Case Law Details
In re Vinayak Air Products Private Ltd (GST AAR Uttarakhand)
Whether the water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL, CFFP to the applicant, shall form part of the value of supply of oxygen gas by the applicant?
Section 15(2)(b) ibid specifically includes any cost incurred by the recipient of goods, in the value of supply. These free of cost items have been used in the manufacturing process of Oxygen gas. Rent free land is used for setting up of oxygen plant and free water & free electricity are consumed by the applicant in the process of manufacturing of oxygen. The charges of electricity & water consumed by the applicant during the process of manufacturing of oxygen are being borne by the recipient i.e. BHEL CFFP. The rent of land which is being used free of cost, is also not being received by the BHEL CFFP which is also an expenditure against rent. It is not necessary to first get the ownership of these free items and only then oxygen can be produced. There is no relationship between ownership and consumption. Process of oxygen production moves on only when water and electricity are consumed side by side.
8. Therefore in view of Section 15(1) & 15(2)(b) as discussed above, we have reached to the conclusion that value of rent free space alongwith free water & free electricity will form part of value of oxygen supply.
The water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL CFFP to the applicant, shall form part of the value of supply of oxygen gas by the applicant in view of Section 15 of the CGST Act, 2017.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, UTTARAKHAND
1. This is an application under Sub-Section (1) of Section 97 of the CGST/SGST Act, 2017 (herein after referred to as Act) and the rules made thereunder filed by M/s Vinayak Air Products Private Ltd., HEEP-BHEL, Oxygen Plant, WEX, Ranipur, Haridwar, Uttarakhand (here in after referred to as the applicant’) is registered with the GSTN having Registration No. 05AABCV9136E1ZF and seeking advance ruling on the following question:
Question No. 1: Whether the water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL CFFP to the applicant, shall form part of the value of supply of oxygen gas by the applicant.
2. Advance Ruling under GST means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in sub section (2) of Section 97 or sub section (1) of Section 100 in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.
3. As per the said subsection (2) of Section 97 of the Act advance ruling can be sought by an applicant in respect of:-
(a) Classification of any goods or services or both
(b) Applicability of a notification issued under the provisions of this Act,
(c) Determination of time and value of supply of goods or services or both,
(d) Admissibility of input tax credit of tax paid or deemed to have been paid (e) Determination of the liability to pay tax on any goods or services or both
(f) Whether the applicant is required to be registered
(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term
4. Since applicant has sought advance ruling on Determination of time and value of supply of goods or services or both, therefore, in terms of said Section 97(2) (c) of the Act, the application filed by the applicant has been admitted.
5. On perusal of records submitted by the applicant, we find that the applicant is registered in Uttarakhand having GSTIN bearing no. 05AABCV9136E1ZF. On going through the statement of relevant facts put forth by the applicant as Exhibit II & Exhibit III, they have submitted that:
Exhibit II – Statement of the relevant facts having a bearing on the advance ruling sought by applicant
1) The applicant is a Company incorporated under the Companies Act, 1956, having its registered office located at UG 16, Ansal Majestic Tower, G-Block Community Centre, Vikas Puri, New Delhi-110018 and engaged in the business of manufacture and supply of oxygen and nitrogen gases.
2) M/s Bharat Heavy Electricals Limited (hereinafter referred to as BHEL”) has its Central Foundry Forge Plant located in Ranipur, Hardwar (hereinafter referred to as BHEL CFFP’) wherein oxygen is required by it for its various operations. For this purpose, BHEL CFFP floated a Tender vide Tender Enquiry No. 201804311 (Event ID 11333) due on 07/12/2018, at 2.00 PM for procurement of supply of oxygen on BOOM basis as per specification CFF/M&S/PSX/OX/2018-19/01 (hereinafter referred to as “Tender’). Copy of the said Tender is annexed hereto and marked as Annexure A.
3) The Vendor’s scope as per the said Tender Document is described below:-
> Establishment of Oxygen Manufacturing Plant with minimum total oxygen generation capacity 700 M3/hr.
> Either, two or more separate single compressors-based manufacturing plants with independent air separation units (Example: 3 Compressors and 3 Separation units)
OR
Single plant having two or more compressor units appropriate air separation unit.
> Minimum Gaseous Oxygen Storage capacity 6000+-5% M3 (in case of gaseous oxygen)
OR
Minimum liquid oxygen storage 8000L (in case of liquid oxygen).
> Supply of gaseous oxygen to shops at pressure 14-17 Kg/cm2 (maximum Distance 2000 m from supply point) as per flow requirement on all working days, Sundays, holidays (in all three shifts)
4) The Tender Document also enshrines the scope of activities agreed to be undertaken by BHEL which inter-alia are as follows
> BHEL will provide power supply, untreated water at one point and Shaded space.
> The plinth area of shaded space is 15X28m2, height 7.60 meter and adjacent shaded area of 11.60X9 m2, height 3.50 meter. Beyond this no shaded space shall be provided.
> Adjacent open space, if required can also be used with prior CFFP’s permission.
> If supplier wants to increase height of building, then that will be under supplier’s scope at their cost but after taking permission & clearance by CFFP BHEL.
5) The ownership of the free of charge water and electricity provided by BHEL CFFP under the said Tender remains the property of BHEL CFFP at all times and the property/ ownership in the same is never transferred to the vendor at any stage.
6) Further, since the said contract is for supply of oxygen on BOOM basis, the ownership of the plant to be setup in the premises of BHEL CFFFP shall rest with the vendor and shall not be transferred to BHEL CFFP during the course of this contract. In this context, Clause 10 of the Tender specifically provides that:-
> the Vendor has to take out all equipment through material gate within one month after expiry of contract period,
> Vendor has to dismantle all equipment within 15 days after expiry of contract period and handover site to BHEL CFFP, failing to which, penalty of Rs. 50,000 per week/or as deemed fit by BHEL at that time, shall be imposed.
7) The applicant applied for the said Tender and has obtained a Purchase Order No. P9S0413 dated 21st December 2019 from BHEL CFFP for the supply of the requisite oxygen as per the terms and conditions of the Tender document. The said Purchase Order specifically provides at Point 21 that for the calculation of GST in the bills, value of power supply to be included/ excluded as per provisions applicable at the time of billing. Further, at Point 22, it has been stated that supply of electricity will be in CFFP scope as per tender condition. Copy of the Purchase Order is annexed hereto and marked as Annexure B.
8) BHEL CFFP is of the stand point that only cost of electricity but not the notional rent of the land space provided by it to the applicant should be included in the value of the oxygen for the purposes of levy of GST by the applicant. BHEL CFFP refers to Point 21 of its Purchase Order No. P9S0413 dated 21st December 2019 (supra) in support of its stand. The water taken by the applicant from BHEL CFFP is used by the applicant for its operations and returned back to BHEL CFFP. The value of water so used is also negligible.
9) It is vital to note here that the applicant is also a registered vendor of BHEL for manufacture and supply of oxygen at its factory located in Bhopal (hereinafter referred to as ‘BHEL Bhopal’) at mutually agreed rates. As per the agreement, BHEL Bhopal is also inter-alia required to provide the applicant with rent free space within its factory premises for setting up the oxygen manufacturing plant along with electricity and water free of charge to be used in the manufacturing of oxygen. Under the said arrangement, the applicant is including the notional value of the rent-free space and the cost of electricity in the value of its supply of oxygen gas for the purposes of levy of GST.
10) In the above backdrop and circumstances, the Applicant has hereby approached for seeking an advance ruling in respect of the questions raised in the instant application. The Applicant submits that the questions raised in the instant advance ruling application qualify as questions in respect of which an advance ruling application can be sought by the Applicant in terms of section 97(2) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”). Further, the Applicant, having a registered office in India is eligible to approach this Hon’ble Authority for an advance ruling and qualifies as an applicant under section 95(c) of the CGST Act.
11) The Applicant submits that there are no pending proceedings under the GST law against the Applicant or initiated by the Applicant in relation to the question raised herein before any authority, Tribunal or Court.
Exhibit III – Statement containing the applicant’s interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant’s view point and submission on issues on which the advance ruling is sought):-
1) It is important to note various statutory provisions which have a bearing on the questions raised for the Advance Ruling in the present Application. The relevant statutory provisions under the “CGST Act” and Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST Act”), extract of relevant Circulars and recommendations are extracted hereunder for the ready reference of the Hon’ble Authority.
2) Unlike under the erstwhile excise laws, where taxable event for levy of excise duty was ‘manufacture’, levy of GST is on the taxable event called ‘supply’. The key pre-condition for levy of GST, therefore, is presence of a ‘supply* as envisaged under GST law.
3) Section 7 of the CGST Act, 2017 defines the term ‘supply’. Relevant portion of the same is reproduced hereunder:-
“7.(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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,
(b) import of services for a consideration whether or not in the course or furtherance of business,
(c) the activities specified in Schedule I, made or agreed to be made without a consideration, and
(d) the activities to be treated as supply of goods or supply of services as referred to Schedule II.
…………………………….”
4) As can be seen from above, in order to constitute a transaction as ‘supply’, it is important that the same should be against a ‘consideration’. Hence, it becomes imperative to see the definition of ‘consideration’ under the CGST Act. Section 2(31) defines the term ‘consideration’ as under:-
“(31) “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, 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 a 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;”
5) Section 2(72) of the CGST Act defines the term ‘manufacture’ to mean: –
processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly
{Emphasis Supplied}
6) Section 15 of the CGST Act lays down the mechanism to determine the value of any supply for the purposes of levy of GST under the GST Law. Section 15 is reproduced herein for your ready reference:-
(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.
{Emphasis Supplied}
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 specify 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
7) In the given circumstances and the above backdrop, the Applicant submits that, the following question, already set out above, arises for the consideration of this Hon’ble Authority:-
1. Question 1:In the facts and circumstances of the case, whether the water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL CFFP to the applicant, shall form part of the value of supply of oxygen gas by the applicant.
The Applicant is seeking an Advance Ruling on the following grounds, which are without prejudice to each other:
2.1 Activity undertaken by the Applicant Qualifies to be ‘Manufacture’ and therefore, Transaction between the Applicant and BHEL CFFP is a ‘supply’ under GST.
> For a transaction to be a supply, there has to be inter-alia a sale or transfer for a consideration by a person in the course or furtherance of business. In the present case, BHEL CFFP requires regular supply of oxygen in its plant to carry out its operations. For this purpose, it has appointed the applicant to set up an oxygen manufacturing plant within its premises. The applicant is provided rent free space for setting up the said oxygen manufacturing plant and also provided electricity and water free of cost. The applicant shall further procure the air from the atmosphere and process the same using electricity and water and other requisite catalysts for extraction of oxygen from the atmospheric air. The ownership of the rent-free land, water and electricity always remains that of BHEL CFFP while the plant so setup shall always be of the property of the applicant (since the contract is on BOOM basis).
> A brief on the process undertaken by the applicant to obtain oxygen from atmospheric air is outlaid below for ready reference: –
Atmospheric Air mainly consists of Oxygen and Nitrogen gases along with small quantities of water-vapor, Carbon Dioxide, Argon, Helium, etc. Oxygen and Nitrogen from the Air are separated due to difference in boiling points by distillation through a fractional column.
To start with, atmospheric Air is sucked in by a multi stage compressor through a filter and is compressed to the designed pressure. This compressed air is subjected to the following process: -At first, it is passed through inter-coolers to cool down the air, the temperature here is marginally reduced from the then room temperature.-
– This cooled down air is thereafter sent to Industrial Refrigerator where this compressed air is further cooled down to bring it upto a temperature of 10° Celsius.
– At the next step, Moisture Separators are installed which are responsible to separate the moisture content present in this cooled air.
– Thereafter, a Molecular Sieve Battery is used to separate the oil traces and hydrocarbons (such as carbon dioxide, argon, hydrogen, etc.) from this cooled air. The air at this stage now comprises of only oxygen and nitrogen gases free from all impurities.
– The said pure air is transferred to the first heat exchanger which is further connected with an Expansion Engine. Here, the pure air is subjected to cryogenic separation. As a result of such process, the temperature of this pure air is reduced substantially to a temperature of -150° Celsius. This air is then moved through a second heat exchanger where this air is further cooled down to a temperature of -186° Celsius. This is the boiling point of oxygen gas at which the oxygen gas converts into liquid and gets separated from nitrogen gas.
– During the entire process, water is used for cooling down the compressors and other machinery items.
This liquid oxygen gas is collected in a liquid oxygen pump where the said liquid oxygen gas is again converted back into gaseous state by increasing the pressure. This is then stored in the storage vessel and transported to the customer through pipelines. Flow meters are installed at the specific point to measure the quantity of the oxygen gas so supplied.
> The term ‘manufacture’ has been defined under Section 2(72) of the CGST Act so as to mean processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use. Stating simply, an act can be said to be manufacture if:-
i. there is involvement of raw materials or inputs,
ii. such raw materials or inputs are processed in any manner, and
iii. there is emergence of a new product as a result of such processing having a distinct name, character and use.
> The term ‘input’ has been defined under Section 2(59) of the CGST Act as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, the processing should be undertaken on raw materials/ inputs that qualify to be goods’. The term ‘Goods’ has further been explained under Section 2(52) of the CGST Act as every kind of movable property while some specific items have been specifically excluded from the definition of goods, Water, atmospheric air and electricity are not amongst the list of items excluded from the said definition.
> In this context, let us first delve into the question of whether the water, atmospheric air and electricity on which processing is done qualify to be ‘goods’ within the broad meaning of the term under the GST Law.
> For this purpose, attention is invited to the decision of Hon’ble Supreme Court in the case of Commissioner of Sales Tax, M.P., Indore Vs. M.P. Electricity Board, Jabalpur reported at 1970 (25) STC 188 wherein the question before the Hon’ble Supreme Court was whether electricity qualify to be goods under the erstwhile Sales Tax Law. It was held therein that ‘goods’ means all kinds of movable property. The term “movable property” when considered with reference to “goods” as defined for the purposes of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property. It is capable of abstraction, consumption and use. It can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other movable property.
> In view of the above, it can be categorically said that electricity qualifies to be a movable property and thus, shall be ‘goods’ for the purposes of GST Law. On similar grounds, atmospheric air and water are also capable of abstraction, transmission, consumption and use and therefore, shall be ‘goods’ and in turn ‘inputs’ under the provisions of GST Law. With this, the condition at Point (1) above would duly stand satisfied.
> Further, the term ‘processing’ has not been defined under the statute, n sue i a case, resort can be made to the dictionary meaning of the term: –
– A series of actions that you take in order to achieve a result -Cambridge Dictionary
– A natural phenomenon marked by gradual changes that lead toward a particular result – Merriam Webster
– A process is a series of actions which are carried out in order to achieve a particular result – Collins Dictionary
> Here, attention is invited to the decision of Bombay high Court in the case of Commissioner of Sales Tax vs Damodar Padmanath Rao reported at 1968 22 STC 187 Bom wherein the term ‘processing’ was discussed at length by the Bombay High Court in context of preparation of a Pan or Vida by a Pan Shopkeeper. It was determined that the word “process” is to subject to a particular method or technique or preparation, handling, or other treatment designed to effect a particular result. When vida or pan is produced or prepared, it is produced not only with the use of several articles but subjecting all these articles used to several processes. In fact, no one article is available in the same form once it is used in the vida. All the articles that go to make the vida are not available as independent articles. It was further stated that it is not necessary that in the processing of an article within the meaning of this section, there must be use of mechanical force in particular cases.
> From the above discussion, it can be understood that the term ‘processing’ has a wider connotation which includes any activity carried out for the purpose of a particular result wherein as a result of such activity the articles lose their independent identity and a new product comes into existence.
> Applying the said meaning to the facts of the case at hand, the applicant is procuring atmospheric air and is separating oxygen from it by subjecting the said atmospheric air to the process as discussed above. As a result of the said process, the various constituents of the atmospheric air being nitrogen, oxygen, water vapor and other gases are separated and the requisite product being oxygen is obtained. In our view, such activities carried out to separate oxygen from atmospheric air would qualify to be ‘processing’ in the meaning of the term and therefore, the condition (ii) would also duly stand satisfied.
> Furthermore, the product so obtained i.e. oxygen is a product different from the atmospheric air used in the process. It has altogether a different character/ constitution, use as well as name. Hence, the condition (ii) as laid down under Section 2(721 of the CGST Act would also duly stand satisfied.
With this, all the conditions of Section 2(72) off the CGST Act are satisfied being:-
– All the products namely atmospheric air, water and electricity qualify to be inputs’,
– There is processing of these inputs/ raw materials, There is emergence of a new product namely oxygen having a distinct name, character and use.
– For the said reasons, in our view, the activity carried out by the applicant for BHEL CFFP would qualify to be ‘manufacture’ in terms of the GST Law and thus, shall be a supply of goods.
2.2 Valuation of Manufactured Oxygen Supplied by the Applicant to BHEL CFFP.-
> Having said that the supply of oxygen by the applicant to BHEL CFFP would qualify to be manufacture and thus, a ‘supply’ of manufactured oxygen under GST Law, let us determine the value of such supply for the purposes of levy of GST. Section 15 of the CGST Act is the governing provision for determination of value of supply for the purposes of levy of GST.
> As a basic principle laid down under Section 15(1), value of a supply of goods 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.
> In the case at hand, as discussed above, the applicant has obtained rent free space from BHEL CFFP along with water and electricity free of charge for use in the manufacture of oxygen. These inputs are used by the applicant for the manufacture of oxygen gas. It is of no doubt to the applicant that the total amount obtained by it from BHEL CFFP towards supply of oxygen is a ‘consideration’ under Section 2(31) of the CGST Act and thus, the same shall be leviable to GST.
> Here, a question that arises for your due deliberation is whether the value of rent-free space and cost of electricity and water provided free of charge by BHEL CFFP to the applicant is to be included in the value of manufactured oxygen for the purposes of levy of GST.
> This doubt stems from the fact that BHEL CFFP is of the view that the value of rent-free land should not be included in the value of supply. On the other hand, under the erstwhile Excise Law, the activity carried out by the applicant was held to be ‘manufacture1 in terms of Section 2(f) of the Central Excise Act, 1944 and the value of rent-free space and other free of cost materials was specifically included in the value of the manufactured oxygen in terms of Rule 6 of the Central Excises Valuation (Determination of Price of Excisable Goods) Rules, 2000.
> At the outset in this direction, it is vital to determine whether the said costs can be said to be a ‘consideration’ for the applicant in accordance with the meaning of the term under Section 2(31) of the ST Act. In our view, the ownership of land, water and electricity remains with BHEL CFFP during all stages of the process till receipt of manufactured oxygen by it. In no circumstances, would the ownership of the said rent free space or water or electricity would pass on to the applicant. In such a case, in our view, all the said cannot be said to be a consideration for the applicant and thus, would not form part of the value of manufactured oxygen within the boundaries of Section 15(1) of the CGST Act.
> Having said that, it may also be noted that Section 15(2) of the CGST Act specifies certain inclusions in the value of supply. The said Section 15(2) at Clause (b) inter-alia levies GST on any amount which the supplier is liable to pay in relation to the 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. In this regard, it is vital to understand as to who can be said to be liable for incurring any expenditure in terms of any supply.
> In our view, the liability to incur the expenditure should be deciphered from the nature of the transaction and should not be merely restricted to the independent clauses of the agreement I contract.
> In the case at hand, it may be understood from the detailed manufacturing process discussed in the preceding paragraphs that for manufacturing of oxygen, the atmospheric air along with requisite quantities of water and electricity are crucial and inevitable and the manufacturing process cannot be carried out without the presence of these essentials. Further, land is required to set up the entire manufacturing plant. All the same constitute the major requirements for the manufacturing process and the quantity of any further inputs/ raw materials added by the applicant is miniscule.
> With BHEL CFFP providing the said essential inputs to the applicant free of charge, in our view, responsibility of supplying the said essentials have been taken over by BHEL CFFP due to commercial reasons/ constraints. But, the applicant could never manufacture the oxygen without the availability of land space for setting up the plant and without the presence of the requisite quantities of water and electricity. Accordingly, in our view, the liability of incurring such expenditures would remain on the part of the applicant since the same are vital elements for the applicant to carry out its responsibilities under the agreement/contract.
> In this reference, attention is invited to the Advance Ruling issued by the Authority of Advance Ruling in Karnataka in the cage of M/S Nash Industries (I) Pvt Ltd., Advance Ruling No. KAR ADRG 24 / 2018. In the said case, certain tools were required to manufacture the requisite components by the applicant, These tools were provided free charge by the recipient. It was held by the Authority that without e tools the final component could not have been manufactured and therefore, by application of Section 15(2)(b) of the CGST Act, the value of tools provided free of charge by the recipient would be included in the value of manufactured component,
> It is a known legal position that the Advance Rulings arc not binding on any person apart from the respective applicant of the said Advance Ruling as well as the concerned jurisdictional officer. However, inference can be drawn from the said Advance Ruling, whereby, in our view, the notional rent of the free space along with the cost of water and electricity would form part of the value of supply of oxygen gas for the purposes of levy of GST,
> The aforesaid stand is further supported by the fact that the applicant is supplying such manufactured oxygen to BHEL at its Bhopal unit as well since the inception of GST wherein the notional rent of land and the cost of water and electricity are duly included in the value of manufactured oxygen for the purposes of levy of GST.
> Lastly, the Applicant submits that in the interest of justice, additional submissions be taken into consideration at any or all stages during the conduct of the proceedings.
Accordingly hearing was fixed on 06.04.2021 which was attended by the Mr. Rajeev Kumar Agarwal, Chartered Accountant on behalf of the applicant and he reiterated the facts as stated by the applicant in their application.
DISCUSSION & FINDINGS;
1. We have gone through the application filed by the applicant for Advance ruling and the supporting documents submitted by them as well as oral submission made by the Authorised Representative of the applicant, Mr. Rajeev Kumar Agarwal, Chartered Accountant, at the time of personal hearing held on 06.04.2021. We also considered the issue involved, on which advance ruling is sought by the applicant, relevant facts & the applicant’s interpretation of law.
2. At the outset, we would like to state that the provisions of both the CGST Act and the SGST Act of Uttarakhand State are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the SGST Act.
3. The applicant in their application has illustrated in detail the procedure of manufacturing the ‘Oxygen gas’. This authority has no doubt that Oxygen gas is emerged out as a new product by extracting it from the atmospheric air with the help of refrigerator, compressors, separators etc. and during this process electricity and water is constantly used. The question before this authority is whether the water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL CFFP to the applicant, shall form part the value of supply of oxygen gas by the applicant.
4. In this regard we would like to go through the relevant provisions of the CGST Act,2017 as follows:-
1) To determine the value of any supply, Section 15 of the CGST Act provides that:
(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.
{Emphasis Supplied}
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
In view of above provisions, it is categorically stated that value of supply is the transaction value i.e. the price actually paid or payable for the said supply of goods and the price is the sole consideration for the supply. Further, value of supply shall also 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.
2) Further, as per Section 7 of the CGST Act, 2017 the term ‘supply’ is defined as below:-
“7.(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, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business, (b) import of services for a consideration whether or not in the course or furtherance of business,
(c) the activities specified in Schedule I, made or agreed to be made without a consideration, and
(d) the activities to be treated as supply of goods or supply of services as referred to Schedule II.
…………………………..”
As per above provisions all forms of supply of goods made or agreed to be made for a consideration is a part of supply.
3) Section 2(31) defines the term ‘consideration’ as under:-
“(31) “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, 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 a 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;”
As per above provisions we find that consideration includes any payment whether in money or otherwise made or to be made or monetary value of any act or forbearance for the inducement of the supply of goods.
5. In a combined reading of the above provisions, it is very much clear that value of supply is the price actually paid/payable and price is the sole consideration and consideration includes monetary value of any act or forbearance. In the instant case BHEL CFFP are providing rent free land and free electricity & water to the applicant and thus tolerating all the expenditure incurred on these free of cost items. Therefore, inputs provided free of cost by the recipient of resultant goods shall also form part of value of supply in view of Section 15(1) and Section 15(2)(b) of the Act as the cost of these inputs has to be paid by the supplier of goods but actually incurred by the recipient and this cost is also not include in the price actually paid/payable by the recipient. For the purpose of levy of , cost of inputs provided free of cost, has to be included in the value o irrespective of the fact whether this value is charged from recipient of goods or not.
6. In the instant case also, BHEL CFFP are also providing rent free space alongwith free water & free electricity to the applicant for manufacturing & supply of Oxygen gas to them. The applicant has contended that the ownership of land, water and electricity remains with BHEL CFFP during all stages of the process till receipt of manufactured oxygen by it. In no circumstances, would the ownership of the said rent free space or water or electricity would pass on to the applicant. In such a case, all the said facilities provided by BHEL CFFP cannot be said to be a consideration for the applicant and thus, would not form part of the value of manufactured oxygen within the boundaries of Section 15(1) of the CGST Act.
7. Here we find that above contention of the applicant is not tenable in view of Section 15(2)(b) ibid which specifically includes any cost incurred by the recipient of goods, in the value of supply. These free of cost items have been used in the manufacturing process of Oxygen gas. Rent free land is used for setting up of oxygen plant and free water & free electricity are consumed by the applicant in the process of manufacturing of oxygen. The charges of electricity & water consumed by the applicant during the process of manufacturing of oxygen are being borne by the recipient i.e. BHEL CFFP. The rent of land which is being used free of cost, is also not being received by the BHEL CFFP which is also an expenditure against rent. It is not necessary to first get the ownership of these free items and only then oxygen can be produced. There is no relationship between ownership and consumption. Process of oxygen production moves on only when water and electricity are consumed side by side.
8. Therefore in view of Section 15(1) & 15(2)(b) as discussed above, we have reached to the conclusion that value of rent free space alongwith free water & free electricity will form part of value of oxygen supply.
RULING
The water and electricity charges as well as the notional rent of the land, provided free of charge by BHEL CFFP to the applicant, shall form part of the value of supply of oxygen gas by the applicant in view of Section 15 of the CGST Act, 2017.
