DECEMBER 13, 2017

By Vishwanath K ACA, LLB

THE illustration given under Rule 33 of Central Goods and Service Tax (CGST) Rules, 2017explaining that recovery of expenses paid to registrar of companies from the client is a disbursement and not part of the value of supply made by the corporate services firm seems to be illusory. A careful reading of the valuation provisions suggests that the illustration provided in the aforesaid rule appears to be conflicting with the main provisions of CGST Act, 2017.

Section 15 (1) of CGST Act provides that 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.

Section 15(2) provides that 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;

Section 15 (4) provides that 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.

Section 15(2)(a) clearly mandates that any fees and charges levied under any law for the time being in force other than GST and GST Compensation Laws are to be included in the value of supply by the Supplier, if such fees are charged separately.

In the illustration, the registration fee and approval fee are nothing but the statutory fees charged under the provisions of Companies Act, 2013 read with relevant rules made thereunder which is undoubtedly a law in force. These fees are generally charged separately by the supplier on their invoice. Charging such fees separately facilitates for proper accounting of expenses in the books of accounts of the client.

Thus, registration fee and approval fee needs to be included in the value of supply. These amounts cannot be treated as expenditure or cost incurred as pure agent more so when the valuation provisions clearly mandate for inclusion of such fees and charges in the value of supply .

Consequently, any statutory fees and charges levied under any other law (Except for GST and GST Compensation law) for the time being in force would have to be included in the value of supply if the same is charged separately by the supplier.

The other side of the GS Tory.

It is well-settled that the use of expression 'shall' or 'may' is not determinative of the fact whether the provision is directory or mandatory. There is no general rule in respect of as to when a provision is to be treated as directory or mandatory, but in every case the object of Statute must be looked. [Para 23 of PML Industries Ltd - 2013-TIOL-201-HC-P&H-CX].

The appearance of 'shall' is not conclusive, nor per se connotes its mandatory contour. Its meaning must be ascertained in the light of the legislative intent in its employment, the context in which it was couched, the consequences it produces the result it effected and above all the purpose it seeks to serve, would all be kept in view. [ Jaswant Singh Mathura Singh and Anr. vs. Ahmedabad Municipal Corporation and Ors. 1991 AIR 385 (Supreme Court)]

Given the above principles, one can take a view that the expressions "Shall" provided under Section 15(2) can be read as "May" considering that the object of statute was to exclude reimbursement of expenses, especially the statutory fees and charges from the value of supply.

In the case of ROLEX LOGISTICS PVT. LTD. - 2009-TIOL-270-CESTAT-BANG, the Hon'ble CESTAT Bangalore clearly laid down as to what amounts to reimbursement. The excerpts of the decision is reproduced.

Basis the above, one can draw a reasonable inference that the reimbursements are the expenditure or cost which are incurred and recovered not in relation to the services rendered but for other activities which may be incidental to the provision of such services.

That being the case, one can contend that any statutory fees and charges such as warehousing/ detention and other charges under customs laws, charges levied under SEBI regulations, Passenger Service Fee and other charges levied by Airports Economic Regulatory Authority of India etc.need not be included in the value of supply of services.

However, it is equally important to note that one has to clearly identify and differentiate between cost of providing (supplying) services and recoverable expenses.GST is payable on the transaction value and value is the function of the price. As price varies, value also varies.

What is a transaction value and what costs and expenditures are includable in the value is, therefore, a mixed question of fact and law.

(The views expressed are strictly personal.)