2019 (3) TMI 435 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – TMI – Valuation – inclusion of amortized cost of the tools in assessable value – tools are supplied by the customer free of cost and used by the Appellant in the manufacture of the components – Section 15 of the CGST Act read with Rule 27 of CGST Rules – challenge to AAR decision – Held that:- Under the erstwhile Central Excise regime, Rule 6 of the Central Excise Valuation Rules, 2000 required an assessee to calculate the intrinsic value of the excisable goods by including any additional consideration flowing directly or indirectly from the buyer to the assessee – Under the GST regime of taxation, the taxable event which attracts the levy of GST is the ‘supply’ of goods or services, in terms of Section 9 of the CGST (and SGST) Act or Section 5 of the IGST Act, depending on whether the transaction of ‘supply’ is intrastate or interstate.
–
In so far as the valuation of the supply is concerned, Section 15 of th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ng that there is uninterrupted supply of their parts. While the first priority is that the supplier should use the DICV Owned Tools for the manufacture of the component parts, there is also the possibility that Non-DICV Owned Tools can also be used for the manufacture of parts for the customer. In the event of the second possibility, the customer, DICV takes ownership of the Non-DICV Owned Tools by way of a security only with the objective of ensuring that the supply of their parts by the Appellant is uninterrupted. In the event there is an interruption in delivery of manufactured components using the Non-DICV Owned Tools, then the customer, DICV, has the right to demand the surrender of the tools and reimburse the Appellant the percentage of the tool cost which has not been amortized. On perusal of the contract, it is understood that, in the case Non- DICV Owned Tools are used in the manufacture of the components, the price agreed upon includes the amortized cost of the Non-DICV Owned
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ions; therefore; unless a mention is particularly made to such a dissimilar provision, a reference to the CGST Act would also mean a reference to the corresponding similar provisions under the KGST Act. The present appeal has been filed under section 100 of the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST Act ) by M/s. Nash Industries (I) Private Limited, (herein after referred to as the Appellant ) against the Advance Ruling No. NO. KAR ADRG 24/2018 dated 25th October 2018 = 2018 (11) TMI 607 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA. BRIEF FACTS OF THE CASE 1. M/s. Nash Industries (I) Private Limited is registered under GST with GSTIN No. 29AADCN9558Q1ZC and is a manufacturer of sheet metal pressed components and supplies to industrial customers like Automotive, Banking Hardware, Power Protection, Alternate Energy etc. The tools required to manufacture these components were designed and
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e CGST/KGST Act,2017. 4. Aggrieved by the said ruling of the Authority, the applicant has filed an appeal under section 100 of the CGST Act, 2017 / KGST Act, 2017 on the following grounds: 4.1. The appellant submitted that the purchase order provided by the recipient/customer is only for the manufacture of components out of the tools supplied by the recipient at free of cost. 4.2. Further, the appellant submitted that the CBIC vide Circular No.47/21/2018-GST dated 08.06.2018 has clarified the position regarding amortization of tool cost supplied free of cost by the customer, to the value of components manufactured by the component manufacturer, The relevant extract of the circular is provided 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. MouIds and dies owned by the origina
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
d component manufacturer was for supply of components made by using the moulds/dies belonging to the Component manufacturer, but the same have been supplied by the OEM to the component 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 4.3. They submitted that the above circular covers two situations, which are as follows: a. The value of the moulds and dies owned by the original equipment manufacturer (OEM) which are provided to a 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. b. The contract between OEM and component manufacturer was for supply of components made by using the
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
t of the tool is required to be added only if the tool is belonging to the component manufacturer (Appellant). In the present case, the owner of the tool is the recipient / customer and hence the cost of tool is not required to be added to the price of the component; that the scope of the Appellant s activity is limited to manufacture and supply of components; that, the burden of supply of tools is on the customer and not on the Appellant. Therefore, the tool supplied by the customer at free of cost is not required to be added to the cost of components manufactured by the Appellant. 4.6. The appellant drew attention to the provisions of Section 15 of CGST/KGST Act,2017 and submitted that there is no amount which was liable to be paid by the Appellant but incurred by the recipient. Instead the agreement between the Appellant and the customer is only for manufacture and supply of components and not to manufacture the tool. That being the case, the cost of the tool is not be included in t
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ubmissions before this Authority wherein they stated that the Maharashtra Authority for Advance Ruling in the case of Lear Automotive India Private Ltd had passed a ruling GST-ARA-19/2018-19/B-80 dated 31.07.2018 = 2018 (12) TMI 766 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA on the same issue i.e. whether amortized value of the tool received on FOC basis from the customer is required to be included in the value of finished goods manufactured and supplied by the applicant to the customer. The Maharashtra AAR had based on the facts and circumstances of the case before them, held in the negative. Relying on the above said order they submitted that the same is also applicable in their case. During the personal hearing, this Authority asked for the details of the terms of the contract between the Appellant and their customer to be furnished in order to understand each party s obligations. The representative agreed to submit it in due course. 6. The Appellant through their representative Ch
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
n flowing directly or indirectly from the buyer to the assessee. In other words, since excise duty was levied on the activity of manufacture, any activity which was contributing to the manufacturing activity was included in the assessable value irrespective of the fact as to who owned the inputs and capital goods. In view of the same, the Appellant was amortizing the value of such tools supplied by their customers free of charge and was including the same in the assessable value of the final goods for discharging applicable Central Excise duty. With the advent of GST with effect from 1st July 2017, a provision similar to the erstwhile Rule 6 of the Valuation Rules does not exist thereby warranting the question whether, under the GST regime, the value of the tool cost is required to be amortized. 10. Under the GST regime of taxation, the taxable event which attracts the levy of GST is the supply of goods or services, in terms of Section 9 of the CGST (and SGST) Act or Section 5 of the I
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
n value which is the price paid or payable by the recipient provided the supplier and recipient are unrelated parties and price is the sole consideration for the supply. Further Section of the said Act specifically states that where any amount which the supplier is liable to pay in relation to a supply but the same has been incurred by the recipient on behalf of the supplier, then such amount is required to be added while determining the transaction value. 11. In the present case, there is no dispute on the fact that the Appellant and their customers are not related parties. We need to examine whether the price paid by the customers is the sole consideration for the supply made by the Appellant. For this purpose, it is necessary to understand the contractual arrangement between the Appellant and their customers to see whether the scope of the supply mandates that, the Appellant is to incur a cost for the manufacture and use of the tool but the same has been supplied by the customer fre
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
er has been performed Supplier must hand over the tooling to Buyer following fulfillment of the Purchase Order if so requested by Buyer. 13. The Daimler India Special Terms (DIST) are a set of rules governing the supply arrangement between DICV and the Appellant. The DIST forms an integral part of the contract along with the General Terms and Conditions of DICV for the purchase of products that are specifically mentioned in the purchase contract. The relevant provisions of the DIST relating to tools are reproduced hereunder: 1.4. With regard to tools, a distinction must be made between tools which are or will become the property of DICV (hereinafter DICV Owned Tools ) and tools which are not the property of DICV (hereinafter Non-DICV Owned Tools ) To ensure the aforementioned distinction is made appropriately, DICV Asset Accounting team will provide Asset Identification Tags to the supplier, which should be affixed in the most appropriate place of DICV Owned Tools. Regardless of owners
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
lowing terms of maintenance. The supplier must ensure constant defect-free functional capacity and readiness of the tools during their use within the framework of the supply contract with DICV for the purpose of uninterrupted delivery to DICV by means of continuous maintenance and repair at its own expense. 2.5 In the event where changes in DICV s technical specifications require any modifications to the tools, the supplier must submit a prior written offer to DICV to modify the tools with the least possible expenditure. 2.6 The supplier must clearly and permanently identify those tools which are DICV Owned Tools as the property Of DICV. 2.8 At the end of delivery or termination of contractual relationship with the supplier, the supplier shall return the tools to DICV in the condition to be expected following fulfillment of the supplier s duties arising from these DIST. 3. Insofar as Non-DICV Owned are concerned, DICV shall Obtain ownership of the existing and subsequent tools by way o
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ourse of the development of the Tool will be transferred to DICV. The Appellant is entitled to keep the tool in his premises only as a temporary possession until the completion of the supply of components manufactured using the tool. During the course of temporary possession of the tools owned by DICV, the Appellant is required to affix Asset Identification Tags on the DICV Owned Tools in order to identity the DICV owned tool. On completion of the contractual relationship, the Appellant is required to return the tools to DICV. In so far as Non-DICV Owned Tools are concerned, the terms of the contract state that in order to ensure uninterrupted supply of parts, DICV obtain ownership of the existing and subsequent tools by way of security. Thus it is evident that, in this case, the customer, DICV, has assumed the responsibility to provide the tools to the Appellant in the interest of ensuring that there is uninterrupted supply of their parts. While the first priority is that the supplier
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
by OEM that are provided to a component manufacturer on FOC basis do not constitute a supply as there is no consideration and in such cases, the value of goods provided on FOC basis shall not be added to the value of supply of components. However, in case the contractual obligation is cast upon the component manufacturer to provide moulds/dies but the same have been provided by the OEM on FOC basis, then the amortized cost of the moulds/dies is required to be added to the value of the components supplied. In the present case, the terms and conditions of the contract between the OEM DICV and the Appellant clearly indicate that no such obligation is cast on the Appellant. The OEM has taken the responsibility to provide the tools. In a case where the tools are developed and manufactured by the Appellant according to the requirements of the customer (DICV), then the total cost of the tools is borne by DICV and the title of the tools transfers to DICV, while the Appellant is allowed to reta
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =