2018 (11) TMI 607 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA – 2018 (19) G. S. T. L. 162 (A. A. R. – GST) – Valuation of goods supplied – inclusion of amortised cost of the tool in assessable value – Held that:- The transaction value carried out at an arms length, constitutes the value of supply. Further, Section 15(2) of the CGST Act provides for the inclusion of several other related / relevant amounts in the value of taxable supply.
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There is no scope of any dispute in this situation about the fact that the cost of the tools is an essential element to be included in the cost of the component finally supplied by the applicant. This is also because without the tools the final component could not have been manufactured.
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Ruling:- The amortised cost of tools which are re-supplied back to the applicant free of cost shall be added to the value of the components while calculating the value of the components supplied as per the Section 15 of the CGST / SGST / IGST Act 2017. – AAR
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ed cost of the tool to be added to arrive at the value of the goods supplied for the purpose of GST under Section 15 of the CGST Act read with rule 27 of CGST Rules. 3. The applicant furnishes some facts relevant to the stated activity: a. The applicant states that he is in the business of manufacturing Sheet Metal Pressed Components and caters to various industries, ATM, printers etc, and is having multi-locational facilities in and around Bangalore. b. He states that the earlier Central Excise Valuation Rules has similar provisions and it was held that the cost of amortization of the tool was to be added to the value of the goods removed for the purpose of payment of Excise duty. He has also submitted that he had tweeted to GST and it was replied as includible. This reply from the jurisdictional Assistant Commissioner of Central Tax asked to refer to the provisions of section 15 read with rule 27 of the CGST law. However, he stated that the customers are of the view that the amortiza
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mponents were manufactured based on the drawing of the customer. To manufacture these components, the tools were designed and manufactured by the applicant. Such manufactured tools were billed to the customer, even though the tools are retained by the applicant for the manufacture of components. The payment was received by the applicant for the tool. e. He has stated that there are umpteen judgements of the Tribunal and Hon ble Courts, wherein it is held that the moulds, tools, jigs, fixtures supplied free of cost or captively consumed are to be treated as additional money consideration to arrive at the value of excisable goods. In other words, the cost of amortization of the tools, jigs, fixtures, moulds, etc are to the added to arrive at the transaction value on which the Central Excise is paid. He has quoted section 15 of the CGST / SGST Act and rule 27 of the CGST / SGST Rules which reads as under: Section 15 (2) The value of supply shall include:- (a) . . . . . . . (b) Any amount
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ent is includible. He states that had the supplier procured it from outside, the cost of the tool would have formed part of the value of supply of the component. As per clause (b) of sub-section 2 of section 15, if the tool is provided free of cost to the supplier, the amortised cost of the tool would have formed part of the taxable supply. (f) The applicant submitted that the components supplied to the recipient are tailor made (or made as per the specifications of the customer) and hence are not available in the open market and so there is no open market value of such supply.. In such case, recourse is to be taken to the sub-rule (b) of Rule 27 of the CGST / SGST Rules, according to which: Value of taxable supply = consideration in money + Amount equivalent to consideration not in money. He added that his customers paid the invoice value including excise duty on the amortised cost of the value of the tools under the erstwhile Central Excise Law. However, the same customers are not pa
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t becomes the owner of such tools. 4.2 Later the recipient gives the tool free of cost to the applicant and the applicant uses the same for the manufacture of the components. Section 7(1) of CGST Act 2017 stipulates that Supply shall be made for a consideration. Therefore, consideration is an essential element in supply. However Section 7(1)(c) specifies that the activities described in Schedule I shall be considered as Supply even if there is no consideration involved. Schedule I lists out four such activities which shall amount to Supply even if such an activity is carried out without any consideration. In the instant case the tools are business assets in the hands of the recipient as the applicant has raised invoices towards their manufacture / supply and received the due consideration from the recipient. Therefore entry number 1 of Schedule I is the closest entry to the issue at hand. As the tools are supplied by the recipient to the applicant for the limited purpose of manufacture
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e consider Section 15(2)(b) of CGST Act 2017 to be relevant to the facts of this case and analyze the same. 4.4 Section 15(2)(b) of the CGST Act 2017 reads as follows: 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 In the instant case the applicant and the recipient enter into an agreement where the applicant is required to supply certain components. These components require specialized tools for their manufacture. The tools could be either manufactured by the applicant himself or they could get it manufactured by someone else or the recipient could supply them free of cost. In case the applicant procures the tools from a third party, then they would incur a cost and the cost could be included in the value of taxable supply to the recipient. There is no scope of any dispute in this situation about the fact that the
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