Re: M/s Rashmi Hospitality Services Ltd (2019, Karnataka AAR)

RE: M/S RASHMI HOSPITALITY SERVICES LTD (2019, KARNATAKA AAR)

Whether the subsidy received from the state government would form part of consideration under section 2(31) of the Central Goods and Services Tax Act, 2017 (CGST Act)?

Subsidies are not part of consideration in the ordinary and commercial sense. A subsidy is financial assistance provided by the government to promote the public good. It is not payment made by a customer for goods or services.

M/s Rashmi Hospitality Services Ltd (the applicant) is a company that provides catering services.
The applicant entered into a contract with the Government of Karnataka to supply food and beverages in the premises of “Indira Canteen” in various districts in the state of Karnataka.
The applicant received a subsidy from the state government for the services provided.
The applicant sought an advance ruling from the Authority for Advance Ruling (AAR) in Karnataka on whether or not the subsidy received from the state government would form part of consideration under Section 2(31) of the CGST Act.

The subsidy received from the state government to promote the public good does not form part of consideration under section 2(31) of the Central Goods and Services Tax Act, 2017 (CGST Act).
The word "subsidy" in section 2(31) of the CGST Act should be interpreted in its ordinary and commercial sense, which means financial assistance provided by the government to promote the public good.
The subsidy received by the applicant was not part of the consideration received for the services provided, as the applicant would have provided the services even if the subsidy was not provided by the government.