GST update No 175 on treatment of escalation in the value of service

Under GST Law, valuation of supply primarily revolves around the transaction value as defined u/s 15 of CGST Act, 2017 wherein supplier and recipient are not related to each other and price is the sole consideration. The Government has prescribed various inclusions and exclusions in the transaction value so as determine the value of supply. However, till date there is no clarity in the minds of taxpayers as regards certain inclusions and exclusions. The issue regarding inclusion of escalated value for the purpose of levy of GST was raised before Maharashtra AAR in the case of B. P. SANGLE CONSTRUCTIONS PVT. LTD. The analysis of the decision is subject matter of our present update. The applicant has been awarded a tender from NHAI for construction of road. There is a clause in tender mentioning the fact that the contract price shall increase or decrease as per the formula provided in the tender notice. The escalated value shall be recovered from NHAI. The applicant sought a question as to whether the escalated value shall be included in the transaction value and GST shall be levied thereon? The applicant interpreted that as per Section 15 of CGST Act, 2017, the value includes escalated value which is recovered from NHAI and same is further added to the contract price. It was submitted that prior to introduction of GST, exemption was available under service tax on activity to construct road for public vide S. No. 13(a) of Notification 25/2012-ST dated 20.06.2012. Therefore, when the contract was awarded only Maharashtra VAT was levied @5% amounting to Rs. 3,13,85,623.79 & taxable value of Rs. 62,77,12,475.88. The learned DR contended that since the activity was initiated post introduction of GST, it shall be included in transaction value. The AAR observed that although the contract was entered into erstwhile CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??4 GST regime, however, since the activity of construction started post introduction of GST, it was held that GST shall be applicable in the current case. Furthermore, as per Section 15 of CGST Act, 20017, escalated value shall be liable to be added to contract price and GST shall be paid thereon. The advance ruling has appropriately interpreted the valuation provisions contained in section 15 of the CGST Act, 2017 wherein it has been stated that the price actually paid or payable for the supply of goods or services or both shall be treated as value of goods or services. As the construction activity was started post introduction of GST, the escalation was liable to be added in the contract price. It is worth mentioning over here that the primary intention of creating AAR is to remove all the ambiguities existing in the law and to put an end to unwanted litigations existing in the Court. Although, the above AAR is in favour of revenue, the provisions have been correctly interpreted.

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GST update No 175 on treatment of escalation in the value of service

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