The subsidies which are furnished by the Central and State Government are excluded from the ‘Value of Supply.
Whereas all other subsidies which are precisely relevant to the price, are included in the ‘Value of supply’ to charge in the GST.
It is also made clear that the price of the subsidy will be calculated in value of the stock, who obtains it!
‘Consideration’ explanation in section 2(31) of CGST Act also states the same.
#1. Which subsidy is part of Sale price??
The subsidies paid by any person not by government:
In the case law of Ponni Sugar (Erode) Ltd. v. DCTO (2005) 142 STC 543 (SC), all the expenses that are incurred to complete the sale are included in the sale price like transportation charges, material cost etc. or we can say the charges which the seller would generally include in the price. In this case law, the transportation charges were borne by the recipient of goods and these charges will be included in the taxable turnover. All the above-mentioned expenses will be included in taxable turnover. This is type of subsidy received by the supplier by the any other person.
The subsidy received for the scheduled delivery is also the part of value of taxable goods and services as these are also not post sale expenses.
Subsidy is provided for all this to the supplier by the purchaser through the sale price of the good i.e. sale price is affected with these subsidies. These expenses are generally borne by the supplier at the time of selling the goods. Hence, if this subsidy is not taken by him from the purchaser then he has to bear all its cost. So, these subsidies are included in the value of taxable goods and services.
Example: A is a supplier of goods. K purchases goods from A worth Rs.1,00,000. The packing charges are borne by the K worth Rs. 20,000. The taxable turnover would be Rs.1,20,000 which will be charged to GST.
The subsidy related to specific sale:
The specific subsidies which are related to specific sale of any good or service are the part of taxable turnover. If a supplier receives any specific amount as subsidy for the sale of specific good then it would be the part of taxable turnover and will be charged to GST.
#2. Which subsidy is not part of Sale price??
The subsidy paid by government: The subsidies received by the supplier from the Central or State government is not the part of taxable turnover. As per the case law of Neyveli Lignite v. CTO 124 STC 586 = (2001) 9 SCC (648) = 2001 AIR SCW 3917 (SC 3 members’ bench), all the subsidies that are provided by the government to the supplier are not included in the sale price. In this case law, the subsidy was received for Fertilizers to the manufacturer by the government, it is not calculated in the taxable turnover.
The subsidy not related to specific sale: The general subsidies are never a part of taxable turnover. As per the case law, Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), all the subsidies that are not for any specific good are not included in the sale price. Like in this case law, in a company a person runs the canteen but his prices were even below then the cost price of the food item, so due to this company owner offered him the subsidy with the motive of doing welfare. That is why this subsidy will not be included because it is not related to any of the specific food items that he sales.