Subsidies directly linked to supply other than Government subsidies :
Subsidies directly linked to the price excluding subsidies provided by the Central and State governments are includible in ‘value’ for charge of GST. Explanation.- The amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy – section 15(2)(e) of CGST Act.
This is also made clear in definition of ‘consideration’ in section 2(31) of CGST Act.
Subsidy payable to suppliers by person other than Government when part of sale price – In Ponni Sugar (Erode) Ltd. v. DCTO (2005) 142 STC 543 (SC), it was held that total amount of consideration, including other amounts which represent the expenses required for completing the sale are includible in taxable turnover, as the seller would ordinarily include all of them in the price at which he would sale the goods. In this
case, it was that transport charges for bringing sugar cane from factory to mills, incurred by mill owner, are includible in taxable turnover, as otherwise, the seller would be required to incur these expenses. This would be so even if the cane growers were to receive transport subsidy from the purchaser (sugar mill owner).
Any subsidy paid to suppliers or to others on behalf of suppliers to ensure scheduled delivery is component of selling price. These are not post sale expenses – EID Parry v. ACCT (2000) 2 SCC 321 = 2000 AIR SCW 86 = 117 STC 457 = AIR 2000 SC 551 [In this case, the sugar factory had paid planting subsidy to cane growers (suppliers) and transport subsidy to transporters. The cane growers were to give delivery at the factory gate. Hence, it was held that if the subsidy was not given, the suppliers would have to spend the amount and would have included these payments in the sale price].
Subsidy received from Government was not includible even earlier – In Neyveli Lignite v. CTO 124 STC 586 = (2001) 9 SCC 648 = 2001 AIR SCW 3917 (SC 3 member bench), it was held that subsidy received from Government of India under Fertilizer (Control) Order is not part of taxable turnover. It is de
hors the contract of sale with buyer. – followed in EID Parry v. ACCT (2002) 126 STC 112 (Mad HC DB) [reversing decision in Neyveli Lignite v. Dy CTO (1999) 115 STC 51 (TNTST), where it was held that fertilizer subsidy received by manufacturer from Government on basis of retention price is part of turnover and is taxable] – same view in Chengalvarayan Coop Sugar Mills v. State of Tamilnadu (1997) 105 STC 497 (Mad HC FB) * Indian Potash v. ACCT (2002) 128 STC 446 (Mad HC DB) * Fertiliser Corporation of India v. CTO (1991) 83 STC 129 (AP HC DB).
In COT v. Bongaigaon Refinery (1999) 114 STC 26 (Gau HC DB), it was held that subsidy received from oil pool account for difference between ex-factory price and retention price is not part of sale price. [single member bench decision in Bongaigaon Refinery v. COT (1996) 103 STC 132 (Gau HC) confirmed] – followed in Bongaigaon Refinery v. COT (2003) 131 STC 37 (Gau HC) – view confirmed in COT v.
Bongaigaon Refinery (2006) 147 STC 358 (SC).
In State of Punjab v. Morinda Cooperative Society (2012) 47 VST 54 (P&H HC DB), it was held that subsidy paid by State Government is not part of sale price and it not includible for purpose of sales tax.
Subsidy not connected with specific sale not includible – It may be noted that a general subsidy which is not specifically connected to sale of any specific goods will not be includible.
In Tisco General Office Recreation Club v. State of Bihar (2002) 126 STC 547 (SC), appellant, a dealer, was running canteen for employees of the company. The prices were below cost price. However, TISCO, without any statutory obligation, as a staff welfare measure, was making good the excess of expenditure over income. The subsidy was not relatable to any item of food. It was held that the lumpsum subsidy made exgratia cannot form part of sale price.