mechanism) on the freight so charged. It is further to submit that the applicant will not be doing any accounting for the diesel filled in the truck by the service recipient as the same has not been provided to the applicant and also not being in the scope of the Applicant.

Submissions of the Applicant on merits

2. That firstly, as per circular no. 47/21/2018-GST dated 08.06.2018, CBIC has clarified that GST in applicable on the value of supply charged by the service provider as per contract and not on the material which is not in scope of supplier (service provider). In the instant case, as per the draft agreement between the applicant (GTC) and the service recipient (ABC), the applicant would be charging freight as consideration for the service provided by him to the recipient of service and the applicant would not be charging any consideration for the diesel filled by the service recipient free of cost in the engaged trucks/trailers. Rather to the contrary, as per the draft agreement (clauses 4.2, 4.4, 4.5 and 4.6), the fuel is the sole responsibility of service recipient and shall be in its scope and that it will ensure to fill the trucks/trailers with adequate fuel to ensure that its goods stand transported safely. For transportation of the goods, the service provider (GTC) is not responsible for the fuel in any manner. Accordingly, it is humbly submitted that in such circumstances, GST shall be leviable only on the freight component of the service provided and not on the value which is inclusive of the cost of diesel filled by the service recipient. Copy of above referred Circular is annexed at page 28 of the compilation already submitted earlier.

3. That secondly, it is submitted that the in the model draft GST law, provision for levying GST on Free of Cost goods supplied by service recipient as per the terms of contract was contained (in Section 15(2)(b) of the Model GS1 Act) whereas in the finally enacted and implemented GST Act, 2017 (which was implemented w.e.f. 01.07.2017), this provision was removed. The draft GST law stated that –

15(2)(b) – “the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued, to the extent that such value has not been included in the price actually paid or payable”

However, in enacted GST law, this provision was deleted. This also makes it clear that the Section 15 as contained in the CGST Act 2017 does not include the value of FOC goods supplied by service recipient as per terms of contract and also makes it clear that the law makers have purposely deleted the said provision while enacting the GST Act, 2017.

This view also gets affirmed from the fact that both the draft GST law and enacted GST law in section 15 contain the provision “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.”

4. That furthermore, the provision relating to scope of supply is contained in Section 7 of CGST Act read with schedules thereto. FOC supply made without consideration has been included in the scope of supply vide Section 7(1)(c) read with the Schedule-I to the CGST Act. Perusal of the First Schedule makes it clear that FOC supply made between unrelated parties under the terms of contract are not taxable supplies. Further, in the present case, if the provision of section 15(2)(b) is seen which provides 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” then it does not include FOC diesel for the simple reason that the liability towards the diesel required for transporting the goods is of service recipient as clearly stated in clauses 4.2. 4.4, 4.5 and 4.6 of the agreement.

5. That furthermore, if the history of taxability of GTA services is to be looked into, then it is worth noting that the GTA service was taxed for the first time in the year 2005. Post introduction of negative list of services in the year 2012, GTA service remained unchanged and in CGST Act, 2017, its taxability remains the same with a facility that option is available to GTA to deposit tax under forward charge otherwise this has to be continued under reverse charge mechanism. The inadmissibility of input credit of Excise Duty or GST deposited on diesel also remains the same. Thus the provisions of Finance Act, 1994 and GST Act are symmetrical for the present issue under consideration. That to drive home the above submission, kind attention is drawn to section 15(1) of CGST Act wherein value of supply is defined as the transaction value which is the price actually paid or payable for the said supply; comparatively, the section 4(3)(d) of the Central Excise Act defined transaction value as “the price actually paid or payable for the goods…..and includes in addition the amount charged as price, any amount that the buyer is liable to pay”. In addition to above, explanation to Section 67 which defines ‘consideration’ as including “any amount payable for the taxable services provided or to be provided; any reimbursable expenditure or cost incurred by the the service provider…. “ further the term ‘gross amount charged’ as described in section 67 includes “payment by cheque…deduction from account and any form of payment….and book adjustment….in the books of account of a person liable to pay service tax”. The Applicant submits that these provisions are pari-materia as both these sections deal with valuation of service. Further, the Applicant humbly submits that the decision of Hon’ble Supreme Court in case of Bhayana Builders wherein it has been held by Hon’ble Apex Court that FOC goods provided by recipient of service would not be included in the value of service on inter-alia the reason that such goods are not consideration as nothing is charged/chargeable nor is there any liability created on the service provider towards such FOC goods. Apropos to same, in Section 15(2)(b) of the CGST Act also the value of FOC goods provided by recipient of supply shall not be includible if the service provider (Supplier) is not “liable” for the same.

6. That furthermore, the present Applicant relies on various judgments (copies supplied separately) which though pertains to the service tax era but are on the same issue in relation to FOC diesel and other items by service recipient for GTA service and hence will squarely apply to the issue under consideration. In these decisions, the Courts adjudged the argument that diesel is an essential input with finding that FOC diesel cannot be added in the value of service.-

• Commissioner of Central Excise vs. Bhayana Builders (P) Ltd., 2018 (2) TMI 1325 (SC).
• Jain Carrying Corp. vs. CCE, Jaipur (2019) (3) TMI 864
• RK Transport Co. vs. CCE, Raipur, 2020 (11) TMI 034
• Heligo Charters vs. CCE, Mumbai, 2020 (4) TMI 182
• Ganpati Asso. Vs. CCE, Jaipur, 2019 (5) TMI 1233
• Karamjeet Singh & Co. Ltd. vs. CCE & ST (2013 (12) TMI 434)
• Shree Logistics Pvt. Ltd. VS CCE Udaipur [2017(11) TMI 1464]
• Ganpati Associates Vs CCE, Jaipur [2019 (5) TMI 1233]
• Munshi Lal Durga Prasad Vs CCE Jaipur [2019 (5) TMI 1233]
• TCL MMPL Consortium Vs CCE, Jodhpur [2012 (2) TMI 49]
• Vanatage International Management Co. Vs Commissioner, CGST [2021 124 TAXMANN.COM 355]

That furthermore, it is humbly submitted that in the case at hand, the transaction is revenue neutral as the service recipient would be eligible to claim input tax credit of GST charged on the GTA service provided by the Applicant. When input tax credit of GTA service is admissible to the service recipient, non-charging of GST will not lessen the revenue to the exchequer on end to end basis. However, looking to the position of section 15(2) (b), it will be erroneous and contrary to law [Section 15(2) (b)] for the applicant to charge GST just because recipient is entitled to input tax credit.

7. That even if it is assumed for the sake of argument that free of cost diesel provided by the service recipient is to be includable in value of GTA service provided by the Applicant then computation cost of value of diesel cannot be determined by the Applicant. This is for the reason that diesel stands procured by the service recipient for its own purposes. The Applicant is not privy to cost of diesel. Therefore, onus even if put on the Applicant to include the cost of diesel would be an impossibility of compliance. Hence, the same would be impermissible in law.

8. That during the course of hearing, Advance Ruling in the matter of Shri Navodit Agarwal 2019 (4) TMI 1402 was referred, however as far as this ruling is concerned, it is inapplicable to the issue at hand. The fact situation of the two matters are distinct. In the case of Shri Navodit Agarwal, the contention of the applicant stands noted and in para 3 IV of the decision as:-

IV. The applicant have expressed the view that they need to charge GST to Shree Raipur Cement, C.G on total amount including diesel cost and Shri Raipur cement will raise separate invoice for diesel upon them.

Thus, from above it is clear that in the case of Shri Navodit Agarwal, there were two supplies. First, supply of diesel by Shree Raipur Cement to Shri Navodit Agarwal for which an invoice was issued by Shree Raipur Cement. Second, service rendered by Shri Navodit Agarwal of transportation including diesel which now belonged to Shri Navodit Agarwal itself. In such circumstances, the decision appears to have been given. In any case, the Advance Ruling Authority was not apprised on Circular no. 47/27/2018 – GST dated 08.06.2018 and decisions passed in Lear Automotive (supra) and Nash Industries (supra) wherein section 15(2)(b) of CGST Act stands interpreted. Further, interpretation of section 15(2)(b) has not been dealt in this matter. For, all of the above, advance ruling given in the matter of Shri Navodit Agarwal is inapplicable for the present purposes.

9. That lastly, at the cost of repetition, it is submitted that the FOC diesel is not ‘consideration’ for the Applicant as the diesel is not supplied to him but the diesel would be filled in the fuel tank of the trucks/trailers that would be engaged by the service recipient, at their own location and that too after loading the goods and it can be used only for transporting the goods of service recipient. In this regard, the Board Circular 47/27/2018 though in a different context but relevant to the present issue, has clarified that the Moulds and dies provided on FOC basis by the recipient of supply is not consideration. The Board circular has been relied upon by AAR Maharashtra in its advance ruling GST ARA-19/2018-19/B-80 dated 31.07.2018 given in case of M/s. Lear Automotive India Private Limited (copy supplied separately).

In this order, similar issue of FOC goods supplied by recipient of supply to the supplier as per the terms of the contract was decided. While deciding the issue. AAR Maharashtra had taken on record Australian GST ruling 2001/6 for reasons that the definition of consideration given in section 2(31) of CGST Act. 2017 is identical in Australian GST law and AAR, Maharashtra after examining the issue has held that FOC goods supplied by recipient of supply are not includible in the value of supply.

Similar decision has been given by Appellate Authority for Advance Ruling, Karnataka in the case of M/s. Nash Industries (I) Pvt. Ltd. in KAR/AAAR/07/2018-19 decided on 01.03.2019. (copy supplied separately in the compilation already submitted).

10. Therefore, in light of the above mentioned submissions, it is respectfully prayed that the present Application seeking Advance Ruling may be decided by holding that the value of diesel which is in the scope of service recipient would not be included in taxable value of supply of the service provider and accordingly, the value of diesel, provided by the customer (service recipient) to the trucks, is not to be added to the freight charged by the Applicant for the purposes of the Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’) & the Rajasthan Goods and Services Tax Act (‘RGST Act, 2017’).

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