New Jai Hind Transport Service vs Union Of India And Others
2024 Latest Caselaw 2254 UK

Uttarakhand High Court

New Jai Hind Transport Service vs Union Of India And Others on 27 September, 2024

                                                     2024:UHC:7311-DB
                                               Reserved Judgment

     IN THE HIGH COURT OF UTTARAKHAND
                 AT NAINITAL

             HON'BLE THE CHIEF JUSTICE MS. RITU BAHRI
                                 AND
                HON'BLE MR. JUSTICE RAKESH THAPLIYAL


                   Reserved on : 23.09.2024
                   Delivered on : 27.09.2024

              WRIT PETITION (M/S) NO. 646 OF 2023


New Jai Hind transport Service               ......         Petitioner


Versus


Union of India and others                    ......         Respondents


Counsel for the petitioner    :       Mr. M.P. Devnath and Mr. Pulak Raj
                                      Mulllik, learned counsel

Counsel for the respondents   :       Ms. Puja Banga, learned Brief Holder
                                      for the State / respondent No. 2

                              :       Mr. Shobhit Saharia, learned counsel
                                      for respondent No. 3



The Court made the following:

JUDGMENT:

(per Hon'ble the Chief Justice Ms. Ritu Bahri)

The petitioner M/s New Jai Hind Transport

Service is a proprietorship firm and providing services of

Goods Transport Agency ( in short GTA) to its customers /

service recipients.

2) The petitioner is challenging the order passed by

learned Appellate Authority for Advance Ruling for the

State of Uttarakhand Goods and Service Tax dated

2024:UHC:7311-DB 30.01.2023 (Annexure-1 to the writ petition) issued by

respondent No. 3. Petitioner is a sole proprietor of the

said firm and is duly registered under the Uttarakhand

Goods and Service Tax Act, 2017. His place of business is

1st Floor, Shop No. 72, Avdhoot Mandal, Haridwar,

Uttarakhand.

3) A proposed draft agreement (Annexure-2 to the

writ petition) was entered between the petitioner and the

service recipient. The salient features of the proposed

draft agreement are as under :

"(i) Scope: - Petitioner will transport the goods belonging to the service recipient from its factory to the specified destination within in a specified period (reasonable) of time taking specified route. Petitioner will be assuming transit risk of the goods being transported.

(ii) Exclusivity: - The vehicle, deployed by the petitioner, shall exclusively transport the goods belonging to the service recipient for the trip, i.e., the vehicle deployed by the petitioner for the particular trip cannot transport the goods for any other person.

(iii) Consignment Note: - Petitioner will issue consignment note, serially numbered, signifying the receipt of goods from service recipient for the purposes of transportation. The consignment note, inter alia, will contain details of the date of consignment note, registration number of the goods carriage deployed by the applicant, name and address of the consigner, name and address of consignee, quantity and type of goods loaded for transportation, upon successful delivery of the consignment, the petitioner will obtain proof of delivery

2024:UHC:7311-DB from the consignee, which shall signify completion of service by the petitioner.

(iv) Fuel: - Fuel required to transport the goods of service recipient shall be in the scope of the service recipient and not in the scope of work of the petitioner.

In other words, fuel will be supplied by the service recipient, free of cost to the petitioner. Fuel will be supplied in required quantity depending on load and trip. Ownership of the fuel shall always remain with the service recipient.

(v) Consideration: - Petitioner will raise tax invoice towards freight charges for the GTA service provided to service recipient. Freight charges shall be the only consideration and sole consideration that will flow between the parties under this agreement. Freight charges shall not include any element of value / cost of the fuel because under the agreement between the parties, fuel required for transport is within scope of the service recipient and shall be supplied by the service recipient in required quantity for exclusively transporting the goods of the service recipient."

4) Petitioner filed an application before the learned

Goods and Service Tax Advance Ruling Authority

Uttarakhand seeking advance ruling on the following

question :

"Whether the value of free diesel filled by service recipient under the accepted terms of contractual agreement in the fleet(s) placed by GTA service provider will subject to the charge of GST by adding this free value diesel in the value of GTA service, under the Central Goods and Services Tax Act, 2017 & Uttarakhand Goods and Service Tax Act, 2017?

Said application is dated 30.06.2022 (Annexure-3).

2024:UHC:7311-DB

5) Vide order dated 26.09.2022 (Annexure-5),

Goods and Service Tax Advance Ruling Authority

Uttarakhand ruled that the value of diesel filled by service

recipient in the vehicle(s) provided by the petitioner, on

FOC basis as per the terms of the agreement, will be

subject to the charge of GST by adding the free value of

diesel to arrive at the transaction value of GTA service.

6) The petitioner challenged the order dated

26.09.2022 (Annexure-5) and vide impugned order dated

30.01.2023, the learned Appellate Authority for Advance

Ruling Uttarakhand upheld the earlier order dated

26.09.2022, passed by Goods and Service Tax Advance

Ruling Authority Uttarakhand by observing as under :

"The value of diesel supplied / filled by the service recipient in the vehicle(s) provided by the applicant will form part of the value of GTA service and the same will attract GST in terms of Section 15 of the CGST Act, 2017 and Uttarakhand Goods and Service Tax Act, 2017."

7) The petitioner has come up in appeal against

the above said order.

8) The petitioner has referred to Section 7(1)(a) of

the Central Goods and Services Tax Act, 2017 (hereinafter

referred to as 'the CGST Act, 2017). The same is

reproduced as under :

2024:UHC:7311-DB "7. Scope of supply.-- (1) For the purposes of this Act, the expression ―supply includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

9) As per above said section, the supply includes

all forms of supply of goods or services made or agreed to

be made for a consideration by a person. The petitioner

has entered into an agreement for supply of GTA service

for a consideration to the service recipient, and he has to

be paid by the recipient only the cost of transportation

which does not include the cost of diesel or fuel. The

petitioner has to supply GTA service to the service

recipient against freight charges, i.e., the only

consideration flowing between the parties, agreed under

the proposed agreement (Annexure-2), is the freight

charges. Fuel is not a consideration agreed under the

proposed agreement between the petitioner and the

service recipient. For the free fuel given by the service

recipient, petitioner cannot be made liable to pay GST, as

the agreement between the parties is only with respect to

the freight charges, and the cost of fuel is to be borne by

the service recipient. The petitioner as per the agreement

(Anneuxre-2) is not supplying fuel and he is only being

2024:UHC:7311-DB paid fuel charges for using the vehicle and transporting

the goods.

10) The question for consideration in the

present case is whether the free supply of fuel can

be included / added to the freight consideration.

11) For the purpose of levy and collection of tax, the

petitioner has referred to Section 9 of the CGST Act 2017,

which provides that GST shall be levied on the value

determined as per Section 15(1) of the CGST Act.

Petitioner is only supplying GTA service to the service

recipient against freight charges. Under the agreement

between the parties, the said freight charges are the

transaction value or the contract price for the GTA service,

and this supply of GTA service does not include the cost of

fuel as the cost of fuel is borne by the supplier / recipient,

and this cost is actually paid by the supplier, and hence

this cannot be included in the freight charges.

12) Section 15(1) and Section 15(2)(b) of the

Central Goods and Services Tax Act, 2017, are extracted

here-in-below :

"15. 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

2024:UHC:7311-DB related and the price is the sole consideration for the supply.

(2) The value of supply shall include-

(a) .........

(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."

13) As per Section 15(2)(b) of the CGST Act,

2017, there has to be a contract or one has to enter into

contract or be a part of contract in some capacity as to

who is liable to pay for the supply of fuel. As per the

agreement (Annexure-2), the liability to pay for the cost

of the fuel was never on the petitioner-transporter. He

was only to be paid freight charges under the GTA Rules

2017, and in this backdrop, the cost of fuel could not be

added as per Section 15(2)(b) of the CGST Act, 2017.

Since as per the agreement (Annexure-2) the fuel "has to

be procured and to be supplied by the service recipient to

the petitioner, the value of fuel cannot be added to the

value of freight charges charged by the petitioner".

14) Section 2(31) of the CGST Act, 2017 defines

"consideration" as under :

``"Consideration" in relation to the supply of goods or services or both includes -

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to,

2024:UHC:7311-DB or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or the State Government.

Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

15) The further plea taken is that free of cost fuel is

supplied by the service recipient on account of rights and

responsibilities created under the agreement between the

parties and also for the reason that uninterrupted supply

of GTA service is carried on. The petitioner has again

referred to Circular No. 47/21/2018 dated 08.06.2018

which clarifies that value of moulds and dyes provided by

OEM to the component manufacturer on FOC basis shall

not be added in the value of such supply in terms of

Section 15(2)(b) of CGST Act because the cost of moulds

/ dyes was not to be incurred by the component

manufacturer and thus does not merit inclusion in the

value of supply. The above said section is binding on the

2024:UHC:7311-DB respondents as per the Supreme Court judgment rendered

in CIT Vs Trans Asian Shipping Services Pvt. Ltd. (2016)

8 SCC 604.

16) The petitioner has also referred to a Supreme

Court judgments in CST Vs Bhayana Builders (P) Ltd.

(2018) 3 SCC 782 and Union of India Vs

Intercontinental Consultants and Technocrafts Pvt. Ltd.

(2018) 4 SCC 669, where it has been clearly held that

value materials / goods supplied free of cost by the

service recipient to the service provider are not includable

in the value of service.

17) Reference has been made to a judgment of

Rajasthan Authority for Advance Ruling in In Re: M/s

Sunil Giri [2022 (7) TMI 1103 - Authority for Advance

Ruling, Rajasthan], wherein it has been held that value of

diesel filled free of cost (FOC) by the service recipient is

not includable in the value of GTA service proposed to be

provided by the applicant.

18) Reference has again been made in the case of

AAR Karnataka in In Re: M/s Hical Technologies Pvt. Ltd.

[2019 (10) TMI 571 - Authority for Advance Ruling,

Karanataka]; AAAR Karnataka in In Re: M/s Nash

Industries (I) Pvt. Ltd. [2019 (3) TMI 435 - Appellate

Authority for Advance Ruling, Karnataka] and AAR

Maharashtra in In Re M/s Lear Automotive India Private

2024:UHC:7311-DB Limited [2018 (12) TMI 766 - Authority for Advance

Ruling, Maharashtra].

19) In all the above said judgments it has been

consistently held that value of diesel filled free of cost

(FOC) by the service recipient is not includable in the

value of GTA service proposed to be provided by the

applicant. It is further stated that the petitioner has paid

the GST as a transporter, and the whole of it is allowable

as credit to the recipient of service as input tax credit

(ITC) under Section 16 of the CGST Act, 2017. Such ITC

is usable by the recipient of service for payment of its own

GST on the supplies made by it. There will be no financial

impact on the recipient of service, and even for the

exchequer there will be no financial impact since whole of

the GST paid by the petitioner-transporter on freight will

be allowable as ITC to the recipient and such credit is then

utilizable by the recipient for payment of GST on its own

supplies, net receipts by the exchequer will be the same,

whether or not fuel cost is included in the freight.

20) On notice of this petition, a counter-affidavit has

been filed by the Assistant Commissioner CGST, Haridwar.

The stand taken in the counter-affidavit is that the fuel

supplied by the service recipient was undoubtedly for the

inaction of taxable activities of transportation, and it

2024:UHC:7311-DB should have formed part of "Value of Supply" as

envisaged in Section 15(2)(b) of the CGST Act, 2017.

Section 15(2)(b) suggests that the transaction or

contractual value is not final and in all cases and in the

case of supply, all ingredients of a supply are required to

be looked into while arriving at the value of a particular

supply. Hence, free fuel purportedly supplied by the

service recipient was an integral constituent for carrying

out such "Supply of Service" activity, and hence as per

provisions of Section 15(2)(b) of the act, the said cost

would have invariably been included in value of supply.

There was an omission / drafting error in exclusion of

necessary clause in the proposed agreement (Annexure-2)

which did not include cost of fuel as part of freight

charges. This omission in itself cannot form the basis of

non-consideration of an obvious tax constituent.

21) Further stand taken by the respondents in the

counter-affidavit is that as per the above said section the

value of supply shall include 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. As per the wording of Section

15(2)(b) the transaction or contractual value is not final in

all cases and in the case of supply, all ingredients of a

2024:UHC:7311-DB supply are required to be looked into while arriving at the

value of a particular supply. The running condition of a

vehicle cannot be achieved without fuel, as in the absence

of fuel the vehicle cannot move from one place to another

to transport goods and accordingly, it is observed rightly

by both the authorities that without transportation of

goods due to absence of fuel or any other reason the same

cannot be termed as 'GTA Service'. As per Section 15 of the

CGST Act 2017, the value of a supply of goods or services or

both shall be the transaction value yet it has been specially

mandated 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

shall be included in the value of the supply. As per Section

15(2)(b) all ingredients of a supply are required to be looked

into while arriving at the value of a particular supply. The

claims of the petitioner have been rightly rejected on the

grounds that the GTA includes 'transport of goods by road'

and 'issuance of consignment note' and the essential

ingredients in the transport of goods and issuance of

consignment note would be the presence of the goods for

the purpose of transporting them plus the provision of a

movable vehicle, the presence of a driver to drive the

vehicle, fuel for the vehicle and such other assets / services,

taken as a whole and at the same time and together, to

2024:UHC:7311-DB meet the requirements of the service. The transportation of

goods cannot take place by providing a static asset, whether

on rent or otherwise. It also cannot take place simply by

hiring out or renting of a movable asset (such as a truck)

that is not able to move because of a mechanical problem or

due to the absence of a driver or of fuel. With regard to the

instant case it is further stated that the running condition of

a vehicle cannot be achieved without fuel, as in the absence

of fuel the vehicle cannot move from one place to another to

transport the goods. Thus, without transportation of goods

due to absence of fuel or any other reason the same cannot

be termed as "GTA Service" and the same is liable to be

taxed under GST services. In ordinary course of GTA

business the essential cost of fuel is borne, in normal and

ordinary course, by the service provider only, i.e., the

transporter.

22) The stand taken by the respondents in the

counter-affidavit is that in the proposed agreement

(Annexure-2), even if, cost of fuel is not included as part of

the freight charges, this omission cannot form basis for non-

consideration of the GST tax, is liable to be rejected.

23) The Supreme Court in the case of Commissioner

of Service Tax & others Vs Bhayana Builders Private

Limited & others, (2018) 3 SCC 782 was examining Section

67 of the Finance Act, 1994, with respect to the goods /

2024:UHC:7311-DB materials supplied by the service recipient while procuring

the taxable service of construction if the amount charged is

not included in the gross amount charged by the service

provider for providing such service under a composite

contract of service and supply of goods, then it will lead to

the obvious conclusion that the value of the goods /

materials provided by the service recipient free of charge is

not to be included while arriving at the gross amount simply

because no price is charged by the assessee / service

provider from the service recipient in respect of such goods

/ materials. The service tax has to be calculated on the

gross amount that was charged from the service recipient.

In the case before the Supreme Court, the assessee /

service provider had availed benefit of notifications and paid

service tax on 33% of the gross amount which it had

charged from the persons for whom construction was carried

out, i.e., the service recipients. This did not include the

value of such goods / materials which were supplied by the

service recipient in the gross value. The Supreme Court

held that it was not incumbent on the assessee to include

the value of goods / materials supplied free of cost by the

service recipient.

The Supreme Court in para 12 of the above said

judgment has observed as under :

"12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which

2024:UHC:7311-DB service tax is payable has to satisfy the following ingredients :

(a) Service tax is payable on the gross amount charged - the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable.

(b) The amount charged should be for "for such service provided" - Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided"

the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service

2024:UHC:7311-DB provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined."

24) Union of India & another Vs Intercontinental

Consultants and Technocrats Private Limited, (2018) 4

SCC 669 was another case where the Supreme Court was

examining the validity of the expenditure / cost incurred

by the service provider in the course of providing taxable

services. The Supreme Court in this case also was

examining Section 67 of the Finance Act, 1994 which

relates to the expenditure / cost incurred by the service

provider in the course of providing taxable services. In

para 26 of the above said judgment, the Supreme Court

observed as under :

"26. In this hue, the expression "such" occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such" taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such "taxable service". That according to us is the plain meaning which is to be attached to Section 67 (unamended i.e. prior to 01.05.2006) or after its amendment, with effect from 01.05.2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that the High Court was right in interpreting Sections

2024:UHC:7311-DB 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider "for such service" and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service."

25) Finally, the Supreme Court in the above said

judgment has held that the value of free supplies of diesel

and explosives in respect of service of "Site Formation and

Clearance Service" can be included for the purpose of

assessment to service tax under Section 67 of the Act.

The Supreme Court further held that the value of such

material which is supplied free by the service recipient

cannot be treated as "gross amount charged" and it is not

the consideration for rendering the services. In this

backdrop, the value of free supplies of diesel and

explosives would not warrant inclusion while arriving at

the gross amount charged on the service tax to be paid,

and all the appeals filed by the Union of India were

dismissed.

26) The Supreme Court in the judgments referred to

hereinabove has consistently held that where diesel is

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

2024:UHC:7311-DB recipient to the transporter, and further GST be charged

from the transporter.

27) Recently, the Supreme Court in Jayhind

Projects Ltd. Vs Commissioner of Service Tax,

Ahmadabad, (2023) 13 Centax 32 (S.C.) has again

reiterated and followed the judgment of the Supreme

Court in the case of Commissioner of Service Tax &

others Vs Bhayana Builders (P) Ltd, (2018) 3 SCC 782,

and held that the value of goods / materials supplied free

of cost by service provider is not to be included in the

gross amount for levy of service tax by the service

provider.

28) 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 (Annexure-2), 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.

2024:UHC:7311-DB

29) Keeping in view the above law laid down by the

Supreme Court, the present writ petition is allowed, and

the order dated 30.01.2023 (Annexure-1), passed by the

Appellate Authority for Advance Ruling for the State of

Uttarakhand Goods and Service Tax is, hereby, set aside.

______________ RITU BAHRI, C.J.

________________ RAKESH THAPLIYAL, J.

Dt: 27TH SEPTEMBER, 2024 Negi

2024:UHC:7311-DB