The High Court of Andhra Pradesh has cancelled a GST demand order that was charged on the value of materials like cement and certain additives that service recipients supplied for free to a corporation that produces ready-mix concrete.
The bench of Justice Cheekati Manavendranath Roy and Justice Tuhin Kumar Gedela has mentioned that such free-issue materials cannot be added to the taxable value of supply, as no consideration is levied for them.
The M/s. Balaji Ready Mix Concrete, a partnership firm is in supplying site-mix/ready-mix concrete at project sites in Krishna District, has submitted a writ petition. The firm had executed contracts for M/s. BGR Energy Systems Limited and M/s. RVR Projects Private Limited, under which particular key inputs, cement, admixture, and waterproofing materials were furnished via the contractees free of cost. The applicant had paid the cost for other parts along with operational costs.
During GST filing on its outward supplies, the applicant excluded the value of the free-issue materials. The Joint Commissioner (Central Tax), Guntur, ministered this exclusion as undervaluation and passed an order on 27 March 2023 charging GST of 3.56 crore on the notional value of such materials.
The issue before the Court was whether the value of materials supplied free of cost via the service receiver, and used in manufacturing ready-mix concrete, can be included in the taxable value under the Central Goods and Services Tax Act, 2017.
A Division Bench, including Justice Cheekati Manavendranath Roy and Justice Tuhin Kumar Gedela, said that it was undisputed that the materials were supplied with no cost by the contractees. Through Circular No. 47/21/2018-GST, the Central Board of Indirect Taxes and Customs (CBIC) specified that the value of moulds, dies, or similar inputs supplied free of cost by an original equipment manufacturer to a component manufacturer cannot be added to the value of supply. The principle is applicable to other free-issue inputs that are important for manufacturing.
The Bench relied on settled jurisprudence, including the Supreme Court’s rulings in Supreme Court of Indiadecisions such as Commissioner of Service Tax v. Bhayana Builders (P) Ltd. and Union of India v. Intercontinental Consultants and Technocrafts Pvt. Ltd., which kept that goods or materials supplied free of cost by service recipients cannot be included in the gross amount charged for valuation of taxable services.
The HC, holding the impugned demand rebellious to law, quashed the order of the Joint Commissioner (CT), Guntur.
The court directed a GST refund of 15% of the disputed amount deposited by the applicant as per an interim order dated 6 May 2024 and closed all pending interlocutory applications, with no order as to costs.
| Case Title | M/s. Balaji Ready Mix Concrete vs. Union of India |
| Case No. | Writ Petition No.11644 of 2023 |
| Counsel for the Petitioner | Dr M.V.K. Moorthy, Mr M.V.J.K. Kumar |
| Counsel for the Respondent | Mr B.V.S. Chalapathi Rao |
| Andhra Pradesh High Court | Read Order |
