18% GST applicable on the cost of the diesel incurred for running generator set in the course of providing rental service

The AAR, Uttarakhand in the matter of M/s Tara Genset Engineers (Regd.) [Advance Ruling No. 11/2022-23 dated October 31, 2022] has ruled that reimbursement of expenses as cost of diesel for running of Diesel Generator ("DG") set is an additional consideration for renting of DG and is required to be included in value of supply, which will attract 18% Goods and Services Tax ("GST") under the provisions of the Central Goods and Services Tax Act, 2017 ("the CGST Act").

Facts

M/s Tara Genset Engineers (Regd.) ("the Applicant") is engaged in the business of renting of DG set to various customers. The Applicant entered into an agreement with PNB/OBC, Shivalik Nagar ("theRecipient"), to install DG on hire basis for rent of INR 4500/- per month with reimbursement of diesel cost of INR 90.29/- per litre on usages of DG set and are discharging the GST at the rate of 18% on the same. 

One of the Recipient of the renting service was of the opinion that the taxes collected by the Applicant pertaining to the reimbursement of diesel cost is erroneous since diesel is a non- GST goods as per Section 9 of the CGST Act and therefore, the Applicant should reimburse the wrongly collected taxes to the Recipient. 

Issue

Whether the GST is applicable on the cost of the diesel incurred for running DG set in the course of providing DG rental services?

Held

The AAR, Uttarakhand in Advance Ruling No. 11/2022-23 held as under:

• Observed that,Section 15 of the CGST Act mandates that the value of supply shall include among other things, any other 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 for the goods or services. 
• Noted that, the running condition of DG set cannot be achieved without the diesel.
• Further noted that, the contract between the Applicant and the Recipient is for the hiring of DG set and is a comprehensive contract with the consideration having a fixed component i.e. the renting charges and a variable component i.e. the running charges, diesel. 
• Opined that, the Recipient is not only paying for the diesel but also for the rental service of the DG set and the diesel is an integral part of the rental service.
• Stated that, there is no separate contract for supply of diesel and no single invoice is issued for such renting service although both components are mentioned separately.
• Held that, reimbursement of expenses as cost of diesel for running of DG set is additional consideration for renting of DG and is required to be included in value of supply and thus will attract 18% GST under the provisions of CGST Act. 

Relevant Provisions

Section 9 of the CGST Act

"Levy and collection-

(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

(2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.

(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax."

Section 15 of the CGST Act

"Value of taxable supply.

(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include -

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

(b) 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;

(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.

Explanation––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

(3) The value of the supply shall not include any discount which is given––

(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if–

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.

(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.

Explanation- For the purposes of this Act,––

(a) persons shall be deemed to be "related persons" if––

(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;

(b) the term "person" also includes legal persons;

(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related."