‘CONSIDERATION’ IN DRAFT GST ACT, 2016

GST Update 14.01.2016

GST DAILY DOSE OF UPDATION:-

‘CONSIDERATION’ IN DRAFT GST ACT, 2016:-

Section 2(20) defines consideration in relation to the supply of goods and/or services to any person, 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 and/or services, whether by the person or any other person;
(b) The monetary value of any act or forbearance, whether or not voluntary, in respect of, in response to, or for the inducement of, the supply of goods and/or services, whether by the person or any other person:

Provided that a deposit, whether refundable or not, given in respect of the supply of goods and/or services shall not be considered as payment made for the supply unless the supplier applies the deposit as consideration for the supply.

It is worth observing that presently, the term consideration is not defined in the Central Excise Laws but is defined in section 67 of the Finance Act, 1994. As per Service Tax Laws, consideration includes any amount that is payable for the taxable services provided or to be provided and includes any reimbursable expenditure or cost incurred by the service provider and charged in the course of providing or agreeing to provide taxable service. It is also pertinent to note that there has been a long litigation as regards inclusion of the value of reimbursable expenditure in the value of taxable services. The Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 stipulating that reimbursement expenditure is to be treated as consideration for taxable service was recently quashed by the Hon’ble Delhi High Court in the case of INTERCONTINENTAL CONSULTANTS & TECHNOCRAFTS PVT. LTD. VERSUS UNION OF INDIA [2013 (29) S.T.R. 9 (DEL)] as ultra vires the provisions of section 67 of the Finance Act, 1994. However, in order to nullify the decision of Delhi High Court, the government came up with amendment in the meaning of consideration given under section 67 with effect from 14.05.2015 so as to specifically include reimbursable expenditure within its ambit. It is submitted that inspite of the fact that consideration includes ‘any amount’ payable for taxable services, the reimbursable expenditure was specifically mentioned in the meaning of consideration. If we pursue the defination of consideration proposed in the Draft GST Act, 2016, it is found that any type of payment is covered in it. Accordingly, whether reimburseable expenditure incurred will also form part of consideration will be again a matter of dispute.

Furthermore, the amount received in respect to forbearance is specifically included in the defination of consideration thereby meaning that GST will be levied even on the act of tolerance or forbearance as is specifically declared service on which service tax is payable currently.

Moreover, the proviso to the defination specifically excludes all kinds of deposits, whether refundable or not, from the ambit of consideration unless the deposit is utilised against consideration for the supply. This is appreciable from trade and industry as in the past there has been lot of litigation as regards inclusion of notional value of interest on deposits given by the buyers/service recipients to the manufacturers/service providers. For example- in case of renting of immovable property, acceptance of security deposits are common feature to secure against possible damages to the property by the tenant. In Excise Laws also, deposits are received from the buyers to indemnify manufacturers against any possible losses on account of non-delivery of goods by the buyers. It was contended by the revenue authorities that notional interest on the deposits is included in the transaction value/taxable value of services. However, the issue was finally settled by the Supreme Court decision in the case of COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III VERSUS I.S.P.L. INDUSTRIES LTD. [2003 (154) E.L.T. 3 (S.C.)] wherein it was concluded that the notional interest is not to be included in assessable value of goods unless and until it is brought notice that the deposit has influenced the price of goods. In simple words, if it is evidenced that there is different price if deposit is given and higher price if no deposit is given by the buyer, it is only in that situation that the notional interest would be includible in the assessable value of goods. However, in the draft GST Act, 2016 deposit is excluded from the ambit of consideration but nothing is specified about the notional interest.

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GST Update 14.01.2016

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