Facts of the Case

The petitioner, M/s Shree Jeet Transport, through its proprietor Arvinder Singh Bhatia, is a registered Goods Transport Agency (GTA) (GSTIN 22AKDPB5992PIZU) engaged in transportation of goods by road. It proposed to enter into an agreement with a service recipient under which the recipient would supply diesel free of cost (FOC) to the trucks/trailers engaged for transportation, keeping fuel outside the scope of the petitioner's supply. The petitioner sought an advance ruling under Section 97 of the CGST Act, 2017 on whether the value of FOC diesel would form part of the taxable value of its GTA supply. The Authority for Advance Ruling (AAR), Chhattisgarh, by order dated 04.01.2021, held that the cost of FOC diesel would be includible. On appeal, the AAAR members differed — the CGST Member upheld the AAR's view, the SGST Member disagreed — so that, under Section 101(3), no ruling was rendered. The petitioner then filed this writ petition, also challenging the constitutional validity of Section 101(3) of the CGST/CHGST Act, 2017.

Issues Involved

  1. Whether GST is leviable on the value of diesel supplied free of cost by the service recipient to a Goods Transport Agency, having regard to Sections 7, 9 and 15 of the CGST Act, 2017.
  2. Whether the terms of a private commercial agreement excluding fuel from the scope of the GTA's supply can override the statutory valuation provisions.
  3. Whether Section 101(3) of the CGST/CHGST Act, 2017 (under which no ruling is deemed issued if AAAR members differ) is constitutionally invalid as manifestly arbitrary and violative of Articles 14 and 19(1)(g).
  4. What is the legal consequence, for the earlier AAR order, where the AAAR renders no ruling under Section 101(3).

Petitioner's Arguments

  • Under the draft GTA agreement, diesel was expressly outside the petitioner's scope of supply and was to be furnished free of cost by the recipient; the freight charged did not account for fuel cost.
  • The transaction-value test under Section 15 of the CGST Act must follow the price actually agreed between the parties, and the parties had agreed that fuel was not part of the consideration for the GTA service.
  • Relying on the Supreme Court's rulings in Commissioner of Service Tax v Bhayana Builders and Union of India v Intercontinental Consultants and Technocrats (rendered under the service tax regime), free supplies made by a recipient cannot be added to the taxable value of the supplier's service.
  • The Model GST Law's proposal to expressly tax free-of-cost recipient supplies was consciously dropped from the final Section 15(2)(b), showing legislative intent to exclude such supplies.
  • Diesel already bears VAT in Chhattisgarh and is not a deemed supply under Schedule I of the CGST Act, so it cannot be taxed again under GST.
  • Section 101(3) of the CGST/CHGST Act is manifestly arbitrary because a mere difference of opinion between AAAR members leaves the applicant remediless, defeating the object of the advance ruling mechanism.

Respondent's Arguments

  • The Union of India submitted that "consideration" under Section 2(31) of the CGST Act includes any payment made or to be made, in money or otherwise, for the inducement of a supply, and Section 15(2)(b) specifically brings within value any amount the supplier is liable to pay but which has instead been incurred by the recipient.
  • A vehicle cannot ply without diesel; the contract could not be used to override the plain language of the valuation provisions and shift a statutory liability onto the recipient by private agreement.
  • The State of Chhattisgarh similarly submitted that since diesel is essential to plying the transport vehicle, its free-of-cost value cannot be excluded while computing the value of the GTA's supply under Section 15, and the arrangement amounted to an attempt at tax evasion.

Court Order/Findings

  • The Court held that the GTA's entire business survives on the vehicles running, and running the vehicles is entirely dependent on fuel; fuel is therefore an integral, inseparable component of the GTA's supply and cannot be carved out by private agreement.
  • Section 15(2)(b) of the CGST Act casts a statutory obligation to include, in the value of supply, any amount the supplier is liable to pay in relation to the supply but which has instead been incurred by the recipient — and this cannot be overridden by an agreement shifting the cost of diesel to the recipient.
  • The service-tax precedents relied on by the petitioner (Bhayana Builders, Intercontinental Consultants) were distinguished as turning on facts materially different from a GTA whose service is inherently and centrally dependent on fuel.
  • On Section 101(3), the Court declined to strike it down, noting a statutory appeal lies to the National Appellate Authority under Section 101-B, and that the Court could not direct the executive to notify that authority; absence of a functional forum did not by itself make the provision unconstitutional.
  • Since no ruling was rendered by the AAAR under Section 101(3), the Court held that the original AAR order dated 04.01.2021 stood revived, i.e., GST is leviable on FOC diesel.
  • Holding that no relief could be granted to the petitioner, the writ petition was dismissed.

Important Clarification

  • For a Goods Transport Agency, diesel supplied free of cost by the service recipient forms part of the value of the GTA's taxable supply under Section 15(2)(b) of the CGST Act, 2017, because fuel is an integral and indispensable component of the transportation service.
  • A private agreement between a GTA and its service recipient allocating the cost of fuel to the recipient cannot override the statutory valuation mechanism; parties cannot contract out of a charging provision.
  • Precedents under the service tax regime holding that free supplies by a recipient are not includible in taxable value (Bhayana Builders, Intercontinental Consultants) were distinguished and held inapplicable to a GTA whose business is structurally dependent on fuel.
  • Where AAAR members differ and no ruling is issued under Section 101(3) of the CGST Act, the original AAR order revives and continues to bind the applicant, absent a functional National Appellate Authority under Section 101-B.

Sections Involved

  • Section 7 of the CGST Act, 2017 — defines "scope of supply", including all forms of supply made or agreed to be made for consideration in the course or furtherance of business.
  • Section 9 of the CGST Act, 2017 — the charging section levying GST on intra-State supplies on the value determined under Section 15.
  • Section 15 of the CGST Act, 2017 — governs valuation of taxable supply, including under clause 15(2)(b) amounts the supplier is liable to pay but which have been incurred by the recipient.
  • Sections 97 and 101(3) of the CGST Act, 2017 — govern applications for advance ruling and the consequence (no ruling) where AAAR members differ in opinion.
  • Section 101-B of the CGST Act, 2017 — provides for an appeal to the National Appellate Authority against conflicting AAAR rulings.
  • Notification No.12/2017-Central Tax (Rate) — defines "goods transport agency" for GST exemption/reverse-charge purposes.

Decision – In Favour of

The writ petition was dismissed. The Court held that GST is leviable on diesel supplied free of cost by the service recipient to the GTA petitioner, and the challenge to the vires of Section 101(3) of the CGST Act was also rejected. The decision is squarely in favour of the Department/Revenue.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Chhattisgarh, Bilaspur
  • Case No.: WPT No.117 of 2022
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Goutam Bhaduri and Hon'ble Mr. Justice Sachin Singh Rajput
  • Decision Date: 17.10.2023
  • Disposal Nature: Petition disposed of (constitutional/AAR challenge) — dismissed

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