Value Of Free Fuel Given By Service Recipient Cannot Be Added To Value Of Taxable Supply Under CGST Act: Uttarakhand HC

The Court set aside the order passed by the Appellate Authority for Advance Ruling for the State of Uttarakhand Goods and Service Tax (Appellate Authority) which upheld the Goods and Service Tax Advance Ruling Authority Uttarakhand’s (Authority) decision that the value of diesel-filled by service recipient in the vehicle(s) provided by the New Jai Hind Transport Service (petitioner), on Free of Charge (FOC) would be subject to the charge of GST by adding the free value of diesel to arrive at the transaction value of GTA service.

A Division Bench of Chief Justice Ritu Bahri and Justice Rakesh Thapliyal observed, “Hence, as per the consistent view taken by the Supreme Court in the judgments referred to above the cost of fuel cannot be added in the account of the petitioner, who was a transporter, and was governed by the GST rules. Thus, in the case of the petitioner, as per the agreement, the cost of fuel was to be borne by the service recipient and this cost of this fuel cannot be subjected to charge of GST by adding the value of free diesel in the transaction value of GTA service done by the petitioner. Hence, 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.”

Advocate Devnath appeared for the petitioner, while Advocate Puja Banga represented the respondent.

The petitioner, a proprietorship firm providing Goods Transport Agency (GTA) services, challenged the earlier decision by the Appellate Authority which delved into the issue of whether the value of diesel supplied by the service recipient, as per the terms of the contractual agreement, should be added to the value of the GTA service, thereby attracting GST under the Central and Uttarakhand GST Acts.

The petitioner had entered into an agreement with a service recipient for the exclusive transportation of goods, with diesel being supplied free of cost by the service recipient. The agreement clearly stipulated that the ownership and provision of fuel remained with the service recipient, and the petitioner would only be entitled to freight charges for the transport service provided.

The petitioner contended that under Section 7(1)(a) of the Act the only consideration flowing between the parties was the freight charges, and no value for diesel was included in this consideration. Citing Section 15 of the Act, the petitioner argued that the value of the supply should solely reflect the transaction value of the service provided—i.e., the freight charges—and not the cost of the diesel, which was borne by the service recipient.

The High Court reiterated the decision in Jayhind Projects Ltd. v. Commissioner of Service Tax, Ahmadabad (2023), wherein the Supreme Court held that the value of goods/materials supplied free of cost by a service provider was not to be included in the gross amount for levy of service tax by a service provider.

The Court pointed out how the Supreme had consistently held that where diesel was filled free of cost (FOC) by the service recipient and is not included in the value of GTA service, then the cost of fuel cannot be added to the payment made by the service.

“The stand taken by the respondents in the counter-affidavit is that in the proposed agreement, even if, cost of fuel is not included as part of the freight charges, this omission cannot form basis for nonconsideration of the GST tax, is liable to be rejected,” the Bench remarked.

Consequently, the Court held, “Keeping in view the above law laid down by the Supreme Court, the present writ petition is allowed, and the order…passed by the Appellate Authority for Advance Ruling for the State of Uttarakhand Goods and Service Tax is, hereby, set aside.”

Accordingly, the High Court allowed the petition.

Cause Title: New Jai Hind Transport Service v. Union of India & Ors. (Neutral Citation: 2024:UHC:7311-DB)

Appearance:

Petitioner: Advocates Devnath and Pulak Raj Mulllik

Respondents: Advocates Puja Banga and Shobhit Saharia

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