Question

XYZ (Client from Delhi) had entered in to a Contract with PQR (a chartered accountant from Mumbai) to carry out audit of their records. As per the contract, the amount payable by XYZ to PQR towards professional fees will be Rs.100000/- + the amount to be paid towards hotel stay, air fare etc. which will be directly paid by XYZ to hotel and the airlines. PQR is required to pay GST on Rs.100000/- only or Rs.100000/- + amount paid by XYZ towards hotel stay, air fare etc. directly to the hotel and the airlines?

Answer

Law: As per Section 15(2)(b)
The value of supply shall include-
any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

Interpretation: The liability of supplier is a question of fact. And as per the given fact of the contract, hotel charges were to be incurred by the service receiver that is XYZ Co. Therefore this is not a case of "liability of supplier" being paid by receiver. Rather, receiver has merely paid the liability of himself.
Conclusion: Since the above case does not fall under the ambit of Section 15(2)(b) therefore hotel charges are not includible for the purpose of valuation of supply.

Note: If however the contract says that the hotel charges were to be incurred by the CA. PQR then this is a liability of supplier paid by the receiver and hence includible in the value of supply as per section 15(2)(b). (Reply dt.09/03/2019)