The Section 15 of the CGST ACT 2017 states that the Value of Supply of Goods or Services or Both shall be the Transaction Value, which is the Price actually paid or payable for the supply of goods or services or both where the supplier and recipient of the supply are not related and the price is sole consideration for the supply. Whether subsidy receivable from Government should be deducted for arriving at taxable value?
Case Details : GST is to be levied on subsidy!
Declared By : Karnataka High Court on 15-09-2023
What Happened Exactly :
- The applicant intends to manufacture and supply plant and machineries to Chinnapuri Silks (Recipient).
- The recipient of machinery is eligible for 90% subsidy grants from Central Government and State Government.
- The amount of subsidy will be deposited in an Escrow account of the recepient and from this account the funds will be transferred to the supplier of Machinery i.e. the applicant.
- The recipient is insisting that the applicant shall charge GST on the total invoice amount as reduced by the subsidy amount which is sanctioned to him.
- The applicant soght advance ruling as to whether the subsidy received from the Central / State Government to be
excluded from the value for the purpose of arriving at the GST liability.
Court's Decision :
- Section 15(1) of the CGST Act, 2017 stipulates that the value of the supply of goods or services or both shall be 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.
- In the instant case, the supplier and the recipient are not related and the price is the sole consideration for the supply and
thus the transaction value becomes the value of supply. The transaction value is the value of supply and the supplier raises the invoice for full amount i.e. for the full value of the goods being supplied.
- Under Section 15(2)(e) of the Act, only the subsidies provided by Central Government and State Governments which are directly linked to the price and affects the price of supply are not a part of value of supply.
- In the instant case, the applicant-supplier raises the invoice for the full contract price and even if the recipient is not provided subsidy, the contract price is still recoverable from the recipient.
- Subsidies provided by State Govt or Central Govt in the escrow account are not separately recoverable by the applicant, but are part of the price payable by the recipient.
- Thus, there does not arise a situation where the subsidies are to be added separately to the transaction value or value of supply payable by the recipient. Also, for the same reason, the subsidy is not affecting the price of supply.
- Hence the exclusion provided in Section 15(2)(e) is not applicable in the instant case and the subsidies provided by Central Government and State Governments is includible in determining the value of supply.
The information provided in this presentation does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This presentation is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi-judicial authorities may not take a position contrary to the views mentioned herein.