Diesel not under GST but taxable at 18% as part of composite service

By Subhash Narayan

New Delhi: Cost of diesel incurred as part of a composite service will attract GST even though the fuel itself has not been included under the new indirect tax system, it has been held.

In a significant order, the Karnataka bench of Authority for Advance Ruling (AAR) has ruled that the cost of the diesel incurred for running diesel generator (DG) sets in the course of providing DG rental service is nothing but additional consideration for the supply of DG sets on rent as per section 15 of the CGST/KGST Act and hence attracts 18 pet cent GST (CGST @9 per cent and KGST @ 9 per cent).

The order means that wherever use of diesel becomes a part of an overall service, and charges are applicable, the fuel would attract GST on the invoice value at 18 per cent.

Diesel along with petrol, natural gas, ATF and crude oil is still out of GST and the most these items still attract central excise and state VAT.

The AAR ruling came on an application filed by Goodwill Auto seeking clarity whether it is right to deduct tax on cost of diesel charged for running DG sets taken on contract by clients.

Goodwill is engaged in the business of leasing of DG sets to customers like LIC of India, Syndicate Bank, and SBI in various districts of Karnataka. Along with charging fixed rent for installing DG sets, the company got reimbursement of diesel cost from its use in running the generators on an hourly basis.

Goodwill charged GST on both the services of providing DG sets on hire and reimbursement diesel charges. But one of its clients, LIC, refused to pay GST on diesel reimbursement, citing the fuel was not the included under GST. It said that collection of GST on diesel reimbursement was erroneous and requested Goodwill to reimburse the wrongly collected taxes.

Goodwill sought clarification on the applicability of tax on such payments and the AAR said that the entity was right to charge GST on reimbursement even for an item singularly out of the GST framework but forming a significant part of composite service.

(Subhash Narayan can be contacted at [email protected])