Case Note & Summary
The petitioner, a partnership firm engaged in supplying site mix/ready mix concrete and registered under the Central Goods and Services Tax Act, 2017, challenged an order passed by the Joint Commissioner (CT), Guntur, which levied GST on the value of materials supplied to it free of cost. The contractees M/s. BGR Energy Systems Limited and M/s. RVR Projects Private Limited placed orders for supply of ready mix concrete at their sites in Krishna District. To manufacture the concrete, the petitioner required cement, admixture and waterproofing material, and these three components were supplied by the contractees free of cost. The petitioner bore the cost of the remaining components and completed the supplies without including the value of the free materials in its taxable turnover. The total value of the free materials worked out to Rs.19,83,01,024/- and the Joint Commissioner, treating the exclusion as undervaluation, levied tax of Rs.3,56,94,184/- by order dated 27.03.2023. The writ petition was filed to quash this demand. During proceedings, the respondents conceded that the materials had indeed been supplied free of cost. The High Court considered the sole legal issue whether the value of cement, admixture and waterproofing material supplied free of cost by service recipients is exigible to tax. It referred to Circular No.47/21/2018-GST issued by the CBIC, which clarified that moulds and dies owned by original equipment manufacturers and sent free of cost to a component manufacturer do not constitute supply and their value is not added to the value of the component manufacturer's supply under Section 15(2)(b) of the CGST Act. The Court also relied on Supreme Court decisions in Commissioner of Service Tax v. Bhayana Builders (P) Limited and Union of India v. Intercontinental Consultants and Technocrafts Pvt. Ltd., which held that free-of-cost goods or materials supplied by the service recipient are not includible in the gross amount charged by the service provider under Section 67 of the Finance Act. The Uttarakhand High Court in New Jai Hind Transport Service v. Union of India applied these principles to free diesel supplied to a transporter and held that its value could not be taxed. The High Court found that the Joint Commissioner's contrary view was unsustainable. Accordingly, the writ petition was allowed, the impugned order was set aside, and the amount deposited by the petitioner pursuant to the interim order dated 06.05.2024 was directed to be refunded. Pending interlocutory applications were closed and no costs were awarded.
Headnote
A) GST - Valuation of Taxable Supply - Free-of-Cost Inputs Excluded - Central Goods and Services Tax Act, 2017, Section 15(2)(b) - The petitioner received cement, admixture and waterproofing material free of cost from contractees for manufacture of ready mix concrete; the Joint Commissioner levied GST on their value. The Court held that such value is not includible in taxable supply because no consideration was involved and the supplier did not incur the cost, and Circular No.47/21/2018-GST clarified that free materials provided by the recipient are not added to the value of supply. Held the impugned levy was unsustainable (Paras 5-13). B) Service Tax - Valuation of Taxable Service - Free Supplies Excluded from Gross Amount - Finance Act, 1994, Section 67 - The Supreme Court in Commissioner of Service Tax v. Bhayana Builders (P) Limited held that the value of goods/material supplied free of cost by the service recipient is not includible in the gross amount charged by the service provider. The High Court followed this and the Intercontinental Consultants decision, along with the Uttarakhand High Court ruling in New Jai Hind Transport Service, to hold that free diesel supplied to a transport service provider was not taxable. Held the same principle applied to free cement, admixture and waterproofing material (Paras 10-12). C) Writ Remedy - Setting Aside Assessment Order - Refund of Pre-Deposit - Central Goods and Services Tax Act, 2017, Section 15(2)(b) - The impugned order of the Joint Commissioner was contrary to settled legal position and was set aside. The Court directed refund of the 15% pre-deposit made under the interim order dated 06.05.2024 and closed pending interlocutory applications. Held the petitioner was entitled to relief with no order as to costs (Paras 13-15).
Issue of Consideration
Whether the value of material i.e., cement, admixture and waterproofing material supplied free of cost by service recipients to the petitioner is exigible to tax under the Central Goods and Services Tax Act, 2017.
Final Decision
Writ petition allowed; impugned order dated 27.03.2023 set aside; amount deposited in terms of interim order dated 06.05.2024 directed to be refunded to petitioner; no order as to costs; pending interlocutory applications closed.
Law Points
- Value of materials supplied free of cost by service recipient to service provider not includible in taxable value
- No consideration involved in free supplies
- Section 15(2)(b) CGST Act excludes costs not incurred by supplier
- Section 67 Finance Act gross amount charged excludes free materials
- Circular 47/21/2018-GST clarifies free moulds and dies not taxable
- Supreme Court precedents binding
- Tax demand on free supplies unsustainable
