2018 (12) TMI 766 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – TMI – Valuation – includibility – inclusion of amortized value of the tool received on FOC basis from the customer in assessable value – CBEC circular No. 47/21/2018-GST dated 08/06/2018 – Held that:- The goods owned by the OEM that are provided to a component manufacturer on FOC basis do not constitute supply as there is no consideration. The Board further clarified that the value of goods provided on FOC basis shall not be added to the value of supply of components. However, the case is different where the contractual obligation is cast upon the component manufacturer to provide moulds/ dies but the same have been supplied by OEM on FOC basis and in such cases, the amortised cost of such moulds and dies shall be added to the value of supply of component.
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Once it is established that the obligation to provide tools on FOC basis is on the customer then the question of adding the amortised value of tools supplied by t
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basis from the customer is required to be included in the value of finished goods manufactured and supplied by the applicant to the customer? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION – AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- Statement of relevant facts having a bearing on the question on which advance ruling is required. 1. Lear Automotive India Pvt. Ltd. (hereinafter referred to as Applicant) is having its office at E-25,26 & 27, MIDC Bhosari, P
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he said tool gets transferred from third party manufacturer to the Applicant and from the Applicant to the customer. Though the property in tool gets transferred to the customer eventually, the possession remains with the Applicant and it uses the same to manufacture the products as per the requirement of the customers. 5. There are also cases where customers direct the Applicant to procure specific part from a third-party manufacturer. For manufacture of the said tool, the customers give tooling advance to the said third-party manufacturer. Thereafter, the tool is developed and invoice is raised on the customer. The third-party manufacturer manufactures parts by using above tools and supplies the said parts to the Applicant. The Applicant makes the payment to third party manufacturer for components supplied. In above scenario, the third-party manufacturer may include Tool amortization value in components supplied to the Applicant. 6. There is a further possibility that the customers p
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such tools supplied/ provided by the customers on FOC basis and was including the Same in the assessable value of the final goods for discharging applicable Central Excise Duty. 10. However, w.e.f. 1st July 2017, Central Goods and Service Tax Act, 2017 (hereinafter referred to as CGST Act ) has replaced the erstwhile Central Excise Regulations and does not include any pari-materia provision, similar to Rule 6 of Central Excise Valuation Rules, 2000. 11. Under the aforesaid circumstances, the Applicant seeks the present advance ruling to understand whether the amortized value of the tool cost needs to be added to the value of the final goods supplied to the customers under the GST laws. Statement containing applicant s interpretation of law and/or facts, as the case may be, in respect of question(s) on which advance ruling is required. 2. Question requiring advance ruling. 2.1. This advance ruling is sought to ascertain whether the amortized value of the tool cost which are provided/ su
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vendors at the behest of the customers, are squarely covered under the definition of supply defined under Section 7 as there is supply for a consideration, which is undertaken in the course or furtherance of business. 3.4. In so far as the valuation of the supply of final goods is concerned, the erstwhile Central Excise regime under Rule 6 of Central Excise Valuation Rules, 2000 required adoption of intrinsic value as the excise duty was levied on the activity of manufacture and whatsoever activity was contributing to the said manufacturing activity was included in the assessable value irrespective of the fact as to who owned the inputs and capital goods. 3.5. However, under CGST Act, Section 15 governs valuation of the supply, which in pertinent part provides as under: 15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipie
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to the supplier is the sole consideration, it is necessary to refer to the definition of the term consideration. 3.9. In this regard, the term consideration has been defined under Section 2(31) of the CGST Act, to mean any payment (in money or otherwise) or monetary value of any act or forbearance which is made in respect of, in response to or for the inducement of supply. Such consideration can flow from the recipient of supply or any other person and it could be either monetary or non-monetary consideration. Further to the above, the supply and the payment of consideration thereof must have reciprocity with each other. In other words, the term consideration means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee. 3.10. Reading of the above sections indicates that the transaction value agreed between the parties is only relevant for purposes of GST. However, in terms of Section of the Act, if any amount
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purposes of GST 3.13. In the present case, the Applicant and its customers are not related parties. The only question which requires examination is whether price paid by the customers is the sole consideration for the supply of parts made by the Applicant. In this regard, providing of the tool which is in the domain of the receiver of the supply as per the contractual terms cannot said to be non-monetary consideration provided by the receiver of the supply to the provider of the supply since upon paying the tool development charges, the customers are not incurring any expenses, which the Applicant was liable to incur. Further, the ownership in the tool remains with the customers and the development of tool was always meant to be borne by the customers. Thus, Section 15(2)(b) of the CGST Act 2017 will not be applicable in the facts of the present case and the value of the supply of final goods should be based on transaction value as provided under Section 15(1) of the CGST Act 2017. 3.1
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e final components sold by the vendor to the customer as the cost of the same has been incurred by the customer and not the vendor. The Hon ble Apex Court further held that the amortization cost calculated in terms of Rule 6 of Central Excise Rules cannot be included for the purposes of taxation under Section 3 of the U.P. Sales Tax Act as there is no law or provision to that effect under the U.P Sales Tax Act. The Hon ble Apex Court held as under in this regard: …..Therefore, when excise law seeks to tax the value, the concept therein cannot be bodily lifted and incorporated in Section 3 of the U.P. Trade Tax Act, 1948, which essentially deals with ascertainment of the price-structure depending upon the negotiations between the parties. Moreover, the effect of clause (ii) of Explanation 1 to Rule 6 of Excise Valuation Rules, 2000 is that where any tools or dies or moulds are supplied by the buyer free of charge or at a reduced costs for use in connection with production of the
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use (ii) of Explanation 1 to Rule 6 read with Section 4(1)(b). The important thing to be noted is that this entire exercise of loading/adding to the transaction value is exclusively for determination of assessable value for central excise purposes and to fulfill the requirement of Section 4 which provides for measure for levy of excise duty. To the same effect is our judgment in the case of CoC v. Ferodo India Pvt. Ltd. vide Civil Appeal No. 8426/02 = 2008 (2) TMI 12 – SUPREME COURT under Rule 9(1)(c) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, which also refers to the addition of the cost of royalty payment to the transaction value. Therefore, Rule 6 of Excise Valuation Rules, 2000 creates the deeming fiction only for the purposes of Section 4(1)(b) of the 1944 Act and for laying down the measure for levy of excise duty. It provides for items which constitute additional consideration. There is no such provision in Section 3 of the 1948 Act. Therefore,
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uct, particularly when there is no law to that effect. 21. Accordingly, we hold that the High Court had erred in holding that the amortization cost calculated in terms of Rule 6 of the Excise Valuation Rules, 2000 is includible in the sale price of auto components sold by the appellant herein to its customer, M/s Honda Siel Cars India Ltd. …..Emphasis Supplied 3.16. It is submitted that the current GST provisions are aligned with the VAT/ Sales Tax Regulations as existed in as much as the assessable value is a transaction value agreed between the parties barring few specific instances which are not the subject matter of present case. Hence the law laid down by the Hon ble Supreme Court in the above said case would squarely applicable in the present case. 3.17. In terms of above judgment of Hon ble Apex Court and the applicable provisions of CGST Act and the Rules made thereunder, the amortized value of the tool should not be added to the value of the final goods as there is no s
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) which defines the value of supply as under: The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply ….. Emphasis supplied A.2 A close reading of the afore-stated provision provides that the value of supply is the price which is actually paid or payable for the supply of goods or services or both between two non-related persons. Further, such price paid or payable should be the sole consideration for the value of supply. In the present fact scenario, the Applicant and its customers agree to a certain price before placing the purchase order on the Applicant and such price is the only consideration that the Applicant is entitled to receive for the goods supplied by it. A.3 Further Section 15(2) of the CGST Act enlists the things which are to
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ideration for any supply; and e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. Explanation. For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. …..Emphasis supplied A.4 Clause (b) of the above section lays down that any such amount which the supplier is liable to pay in relation to the supply but if the same is incurred by the recipient of the supply then such amount will be includable in the value of the supply. It is pertinent to note here that the amount to be included in the value of the supply is only such an amount which the supplier was liable to pay but the same was incurred by the recipient of the supply. A.5 To substantiate the position of the Applicant, reliance is placed upon a sample agreement (Agreement dated 01.08.2015 between Mahindra & Mahindra and Applicant) (attached herewith as Annexure-I) entere
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cant also places reliance upon the purchase order raised by the one of the Applicant s customer i.e. Mahindra & Mahindra (attached herewith as Annexure-2) wherein para 16 of the terms & conditions of the purchase order reads as under: Any raw material or components, if given to you as vendor aid on no charge basis to enable you to execute this order/contract/scheduling agreement will remain our property without any title in your favour. You will not hypothecate such material with any bank or agency. The cost of material spoilt by you over and above the permissible wastage allowed by us will be debited to you. In the event of rejection due to defective castings, forging or partly processed material given by us we will pay you for the actual operations carried out by you on defective material after taking into account identical reciprocal percentage allowance towards defective material supplied by us as the permissible wastage allowance given to you a quarterly statement, showing
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p for any future use. In any case, the Applicant submits that even if it bears the cost of the tools at the start of the assignment the same is charged back to the customer only. Therefore, the tools that are provided by the customer on FOC basis to the Applicant are not includible in the value of the goods supplied by the Applicant. A.10 The above view of the Applicant is further supported by the recent Circular No.47/21/2018-GST dated 08.06.2018 issued by the CBIC. The relevant extract of the circular is reproduced below: Sl.No. Issue Clarification 1 Whether moulds and dies owned by Original Equipment Manufacturers (OEM) that are sent free of cost (FOC) to a component manufacturer is leviable to tax and whether OEMs are required to reverse input tax credit in this case? 1.1 Moulds and dies owned by the original equipment manufacturer (OEM) which are provided to a component manufacturer (the two not being related persons or distinct persons) on FOC basis does not constitute a supply a
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ponent manufacturer on FOC basis, the amortised cost of such moulds/dies shall be added to the value of the components. In such cases, the OEM will be required to reverse the credit availed on such moulds/ dies, as the same will not be considered to be provided by OEM to the component manufacturer in the course or furtherance of the former s business. A.11 Thus, the circular refers to the situation where the recipient gives moulds, jigs etc. on free of cost basis to the supplier who uses such moulds, jigs etc. to manufacture and supply the finished goods to the recipient of supply does not constitute a supply under GST since no consideration is charged by the recipient for the moulds, jigs etc. A.12 Further the Circular also clarifies that value of usage of moulds, jigs etc. (given on FOC basis) shall not be factored or amortized in the value of supply in a situation where the contract stipulates that the recipient of supply shall supply moulds, jigs etc. which would be used by the sup
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t AIR 2013 SC 434 = 2012 (12) TMI 1170 – SUPREME COURT OF INDIA the concept of business efficacy was explained as under: The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce intended results. The classic test of business efficacy was proposed by Lord Justice Bowen in The Moorcock (1889) 14 PD 64. This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied – the bare minimum to achieve this goal. If the contract makes business sense without the term, the courts will not imply the same. A.15 Hence, if the contract between the parties is not clear or the same is ambiguous, then certain terms
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pany Ltd. v. Manubhai Dharmasinhbhai Gajera and Ors., reported at AIR 2009 SC 461 = 2008 (5) TMI 686 – SUPREME COURT citing the case of Shirlaw v. Southern Foundries (1926) Ltd. [1939] 2 K.B. 206, it was observed as under: Prima facie that which in any contract is left to be implied and need not be something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious by stander were to suggest some express provision for it in their agreement, they would testily suppress him with a common Oh ofcourse! . A.17 Therefore, even though the contract between the Applicant and the Customer would not expressly states the provision to provide the goods on FOC basis, however, it can be inferred from the principle concept of business efficacy that the intent of the parties is that the tools shall be provided by the customer only and the responsibility of providing the tools does not lie with the Applicant. The legislature intends to exclude the val
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t the above provision proposed to include the value of goods which had been supplied FOC in the value of supply under the GST laws. However, the above provision had been reworded/ changed when the CGST Act was enacted. This highlights the intention of the legislature to purposefully omit the aforesaid provision from the CGST Act so as to not include the value of goods which have been supplied FOC by the recipient of the suppl. Further, the subsequent change that was made focused on the fact that only such amount which was to be incurred by the supplier but was borne by the recipient of the supply will be included in the value of the supply. Therefore, it is very clearly established that the legislature only intends to include such amounts which are to be borne or agreed to be borne by the supplier and therefore form a part of the consideration to be received by the supplier. The legislature clearly does not want to include the FOC supply of goods in the value of the supply. A.20 In thi
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gislature chose to reword the provision as it existed under the Model GST and deleted the requirement to include FOC supply in the value of the goods then it is necessary to subscribe to the legislature s intent and not read into words which are not there. A.22 Reliance is further placed upon the case of CIT, Delhi v. National Raj Traders, reported at AIR 1980 SC 485 = 1979 (11) TMI 2 – SUPREME COURT, wherein it has been held that as per the principle of casus omissus, omissions cannot be supplied by the Court except in the case of clear necessity and when reason for it found in the four corners of the statute itself. A.23 Therefore, it is submitted that since the requirement for inclusion of goods supplied on FOC basis in the value of supply has been expressly omitted by the legislature itself DI therefore, the same cannot be inferred into the statute unless an arbitrary position is created within the statute. In light of the above, the Applicant submits that the value of tools suppli
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ral Excise Act, 1944 read with Rule 6 of the erstwhile Valuation Rules. However, a provision similar to the erstwhile Rule 6 of the Valuation Rules does not exist under the present value added tax-based regime. A.26 It is pertinent to note here that the erstwhile sales tax regime was also a value added tax regime similar to the present GST law. In fact, under the erstwhile sales tax regime, the states denoted the tax levied by them as VAT in light of the nature of such tax. Similarly, GST is also a value added tax and has been modelled on the VAT based regime. The idea of GST was first mooted by the Kelkar Task Force in 2003 which suggested the introduction of GST on the principles of VAT. Therefore, the erstwhile sales tax regime and the present GST regime being founded on similar principles, Supreme Court decision passed in respect of the sales tax laws is directly applicable to the facts of the present application. A.27 The Applicant in this regard places reliance upon the case of M
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e it to manufacture automobile components. The Sales tax department issued notice to the appellant was called upon to show cause why amortization cost in respect of toolings and moulds should not be taxed under Section 3 of the UP Trade Tax Act, 1948. Subsequently, tax was imposed on the amortization cost on the ground that sale price of the auto components should be the same both for purposes of Central Excise Act, 1944 and for UP Trade Tax Act, 1948. The basic issue in the above case was whether Section 4 of the 1944 Act read with Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 ( Excise Valuation Rules 2000 ) can be read into Section 3 of the UP Trade Tax Act, 1948. A.29 The Hon ble Supreme Court held that valuation is matter of principle. Under Section 4 of the 1944 Act, the basis for valuation is the transaction value for each removal. Section 4 lays down the method of arriving at the assessable value of for levying excise duty. The Ho
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s a self-contained code for levy of tax on the sale or purchase of goods in Uttar Pradesh. It is leviable on the act of sale, whether actual or deemed for a consideration. On the other hand, excise duty is leviable on the event of manufacture and it is calculated on the value of manufactured goods. Further excise duty is independent of ownership. However, for sales tax what is to be taken into consideration is the consideration for transfer of property from seller to buyer and thus manufacture is irrelevant. As a result, goods supplied free of cost though included in the Excise law regime could not be identically included in the sales tax regime provided the differences between both the forms of taxation. The relevant portion of the above-referred case has already been relied upon by the Applicant in its application and the same is not being repeated here for the sake of brevity. A.31 Further, owing to the difference in the excise law under the previous regime and the existing GST regi
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ioner of Service Tax v. Bhayana Builders (P) Ltd. reported at 2018 (10) G.S.T.L 118 (SC) = 2018 (2) TMI 1325 – SUPREME COURT OF INDIA wherein the issue before the Apex Court was whether the goods and/or services supplied free by a service recipient and used for providing the taxable service of construction would be included in the computation of the gross amount, for valuation of taxable service. It was held that the value of the goods and the materials supplied free of cost by a service recipient to the provider of the taxable construction service would be outside the taxable value or gross amount charged as such amounts did not accrue to the benefit of the service provider, being neither monetary or non-monetary consideration paid or flowing from the service recipient. In paragraph 16 of the aforesaid judgment it was observed as under: 16. … ….. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The se
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die Engineer ('Eddie') agrees to supply services to Mountain Miners ('Mountain') at a rate of $100 per hour. Under the agreement, Eddie must perform the services on Mountain's premises in Melbourne. Mountain agrees to allow Eddie to use its computer facilities, stationery and safety equipment on Mountain's premises to perform the services. Mountain also agrees to fly Eddie to Melbourne and provide accommodation and meals during the period Eddie performs the services. There is monetary consideration for Eddie's services ($100 per hour). The provision of the use of computer facilities, stationery and safety equipment and the transport, accommodation and meals is not part of the price paid for the services as it is not a payment or of value to Eddie in return for his services. They are rather conditions of the contract that go to defining the supply made by Eddie, and are used in providing the services, rather than being supplied to Eddie in return for the serv
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the output supply by the provider (which might be a condition to the contract and used in providing output supply), however, the same is not accrued to the benefit of supplier, would not amount to non-monetary consideration. However, supplies made by the recipient, consumed by the provider at its own will and accrued to the benefit of supplier, beyond providing supplies to the recipient, can amount to nonmonetary consideration. GSTR 200176 provides further clarity with a factual example covering dependent goods and services. Dependent Services Large Ltd ( Large) outsources its accounting area to Fast & Friendly Accounting Pty Ltd ( Fast). The agreement is on the basis that Large will provide the premises and equipment that Fast needs to perform the services. Fast is to use the premises and equipment only for the purpose of performing the services for Large. Fast acknowledges in the agreement that the amount it is charging for the services is reduced to take account of the fact that
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to non-monetary consideration, based on the direct nexus test. B.6 The tools that are supplied by the customer hold no value in the hands of the Applicant other than using the same for manufacture of the customer s seats. The tools that are supplied by the customer in any case customized to the customer s preference, thus, making it unusable for the Applicant in any Other goods. Thus, it cannot be said that the tools that are supplied by the customer in lieu of some consideration as the same hold no value in the hands of the Applicant except for the supply of goods to the said customer. B.7 The above example of Pretty Paint given under the aforesaid ruling is directly applicable to the present case. A similar position is established in our case, wherein the Customer is providing goods on FOC basis to the Applicant for the production of seats which is to be used by the Customer, thereby making it non-includable in the value of supply since no consideration is paid for it. C. If goods su
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to double taxation and the same is against the principles of the GST law. C.3 In the present case, the customers either procure the tools themselves and send to the Applicant or direct the Applicant to procure the same on their behalf. Such transactions wherein the tools are procured by the customer or the Applicant for the use in the manufacture of the final goods are already under the ambit of taxable supplies and the same have suffered the liability of tax. Further, after the tools reach the Applicant there is no value addition to the said tools and they are merely used for manufacturing the seats for the respective customer. In the absence of any value addition to the tools, if the value of the tools are further included in the value of the final supply of goods it would amount to double taxation in so far as the tools would have already suffered tax once. C.4 The Applicant has already explained in the aforesaid paras that the GST law is a value added tax regime and tax is levied o
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regard, the Applicant through its authorized representative made detailed submissions substantiating its case. Further, the Applicant also submitted a copy of written submissions before this Hon ble Authority in support of its contention. In light of the above fact, the Applicant now wishes to make certain additional submissions on merit apart from the submissions already made: 3. At the outset, the Applicant submits that the present additional submissions are being made in light of the specific queries/ points raised by the Hon ble Advance Ruling Authority during the course of the Personal hearing held on 1807.2018. The said queries/ points are reproduced below for reference: I. Who produced the tools as per the Annexure-I of the tooling agreement dated 10.02.2016 and also requested to produce a copy of the Agreement dated 26.05.2015 as mentioned in the above tooling agreement, II. Clarifications with respect to the ownership of the tools in light of the Circular No. 47/21/2018-GST da
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well as in written submissions dated 18.07.2018, the Applicant had drawn attention towards a sample agreement (Agreement dated 10.02.2016 between Mahindra & Mahindra and Applicant) (attached herewith as Annexure-1) entered into between the Applicant and its customer. B.2 In light of the discussion regarding the above-referred agreement, the Applicant wishes to further explain the transaction in detail to support its contention. Business transaction taking place in the present matter B.3 The Applicant humbly submits that the seats developed, manufactured and sold by the Applicant are highly customized products since every seat model that is produced by the Applicant is made as per the individual demands and requirements of the particular customer. The business practice adopted by the Applicant is totally reliant on the customer s needs as the products i.e. the seats/ seating systems have to be manufactured as per the specifications provided by the customer. The Applicant undertakes
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cant approached Mahindra & Mahindra Ltd. (hereinafter referred to as for production and improvement of their seats for the Bolero model. The Applicant s offer was accepted and confirmed by M&M vide their e-mail dated 26.05.2015 (A copy of the same is attached herewith as Annexure-2) (Please note that since the said email contains the actual agreed price between the Applicant and its customer and the same is a market sensitive information, the Applicant has blacked out the figures which denote the price to maintain confidentiality. Rest of the material details have been kept intact and only the figures have been hidden). B.6 In the above e-mail dated there are 8 types of tools that were ordered by M&M. In this scenario, while the Serial nos. I to 6 are crucial for the productions process and highly costly, therefore, the costs associated with the same is borne by M&M. The Applicant procures the tools from third-party vendors and uses the same in the production process an
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r it is an obligation on the Applicant to bear the tool cost (i.e. tool meant for manufacturing generic products and not specific products- as stated above), the value of the same has already been adjusted while calculating the sale price Of the component so manufactured by the Applicant. Once it is established that the Applicant had no obligation to use its own tool then the question of adding the amortized value of the tool supplied by the receiver of the supply of FOC basis does not arise. B.10 In any case, on the cost of repetition, it is submitted that the tool so procured by the Applicant and sold to M&M has already attracted applicable taxes and hence any proposal to add the amortized value of the tool would amount to double taxation which is purely against the spirit of the GST Legislation. C. Response to Query 2. Clarifications with respect to the ownership of the tools in light of the Circular No. 47/21/2018-GST dated 08.06.2018 issued by the CBIC C.1 In order to respond
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ility of the customer i.e. M&M to bear the cost of the tools or give the Applicant its own tools for the purpose of manufacturing products for M&M. The relevant portion of the said agreement reads as under: 1. PROVISION OF EQUIPMENT M&M hereby agrees to (pay the Toolcost for development & manufacture of toolings/ give the vendor its own _ (Dies, tools, jigs, fixtures, SPMs, etc.)] more particularly described in Annexure I attached hereto (hereinafter referred to as the Equipment ), for use by the Vendor, immediately upon the execution of this Agreement, and the Vendor hereby agrees to use the money for the Equipment for the said use. C.5 Thus, the customer has itself agreed to bear the cost of the tools and assumed the responsibility of providing the same either through the way of providing the funds for tools or providing the tools itself. Thus, the cost is borne by M&M itself and the same is thus supplied to the Applicant on FOC basis and the present case squarely
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, there is no question of including the value of the said tools in the value of the supply as under Section 15(2) of the CSGT Act. C.7 It is further submitted that in most of the cases, the Applicant gets the tool developed from the third party by involving its engineers and upon receipt of the tool and also ensuring that the tool is capable to manufacture the desired products, the same is sold to the OEM which is M&M in the present case. However, the physical possession of the tools remain with the Applicant as the tools are to be used in the manufacturing process. C.8 Thus, it is conclusive from the above facts that the tools, when used in the actual commercial production of the goods by Applicant, are actually owned by the customers. Therefore, since the ownership of the tools is with the receiver of the supply and the same is not in the scope of the supplier, the value of the said tools is not includable in the value of the supply. C.9 Attention in this regard is also invited t
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will be responsible for maintaining the required quality of the components produced from the above toolings. 7. The components produced from the above toolings will be sold to Mahindra & Mahindra Ltd. only. 8. You will assign all right to the representative of the Mahindra & Mahindra Ltd., to verify and confirm the condition of the above toolings at any point of time. 9. At the end of every financial year you will confirm in writing that, above toolings are lying at your end in good running condition & used for regular production. 10. Above mentioned toolings will be insured by you at your cost. 11. You have to pay excise duty on accessible value which should include normal excise duty for piece plus the excise on the tooling cost over its tool life. 12. Terms & Condition defined in detail in the tooling agreement made/ to be made separately will be applicable 13. Taxes extra as applicable, 14. All Other Terms & Conditions are mentioned in LOBA/ DSA (Development Sup
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y of the certificate dated 06.04.2016 is attached herewith as Annexure-7. C.12 From the above discussion, it is conclusive that when the tools are to be procured/developed by the Applicant the ownership is transferred and thus it cannot be said that the Applicant has used his own tools for the supply of goods. Additionally, in cases where the tools are supplied from the customer itself the ownership is with the customer by default. Therefore, the value of tools supplied FOC to the Applicant is not includable in the value of supply of seats by the Applicant since the ownership of the said tools are with the customer and the supply of such tools is not covered in the scope of the supplier. C.13 Further, the ownership of the said tools involved in the manufacturing process lies with the Original Equipment Manufacturers (OEM). The underlying intention behind assuming the ownership of the tools is two-fold. Firstly, the OEM s interest and the huge cost involved in the tools are safeguarded
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sly state the conditions or responsibility in respect of the provision of tools. In this regard, it is submitted that as a general principle of the principle of business efficacy a slight deviation from the plain meaning of the language of contract would be justified so as to the intention of the parties could be justified. In this regard, detailed submissions have already been made in submissions dated 18.07.2018 and the same are not being repeated here for the sake of brevity. C.15 Reliance in this regard is also placed upon the case of N.M. Goel and Company Vs. Sales Tax (officer, Rajnandgaon, [1988 (38) ELT 733 (SC)] = 1988 (10) TMI 106 – SUPREME COURT OF INDIA. In the above-mentioned case, the appellant company was a building contractor and a registered dealer under Madhya Pradesh General Sales Tax Act. The appellant company s tender, being an item rate tender, was accepted by CPWD for construction of godown and ancillary buildings. The tender so submitted included the prices of m
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at the materials provided by PWD for use in the performance of the contract and the value of the same was debited from the final bill and thus it was a sale which was inherent from the transaction in light of the clause 10. C.18 The Applicant submits that in the present case is not the case where the customer of the Applicant i.e. M&M has deducted any amount from the Applicant while making supply of the tool rather there exists a specific contract for the supply of tools and the same categorically states that the tools shall remain the property of the Customer. It is important to note that such an understanding is agreed from the very beginning. Further, the supply of tools does not in any way affect the price of the final goods, thus the same would not form a part of the value of taxable supply of goods in the present case. C.19 In light of the above, the Applicant submits that the present transactions are squarely covered by Serial No. (ii) of the Circular No. 47/21/2018-GST date
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s, however, the cost in both case is borne by the customer and it is the settled industry norm that it is always the responsibility of the customer to provide the same. The Applicant therefore submits that once there is no transaction handled by the Applicant wherein it uses its own tool (except the generic tools which are insignificant in the transaction and generally the said tools belong to the Applicant only and value of the said tool is inbuilt in the price charged from the customer), therefore it is not possible for the Applicant to provide any such comparison. D.3 It is therefore submitted that price charged to the customer for the finished products is not altered whether the tools are provided by the customer or procured by the Applicant and charged to the customer as in both the cases the property in the tool belongs to the customer only and the same is agreed well in advance as per the Industry norms. 03. CONTENTION – AS PER THE DEPARTMENTAL CONCERNED OFFICER- 2. M/s. Lear Au
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r (OEM) which are provided to a component manufacturer (the two not being related persons or distinct persons) on FOC basis does not constitute a supply as there is no consideration involved. Further, since the moulds and dies are provided on FOC basis by the OEM to the component manufacturer in the course or furtherance of his business, there is no requirement for reversal of input tax credit availed on such moulds and dies by the OEM. 1.2 It is further clarified that while calculating the value of the supply made by the component manufacturer, the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of such supply because the cost of moulds/dies was not to be incurred by the component manufacturer and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act for short). 1.3 However, if the contract between OEM and component manufacturer
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, C.A., duly authorized appeared and made contentions as per their ARA. Jurisdictional Officer Sh. AX. Jadhav, Suptt. Pune I Commissionerate appeared and stated that they have made written submissions. The final hearing was held on 18.07.2018, Sh. Sandeep Sachdeva, Advocate along with Sh, Arpit Chaturvedi, Advocate and Sh. Sanjay Bhalerao, Manager, Indirect Taxes appeared and made contentions as per their written submissions and application. It was requested to the applicant to clarify with documentary evidence as to who developed and manufactured the tools as given in Annexure-I for which payment is made by M & M as per agreement No. MOS/MM/F/16- Rev 02.01.08.2015 Dt.10th Feb, 2016. They were also requested to give detailed agreement dated 26th May, 2015 (LOBA date) for Bolero Sheets comfort improvement. They were also requested to give copies of agreement for manufacture of components wherein they provide their own tool to the vendor with relevant documentary evidence along with
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m or owned by them. 1. The Applicant submitted that it undertakes the design, development and the manufacture of such seats at its own manufacturing facilities. Since the seats and other related products manufactured by the Applicant are highly customized, the Applicant procures certain tools, moulds, dies, fixtures, jigs etc. on its own which are required for manufacturing the desired products. 2. Applicant submitted that the tools are manufactured from third party manufacturer as per the requirements of the customer. Thereafter the property in the said tool gets transferred from third party manufacturer to the Applicant and from the Applicant to the customer as per the agreed terms. Though the property in tool gets transferred to the customer eventually, the possession remains with the Applicant and it uses the same to manufacture the products as per the requirement of the customers. It is used in the production process and simultaneously charges the cost to the customer i.e. M&M
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OC) to a component manufacturer is leviable to tax and Whether OEMs are required to reverse input tax credit in this case? The issue was examined by CBEC and a clarification vide circular No. 47/21/2018-GAT dated 08/06/2018 has been issued in the matter. The relevant para is reproduced as below:- Sl.No. Issue Clarification 1 Whether moulds and dies owned by Original Equipment Manufacturers (OEM) that are sent free of cost (FOC) to a component manufacturer is leviable to tax and whether OEMs are required to reverse input tax credit in this case? 1.1 Moulds and dies owned by the original equipment manufacturer (OEM) which are provided to a component manufacturer (the two not being related persons or distinct persons) on FOC basis does not constitute a supply as there is no consideration involved. Further, since the moulds and dies are provided on FOC basis by the OEM to the component manufacturer in the course or furtherance of his business, there is no requirement for reversal of input
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be considered to be provided by OEM to the component manufacturer in the course or furtherance of the former s business. It is thus clear from the above clarification that goods owned by the OEM that are provided to a component manufacturer on FOC basis do not constitute supply as there is no consideration. The Board further clarified that the value of goods provided on FOC basis shall not be added to the value of supply of components. However, the case is different where the contractual obligation is cast upon the component manufacturer to provide moulds/ dies but the same have been supplied by OEM on FOC basis and in such cases, the amortised cost of such moulds and dies shall be added to the value of supply of component. Having regard to the clarification issued by the CBEC as mentioned above, and in the facts of the case we have to ascertain the contractual obligation to provide tools in terms of the contract executed between the applicant and the customer of the applicant. Once i
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the Vendor, immediately upon the execution of this Agreement and the Vendor hereby agrees to use the money for the Equipment for the said use. 2. Vendor s Warranties The Vendor warrants that till the Equipment is returned to Mahindra and Mahindra Ltd., it shall: i) Retain and maintain the Equipment, at all times, in its possession and control at its plant (disclosed and approved sub suppliers location) and not remove the same therefrom without prior written permission Of Mahindra and Mahindra Ltd. iii) Paint the Equipment with blue colour on all the edges of the top and bottom plates, for clear identification. The die number and supplier (Equipment manufacturer name) will be indicated in white/ yellow colour on the top plate from face. iii) Affix a nameplate or other mark on the Equipment identifying the sole and exclusive ownership of Mahindra and Mahindra Ltd. And not allow or permit the same to be removed or defaced; iv) Hold the Equipment as the agent of Mahindra and Mahindra Ltd.
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take all steps, action and proceedings as may be necessary and if so required by Mahindra and Mahindra Ltd (in short M&M). to receive any money payable in respect thereof under any insurance policies for the same for and on behalf of and in trust for M&M. The Vendor shall pay to M&M immediately any shortfall to make good the total quantum of damage to the Equipment less the amounts received by M&M from its insurance protection from the Equipment, without claiming any part thereof on any account whatsoever and generally give effectual receipt and discharge and act for and on behalf of M&M for the benefit and in trust for M&M may direct, from time to time. b) Notwithstanding anything contained in sub-section (a) hereinabove, M&M may, at its sole option, decide to apply the claim amount received from the insurance company in making good the damage. However, in the event of irreparable loss of damage to the Equipment, M&M shall be entitled to terminate this
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to repossess the Equipment at any time (whether or not the same or any part thereof shall have become affixed to the said land or building) and for that purpose, to enter upon such land or building and reclaim and repossess the equipment lying there at. 5. Taxes and Statements It is agreed between the parties that the transaction covered by this Agreement is not a sale liable to tax under the existing sales tax laws. If, however, by reason of any amendment of Central or State law or any interpretation of the transaction by the sales tax authorities, this transaction or any Input or material or the Equipment used or supplied in execution of or in connection with this Agreement is held to be liable to tax, the Vendor shall pay such tax immediately upon the same becoming payable and further indemnify and keep M&M indemnified in connection with all liabilities there against. 6. Consequences of Expiry/Termination a) Upon expiry or termination of this Agreement the Vendor shall forthwit
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ood working order and condition. 7. Relationship between the parties Nothing in this Agreement is to be construed to make either party a partner, as agent or legal representative of the other party for any purpose. Neither party has any right or authority to accept any service of process or to receive any notices on behalf of the other party or to enter into any commitments ,undertaking, or agreements purporting to obligate such other party in any way, or to amend, modify or vary any existing agreements to which such other party may be a party. From the scrutiny of the terms of the agreement we clearly see that the customer is liable to pay applicant the tool cost for development and manufacture of tooling. Accordingly applicant undertakes the design, development of tools. Applicant has categorically submitted that in most of the cases applicant gets the tool developed from the third party by involving its engineer. On receipt of the product from the third party same is sold to the OEM
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d are further supplied by the customer to the applicant for use in the process of the manufacture clearly indicate that the supply of tool is of goods owned by M&M and GM to appellant which is on FOC basis. And thus the transaction is not covered by the scope of section 15(2) which reads as under :- 15. Value of taxable supply. (1) – (2) The value of supply shall include (a) (b) 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; (c) – (d) – (e) – In view of above discussion we are of the opinion that the case of applicant is covered by para 1.1 and 1.2 of the circular referred above and not by para 1.3. 06. In view of the deliberations as held hereinabove, we pass an order as follows: ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.
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