In Re: M/s. Nash Industries (I) Pvt. Ltd.
GST
2019 (3) TMI 435 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – 2019 (23) G. S. T. L. 367 (App. A. A. R. – GST), [2020] 73 G S.T.R. 308 (AAAR)
APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – AAAR
Dated:- 1-3-2019
KAR/AAAR/07/2018-19
GST
SRI D.P. NAGENDRAKUMAR, SRI SRIKAR M.S., MEMBER
PROCPEDINGS
(Under Section 101 of the Central Goods and Service Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the KGST Act are pari materia and have the same provisions in like matters, and differ from each other only on a few specific provisions; 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
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ion 98 of the CGST Act, 2017 and KGST Act, 2017 on the following question:
a. Whether the amortized cost of the tools is 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 Karnataka Authority for Advance Ruling, vide Advance Ruling No. NO. KAR ADRG 24/2018 dated 25th October 2018 = 2018 (11) TMI 607 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA. (hereinafter referred to as 'Impugned Order) gave the following 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 Section 15 of the 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 recip
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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 Service Tax Act, 2017 (CGST Act for short)
1.3. However, if the contract between OEM and 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/d
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ted that in the instant case,
a. The obligation of the supply of tools is on recipient/customer.
b. Accordingly, the owner of the tool is recipient /customers.
c. The recipient /customer provided the purchase order to appellant, wherein the scope is merely supply of components.
From the above it is evident that the present case falls under the first situation explained in the above circular. That means, the tool is owned by the OEM (Customer) and supplied at free of cost to appellant. Further, the purchase order is provided for supply of component. As the present case falls under first situation, the cost of the tool is not to be added to the price of component as per the clarification provided by the board.
4.5. Further, they submitted that the cost 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 add
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llected on the activity of the manufacture, whereas the levy of GST is on the supply of goods/services. Further, the scope of supply depends on the scope of the agreement and obligation of the supplier in the agreement. If there is no obligation on the supplier on any aspect, such aspect cannot be constituted as supply and also cannot be considered as value of supply.
4.8. In view of the above submissions, the Appellant pleaded that the ruling of the Authority for Advance Ruling is required to be modified.
Personal Hearing:
5. The Appellant was called for a personal hearing on 19.02.2019 and were represented by Shri. Rajesh Kumar T.R, Chartered Accountant. He reiterated the submissions made in the grounds of appeal. The representative also filed additional submissions 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
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with M/s Lear Automotive India Pvt Ltd along with supporting documents.
DISCUSSION AND FINDINGS
7. We have gone through the records of the case and taken into consideration the submissions made by the Appellant in writing and during the personal hearing and also the documents produced by them.
8. The short point for determination is whether the value of the components manufactured and supplied by the Appellant should include the cost of the tools which are supplied by the customer free of cost and used by the Appellant in the manufacture of the components.
9. 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. In other words, since excise duty was levied on the activity of manufacture, any activity which was contributing to the manufacturing activity was inclu
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ection 7 of the CGST Act which reads as under:
7. (1) For the purposes of this Act, the expression “supply” includes –
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, 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 I, 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.
In so far as the valuation of the supply is concerned, Section 15 of the CGST Act provides that the value of taxable supply shall be the transaction 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
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a Commercial Vehicles Pvt Ltd (DICV).
12. We have gone through the terms (General and Special terms) of the contract entered into between the Appellant and DICV. As per para 16 of the General Terms and Conditions of DICV for the purchase of products and spare parts, which form an integral part of the Contract between DICV and the Appellant, the Appellant is obligated to comply with the requirements of DICV's Special Terms pertaining to tooling. Para 16.2 reads that “If and to the extent the agreed total cost for an item of tooling has been paid by Buyer in full, title to such tooling and any and all IPR created in the course of the development of such tooling for buyer will immediately be transferred to Buyer. Supplier is entitled to keep the tooling only as a temporary possession until the Purchase Order 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) ar
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upplier is hereby authorized and required to use DICV Owned Tools within the framework of the supply Contract concluded with DICV concerning the parts to be manufactured with the tools.
The supplier shall use the tools only for the purpose of fulfilling its manufacturing obligations under the supply contract. Hence the supplier is prohibited front any deviating use of DICV Owned Tools in Particular the use of tools for production of parts to supply third parties or the transfer of usage to third parties or unauthorized handover of tools to third parties, without the prior written consent of DIC.V.
2.2 The supplier shall retain DICV Owned Tools at the location as originally agreed between the supplier and DICV
2.4 As a consideration for availing the tools from DICV free of charge, the supplier shall abide by the following 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 s
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, DICV may reimburse the supplier the of the tool costs which had not yet been amortised. Upon reimbursement of such Costs, DICV shall be deemed to have unlimited ownership of the tools.
14. On going through the above terms and conditions of the contract between the Appellant and DICV, it is evident that the Appellant is required to use DICV Owned Tools concerning the part to be manufactured with the tool. The tool shall be used only for the purpose of fulfilling its manufacturing obligations under the supply contract. The Tool is developed and manufactured by the Appellant under a specific Purchase Order. The applicable GST on the supply of the tool is levied in the invoice raised by the Appellant for the supply of the Tool. Once the agreed cost of the tool has been paid by DICV, the title of the tool and all IPR created in the course 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
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e 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 Tools.
15. CBIC in its Circular No 47/21/2018-GST dated 08.06.2018 has clarified that goods owned 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 g
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