In Re: M/s. Sanghvi Movers Limited
GST
2018 (10) TMI 1242 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2018 (18) G. S. T. L. 340 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 15-6-2018
GST-ARA-43/2017-18/B-50
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Sanghvi Movers Limited, the applicant, seeking an advance ruling in respect of the following questions on:
1. Based on the facts and business model adopted by Sanghvi Movers Limited (“SMV or “Applicant” or “the Company”) under the GST regime as discussed below in detail, whether movement of tyre mounted cranes or crawler cranes from o
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to “supply” as per clarification issued by the CREC vide Circular No. 21/ 21/ 2017 – CGST read with Circular No. 1/1/2017 – IGST?
4. If the transaction stated above in question 1 is liable to tax, whether GST would be payable Only on the movement of tyre-mounted cranes being goods on wheels or GST would also be payable on movement of both types of cranes (i.e. tyre-mounted cranes and crawler cranes)?
5. What should be the value under section 15 of the Central Goods and Services Tax Act, 2017 (CGST Act) and the rules made thereunder for discharging applicable GST on movement of cranes from one GST registered office to another registered office in case the said movement is considered to be a taxable supply?
6. 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 refe
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tc., whenever a crane is given on rent. SML has a large fleet of more than 400 cranes ranging from 40 MT to 800 MT lifting capacity. All cranes have been imported from various countries such as USA, Germany, Japan, Singapore, China, etc.
3. SML owns two types of cranes, viz.
i) Crawler cranes (they are fitted with crawler tracks/ chain belts, as seen on military tanks). These cranes cannot be plied on normal roads, and therefore, do not require any registration from the Regional Transport Office (RTO).
ii) Tyre-mounted hydraulic cranes ply on the road and require RTO registration.
4. The cost of these cranes is significantly high and their average economic life ranges from 25 to 35 years. These cranes are moved/ transported on trailers, from one location to another, in knock down condition.
5. As the movement of cranes involves significant time and cost, SML has set up various branches (“SML branch offices”) across India at strategic locations to minimize transportation time and c
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ted in different States are treated as distinct person and any supply of taxable goods/ services between distinct persons with or without consideration, is subject to applicable GST. Thus, under GST, Inter-State branch transactions involving services have been brought under the ambit of tax. As a result, SML had to relook at its existing business model and the way it undertakes transactions both internally and externally with customers.
9. In order to comply with the provisions of GST law and ensure operational feasibility, SML has modified its business model. SML Maharashtra has entered into a formal service arrangement with all SML branch offices by entering into a Memorandum of Understanding (MOU), Wherein SML Maharashtra has agreed to provide cranes and crane components to all SML branch offices on hire charges. As part of the service arrangement, whenever SML branch offices receive a final work order from their customers for providing cranes on hire charges, the said SML branch o
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m respective SMI„ branch offices, SML Maharashtra transports the crane and its components to the customer's location/ project location on the instructions of SML branch offices.
14. For brevity and clarity of facts, an illustration of the transaction flow involved is provided below.
15. For each type of crane given on hire charges, the crane operator maintains a separate monthly log sheet at the customer/ project location, wherein the daily and hourly details of crane usage and idle time are maintained, based on which the monthly service invoice is raised by SML branch offices on respective customers. Further, an invoice from SML Maharashtra is issued to the SML branch office and the value considered for levying GST is approximately 95% of the value charged to the customer by the SML branch, following the principle under Rule 28 of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”) read with section 15 of CGST Act.
16. In most cases, cranes are moved from one GS
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etween all the SML branches documenting service arrangement and consideration for such services. Accordingly, SML Maharashtra and SML branch offices have agreed to formally enter into a service agreement through an MOU, whereby SML Maharashtra shall provide different types of cranes and crane components to all SML branch offices on hire charges as per the requirement of each SML branch office.
19. The ownership and title of cranes and crane components shall vest with SML Maharashtra, However, as and when any SMK, branch offices receive the final work order from their customers for supply of crane on hire charges, the said crane shall be provided by SML Maharashtra to SML branch offices for further sub-hiring purpose.
Method of invoicing- As per the monthly log sheet, SML branch offices raise invoices on their respective customers and on the basis of the same, SML Maharashtra in turn raises taxable invoice on the respective SML branch offices.
Valuation adoptedSML Maharashtra recover
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ther, as per Rule 37 of the CGST Rules, 2017, in case of supplies made between distinct persons as specified under section 25(4) of the CGST Act, it shall be deemed that the payment has been made and no input tax credit reversal is required to be made for non-payment of consideration. Hence, the recipient SML branch offices can avail credit of IGST charged by SML Maharashtra on the value of hire charges charged on the invoice.
Clarification issued under Circular NO. 21/ 21/ 2017-CGST read with Circular No. 1/1/2017-IGST
23. The GST Council in its 23rd meeting held on 10 November, 2017 clarified that inter-State movement of goods like rigs, tools, spares and goods on wheels like cranes, not being in the course of furtherance of supply of such goods, does not constitute supply. This clarification was issued to give major compliance relief to industry, as there are frequent inter-State movement of such kind in the course of providing services to customers or for the purposes of getting
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eration shall be liable to tax and applicable GST is required to be paid on the value of such transactions.
26. In the leasing industry, capital goods such as cranes are generally moved from one state to another between various branch offices of the same legal entity for providing the said capital goods on hire or for undertaking repairs and maintenance work. However, as a result of the afore stated provisions under the GST, each and every movement of such capital goods between distinct persons was subject to tax i.e., the movement of goods between inter-State branch offices was being subjected to tax, thereby, causing undue hardship and compliance burden to the leasing industry.
27. Hence, to provide consequential relief to the leasing industry in general, the Central Government vide the aforesaid Circular has clarified that only such movement of goods that would be further supplied by way of sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be m
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ny”) under the GST regime as discussed below in detail, whether movement of tyre mounted cranes or crawler cranes from one GST registered office of SML to another registered office of SML for further supply on hire charges to -customers would be treated as '”taxable supply” under GST law or whether GST would not be leviable on the said movement as per the clarification issued by the CBEC vide Circular No. 21/21/2017-CGST read with Circular No. – IGST?
Answer: – As per section 24(1) (i) of the CGST act, persons making any inter-state taxable supply shall be compulsorily required to be registered under the CGST Act. As per section of the CGST Act, supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by person in the course or furtherance of business. per section 25(4) Of the CGST Act, a person who has obtained or is required to obtain more than One r
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rders from unrelated customers, such movement shall be treated as separate supply of service provided by SML Maharashtra to SML branch offices.
As per my opinion, the movement of cranes from one GST registered office to another branch office of M/s Sanghvi Movers Ltd for further supply on hire charges to customers is treated as “taxable supply” under GST.
Qu. 2. In the present situation and under the given facts, if GST is payable on the aforesaid transaction, whether the recipient office of SML duly registered under GST receiving such cranes for further supply on hire charges would be eligible to avail input tax credit of GST charged?
Answer: – As per section 16(2) of the CGST Act, a registered person shall be entitled to avail credit of any input tax in respect of any supply of goods or services or both to him subject to fulfilment of the following conditions:
a. Possession of tax invoice or debit note issued by registered supplier; and
b. Receipt of goods or services; and
c. T
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?
Answer:- As per Circular No. 21/21/2017- CGST read with Circular No. 1/1/2017-IGST , inter-state movement of goods on wheels such as cranes between distinct person as specified in section 25(4) of the CGST Act, is not leviable to IGST if the cranes are moved for internal use for carrying any goods, or for repairs and maintenance, etc., except in cases where such movement is for further supply of the said cranes on hire charges.
Further, the registered branch office proving the upkeepment and maintenance service, charges consideration for the same from SML Maharashtra and levies applicable GST on the same. Thus, as the activity of upkeepment and maintenance is already taxed by SML branch offices, the movement of cranes from One registered branch office to another for undertaking repairs and maintenance activity should not be liable to tax under GST, as it would result in double taxation of a single transaction.
As the cranes are moved from one GST registered office to another for u
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t, 2017 (CGST Act) and the rules made thereunder for discharging applicable GST on movement of cranes from one GST registered office to another registered office in case the said movement is considered to be a taxable supply?
Answer :- Section 15- The value of a supply of goods or service or both shall be the transaction value, which is the price actually paid or payable for the said supply Of goods or service or both where the supplier and the recipient are not related and the price is the sole consideration for the supply.
The value of supply include- any taxes, duties, cases, fees and charges levied under any law for the time.
As per my opinion, in such a case of supply of Goods and services between deemed district persons, the value of goods or services determined as open market value,
04. HEARING
The case was taken up for preliminary hearing on DT. 10.04.2018, with respect to admission or rejection of the application when Sh. Nitin Vijaivergia, C.A. along with Sh. Vipin Bang
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1ZX with effect from July 2017. SML is engaged in the business of providing medium-sized heavy-duty cranes on rental/ lease/hire basis to its clients without transferring the right to use the cranes. SML has pan-India presence and cranes are deployed across India as per the requirements of customers. Its head office ('SML HO Maharashtra') is located in Pune, Maharashtra. SML operated these cranes on wet lease basis (own operate and maintain) and provides the entire operation crew, such as crane operators, riggers, helpers, mechanicals, engineers, etc., whenever a crane is given on rent. SML owns two types of cranes namely crawler cranes and Tyre-mounted hydraulic cranes.
Applicant has stated in details about the goods involved in this transaction but what is significant for present purpose is to understand the business model. As per the model as reproduced in vertabum above applicants Branch offices at different locations negotiate with the customer for supply of cranes on hire ch
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work order the SML HO transports the crane and its components to the customer's location/ project location on the instruction of SML branch office. This type of transaction constitute core business of the applicant. However, in some cases, the crane is moved from one registered branch office to another registered branch office for temporary unkeepment and maintenance purpose. In any case, however, the ownership and title to the crane vests with HO.
Whenever crane moves from SML HO to SML branch office for further supply on hire, the invoice is issued by SML HO to SML branch office and the value considered For levying GST is approximately 95% of the value charged to customer by the branch. Whereas when crane move from one registered location to another registered location for upkeepment and maintenance activity the respective branch office providing such services levies charges on H.O. along with applicable rate of GST.
ON this factual matrix we have been called upon to answer the
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s of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule l, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),-
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,
shell be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions o
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ent of full consideration as agreed, is a supply of goods.
2. Land and Building
(a) any lease, tenancy, easement, licence to occupy land is a supply of services;
(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
3. Treatment or process
Any treatment or process which is applied to another person's goods is a supply of services.
4. Transfer of business assets
(a) where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person;
(b) where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person
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equired, by the competent authority or after its first occupation, whichever is earlier.
Explanation.-For the purposes of this clause-
(1) the expression “competent authority” means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:-
(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; (20 of 1972.) or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
(2) the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;
(d) development, design, p
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ion or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
From the co-joint reading of section 7 and schedule – II applicant's activity of providing crane on hire is nothing but transfer of right in cranes without the transfer of title thereof and is therefore a is supply of services.
The next issue raised by the applicant for our consideration is under claim that all the branches located in different state are of single legal person and as such the movement of crane for supply on hire from HO in Maharashtra to branch office in another state would not be leviable to under the GST as per the clarification issued by CBEC vide circular No. 21/21/2017-GST r/w Circular No. 01/01/2017.
As per general understanding, the HO and branches of one legal entity have no separate existence. However as per section25 (4) of the GST where a person who has obtained or is required to obtain more than one registration, each such registration is treated as
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n 7 of the GST Act.
Further we find that this supply is not exempt from tax under the GST Act and hence is a taxable supply.
In this case, undisputedly the supply is between two different taxable territory meaning thereby between two states and as per section 7 (3) the of IGST Act, the supply is in the course of interstate trade or commerce. And as per section 5 (1) of the IGST Act said interstate supply is taxable under the provisions of the IGST in the hand of the applicant. Therefore, we conclude that in the present case supply of cranes, cranes components and trailers on lease/ hire charges by the SML HO to SML branches in TN and other state constitute interstate taxable supply of service between two distinct person and liable to pay tax under the provisions of IGST Act.
Further we find that the issue of IGST exemption on interstate movement of various modes of conveyance between two distinct person as specified in Section 25(4) of the GST Act, 2017 for carrying goods or passeng
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may be, is leviable on repairs and maintenance done for such goods.
It appears from the first circular 1/1/2017-IGST that it is applicable to interstate movement of various modes of conveyance, carrying goods or passenger or for repairs and maintenance of such conveyance. By second circular 21/21/2017-GST, the benefit of the first circular was extended to rigs, tools and spares, and all goods on wheel. [like crane]
In view of these two circulars we have to ascertain whether the clarification is applicable to the facts of the case i.e. cranes supplied/provided by the applicant namely crawler cranes (they are fitted with crawler tracks/chain belts, as seen on military tanks) and Tyre mounted hydraulic cranes that ply on road. Applicant's case is covered by second circular and as per this circular what is exempted is all goods on wheel [like crane]. As regards Tyre mounted crane there shall be no doubt as said crane are on wheel. The issue before us is whether the crawler crane is
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'all goods on wheel [like crane] mentioned in the second circular as both types of cranes – Tyre mounted cranes and crawler cranes are used to perform same kind of work i.e. mechanical direction job.
As per the said circular interstate movement of cranes except in cases where movement of such good is for further supply of same goods, shall be treated 'neither supply of goods or supply of service. The reliance by the applicant on this circular to claim interstate movement of cranes as exempt from levy of IGST is misplaced as the cranes moves form SML HO Maharashtra to SML branch in another state for further supply of same cranes. For above deliberation we conclude that IGST would be leviable on the interstate movement of both type of cranes from SML HO to SML branch offices registered in another state for further supply on hire charges to customer and thus the circular 21/21/2017-IGST is not applicable to the facts of the present transaction.
Que: 2 In the present situation a
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2017 – CGST read with Circular No. 1/1/ 2017 – IGST?
At the outset with regard to this question we consider only that interstate movement of tyre mounted crane or crawler crane wherein the crane is moved from registered office of SML in the state of Maharashtra to another registered office of SML in other state and the movement iss solely for the purpose of upkeepment and maintenance purpose and not for further supply of the crane on hire charges. We find that the situation as mentioned above is squarely covered by the clarification issued by Tax Research Unit vide circular no. 21/21/2017- GST DT. 22nd November, 2017. As such the interstate movement of cranes is neither a supply of goods nor supply of services and consequently no IGST would be applicable on such movement. However, tax is leviable on repairs and maintenance done for such goods.
Que: 4 If the transaction stated above in question 1 is liable to tax, whether GST would be payable only on the movement of tyre-mounted crane
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Section 25(4) and Schedule I of the GST Act. As per section 25(4) of the GST Act, as mentioned above, the SML HO and SML Branches are distinct persons for the purpose of this Act and as per schedule-I supply even if made without any consideration between two distinct persons as specified in section 25(4) is also supply when made in the course or furtherance of business.
Applicant has explained the method of invoicing in his submissions. As per the method SML branch office on the basis of monthly log sheet raise invoices on their respective customer and on the basis of same, SML Maharashtra that is applicant in turn raises taxable invoice on the respective SML branch offices. SML Maharashtra recovers hire charges equivalent to 95% of hire charges recovered by SML branch offices from their respective customers. Applicant discharges GST as applicable on the said 95% value. On this factual matrix we have been called upon to answer the impugned question. As per section 15 of the GST Act,
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f section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-
(a) be the open market value of such supply;
(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:
Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:
Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.
In the present transaction of supply we find that value consider
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ion 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA-43/2017-18/B-50
Mumbai, dt. 15/06/2018
For reasons as discussed in the body of the order, the question is answered thus
Question 1. Based on the facts and business model adopted by Sanghvi Movers Limited (“SML” or “Applicant” or “the Company') under the GST regime as discussed below in detail, whether movement of tyre mounted cranes or crawler cranes from one GST registered office of SML to another registered office of SML for further supply on hire charges to customers would be treated as “taxable supply” under GST law or whether GST would not be leviable on the said movement as per the clarification issued by the CBEC vide Circular No. 21/ 21/ 2017- CGST read with Circular No. 1/ 1/ 2017 – IGST?
Answer: – Answered in Affirmative, Further circular No.2i/21/2017- IGST which exempts from tax interstate movement of rigs, tools, spares, and al! goods on wheels [
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as “taxable supply” under the GST law or can it be said that it would not tantamount to “supply” as per clarification issued by the CBEC vide Circular No. 21/ 21/ 2017- CGST read with Circular No. i/ i/ 2017 – IGST?
Answer: – Answered in the negative. The impugned movement as per circular 21/21/2017-GST would be neither as a supply of goods nor supply of service. However, taxis leviable on repairs and maintenance done for such goods.
Question 4. If the transaction stated above in question 1 is liable to tax, whether GST would be payable only on the movement of lyre-mounted cranes being goods on wheels or GST would also be payable on movement of both types of cranes (i.e. tyre-mounted cranes and crawler cranes)?
Answer: – GST would be payable on the movement of both type of cranes i.e. tyre mounted cranes and crawler cranes.
Question 5. What should be the value under section 15 of the Central Goods and Services Tax Act, 2017 (CGST Äct) and the rules made thereunder for dischar
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