Levy of GST- In the instant case, the applicant is an association of over 4000 Small Holder Farmers in North Kerala.

 The applicant had requested an advance ruling on the following-

1. Whether the applicant an association of farmers, engaged in supply of agricultural produce through concept of fair trade, is liable to pay GST on component of “Fair Trade Premium”.?

2. Whether the component of ‘Fair Trade Premium’ constitutes consideration or additional consideration for supply of goods made by the applicant?

3. Whether component of ‘Fair Trade Premium’ can be treated as an ex gratia payment which is not liable for GST either as supply of goods or as supply of services?

The applicant submits that they focus on issues of sustainable farming and trade justice. The intention is to enable farmers to access the global and pan Indian markets and improve their income following principles of ‘‘Fair Trade”.

The stages of the transaction as revealed from the submissions made by the applicant are as follows; The starling point of the transaction is the procurement of agricultural produce from the farmers. The goods are procured by the applicant from farmers at the fair trade minimum price; i.e., as per the price applicable for products involved in the fair trade scheme. According to the applicant, the price paid is almost invariably above the market price. The second stage of the transaction is that the goods procured in the first stage are sold in the aggregate to the buyer/exporter by the applicant. As per the applicant, the amount at which the buyer/exporter is purchasing is also above the market value. The buyer/exporter is further exporting the products by raising an invoice to the buyer abroad for a price that is inclusive of the Fair Trade Premium at the percentage prescribed for each product.

The definition of the term consideration is inclusive which not only includes the payment received by the supplier in relation to the supply from the recipient but also from any other person. The Fair Trade Premium is calculated as a percentage of the volume of produce sold. The amount of premium farmers receive differs from product to product and across regions. The statement of facts in the instant case reveals that the applicant receives the fair trade premium from the recipient of supply itself and fair trade premium has a clear nexus with the supply of goods as it is determined/calculated as a prescribed percentage of the volume/quantity of each produce/commodity sold and it is collected from the ultimate consumer as a component of the price of the product itself. Therefore, the fair trade premium received by the applicant is nothing but part of the price that is actually paid/received in response to the supply of the goods made by the applicant and invariably constitutes an additional consideration received in respect of the supply of goods and is to be added to the taxable value of the respective goods supplied and liable to GST at the same rate as applicable to the goods supplied.

the applicant has stated that before GST under the VAT regime, the question of whether the Fair Trade Premium is to be added to the turnover of the applicant had come up before the Deputy Commissioner (Appeals), KVAT and the Appellate Authority by Order dated 24.07.2019 held that the component of Fair Trade Premium does not form part of the turnover of the applicant. The order of the appellate authority pertains to the interpretation and applicability of Explanation VII of clause 1(ii) of Section 2 of the KVAT Act and hence is not relevant to this issue given the definition of consideration and the provisions of Section 15 of the CGST Act governing the value of taxable supply.

Held that- The Fair Trade Premium forms part of the consideration and value of taxable supply of the goods supplied and the applicant is liable to pay GST on the same rate as the rate applicable to the respective goods supplied.

The Fair Trade Premium forms part of the consideration for the goods supplied.