In Re: M/s. Cummins India Limited.
GST
2019 (3) TMI 538 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (23) G. S. T. L. 559 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 19-12-2018
GST-ARA-66/2018-19/B-162
GST
SHRI B.V. BORHADE, AND SHRI B. TIMOTHY, 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 Cummins India Limited, the applicant, seeking an advance ruling in respect of the following issue.
“whether engine manufactured and supplied solely and principally for use in railways/locomotives are classifiable under HSN Heading 8408 or under HSN Heading 8607 of the Customs Tariff (which has been borrowed for classification purposes
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visions of the Companies Act, 1956 having its registered office at Cummins India Office Campus, Tower A, 5th Floor, Survey No. 21, Balewadi, Pune-411045.
2. Applicant is a group company of Cummins Inc. situated in Columbus, Indiana and as such is engaged in manufacture, sale of a variety of diesel engines, parts thereof and related services; and undertakes all day-to-day activities required therefore. The Applicant is duly registered under the Central Goods and Service Tax Act, 2017 (“CGST Act”) and Maharashtra Goods and Service Tax Act, 2017 (“MGST Act”) bearing GSTIN 27AAACC7258I31ZW.
3. Post-implementation of GST, the Applicant has analyzed all its business activities and day-today operations to ascertain levy of GST and necessary compliance under GST legislature. However, there appears ambiguity in few of the activities of Applicant vis-a-vis interpretation of GST legislation. Thus, the Applicant has preferred the present application to seek a ruling relating to the activities of
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treated as a service of facilitating common input supplies to distinctly registered units and are sought to be assessed for GST at a nominal value.
Levy of GST on facilitation of common input services, necessity of registering as an ISD and determination of assessable value.
4. For the sake of brevity these issues are being collectively presented for a suitable ruling. Facts in detail of each transaction referred above followed by issue for determination in detail and submissions on interpretation of law is enclosed vide separate Annexures. The documents in support of the submissions are enclosed as Exhibits thereafter.
STATEMENT CONTAINING APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE QUESTIONS RAISED
Classification of Engines exclusively manufactured for use in Railways/Locomotives
1. STATEMENT OF THE RELEVANT FACTS
1.1 The range of products manufactured and supplied by the company inter alia include engine ('subject engine'), which are manufactured for Railways/L
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ed that the alternate classification probable(s) here lead to varied GST rate scenarios and thus create ambiguity.
1.4 The Applicant Company thus deemed fit to seek a ruling on the subject classification matter.
2. ISSUE FOR DETERMINATION
“Whether engine manufactured and supplied solely and principally for use in railways/locomotives are classifiable under HSN Heading 8408 or under HSN Heading 8607 of the Customs Tariff (which has been borrowed for classification purposes under GST regime) as a part used solely or principally for Railways or Tramway Locomotives or Rolling Stock?”
3. LEGAL PROVISIONS
Relevant Section Notes under Customs Tariff
SECTION
SECTION NOTE
DESCRIPTION
XVI (inter-alia covers chapter 84)
1(1)
1. This Section does not cover: (inter-alia covers (1) articles of Section XVII; chapter 84)
XVII (inter-alia covers chapter 86)
2(e)
2. The expressions parts” and “parts and accessories” do not apply 6 the following articles, whether or not they are identifiabl
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OF CUSTOMS TARIFF SUPERSEDES ALL OTHER NOTES AND REFERENCES AND MERITS CLASSIFICATION OF ENGINE MANUFACTURED BY THE APPLICANT UNDER CHAPTER 86 BASED ON ITS USAGE
Owing to sole and principal usage. Section note 3 to Section XVII confirms classification of subject goods under Chapter 86
4.1 The classification of goods under the Goods and Services Tax regime is expressly aligned to Chapter/ Heading / Sub-heading / Tariff item under the First Schedule to Customs Tariff Act, 1975 ('Customs Tariff) and warrants reliance on the rules of interpretation and Section/ Chapter/ General Explanatory note thereto, which provide prescription for interpretation of the Customs Tariff (refer to Explanation (iii) & (iv) in the CGST Rale Notification 1/2017 dated June 28, 2017).
4.2 It may be noted that Customs Tariff follows the common classification system, which is popularly called the Harmonized System of Nomenclature (I IS or HSN), developed by the World Customs Organization and is used/ accep
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e, in Applicant's view, the position so emerging at para 4.4 above is apt and unambiguous.
Sole or principal use of Applicant's engines for Railways engines
4.6 It is submitted that subject goods are manufactured by Applicant strictly as per the designs provided by the Railways Railways/locomotives manufacturers itself. This fact is evident from the Purchase Order issued by railways/locomotive manufacturers itself. This fact is evident from the sample purchase order issued by railways/locomotive manufacturers Railways to the Applicant. A sample copy of such Purchase Order along with detailed design specification is enclosed as Exhibit -A and Exhibit – B.
4.7 It is submitted that, the subject engines ipso facto are not capable of generic use since the same have been manufactured to cater to a specific design and configuration. As a matter of fact these engines (made to specification of Railways/Locomotive manufacturer) do not have any other buyer and hence, cannot be supplied
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se of Hi-tech Industries Limited vs. Commissioner of Customs, Bangalore (2005 (180) ELT 0356] wherein an identical issue in the context of classification of goods on the basis of principal or sole use of the goods was involved. As a matter of fact, the facts of the said case are applicable mutatis mutandis in the present factual matrix. The Hon'ble Tribunal while deciding the case in the favour of the assessee relied on the observations of the Commissioner (Appeals) while passing the Order in Appeal as under:
“It is observed that the impugned product imported by the appellants is a web camera. From the technical ¦ ;literature submitted at the time of personal hearing, it is observed that the camera is not an ordinary camera and functions only with the computer and this camera has got very specific functions and it works basically as a part of the computer and cannot function independently on its own. Thus, it is observed that the web camera imported by the appellant is not
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10 The above decision of the Hon'ble Tribunal has further been affirmed by the Hon'ble Supreme Court in Commissioner vs. Hi-Tech Computers – 2015 (321) E.L.T. A274 (S.C.)].
4.11 Reliance is further placed on Rail Tech vs. Commissioner of Central Excise Chandigarh (2000 (120) E.L.T. 393 (Tribunal)] =2000 (6) TMI 232 – CEGAT, NEW DELHI where in the following was held:
“9. The bare perusal of Tariff heading 76.10 shows that it covers aluminium structures and parts thereof. The entry “windows and their frames” in the bracketed words, in this Tariff Heading refers only to the parts of the structure. Even the aluminium, plates, rods, profiles, lubes and the like, had been referred to in this Tariff Heading as the ones prepared for use in structures. Similarly, the entry in the sub-heading 7610.10 of this Tariff Heading, regarding doors, windows and their frames and thresholds for doors refers to the ones which are meant for use in the structures as this entry is contained in
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n be solely used in the railways coaches. That being so, it can be safely concluded that these are parts of the railways classifiable under Tariff Heading 86.07(sub-heading 8607.00) of the Tariff. The principal that specific tariff entry has to prevail over the general entry, is not attracted in this case.The view taken in the impugned order dated 15-06-1994 by the Collector (which is the subject matter of the appeal of the assessees) is legally correct and no fault can be found with the same.”
4.12 The classification of goods owing to sole and principal usage thereof in view of Section Note 3 is a widely regarded and accepted position of law and the same is also supported by Circular No. 17/90-CX.4, dated 9-7-1990 which clarified that Gear, gear boxes per se classified under 8483 would attract classification under heading 860778608/8614 when specifically designed for use with vehicles of Section XVII. It is submitted that though the referred clarification was issued under the erstwhi
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ings covering parts/ accessories.
4.15 Classification of subject goods under Chapter 86 based on its usage is also in line with the GST rate Structure It is submitted that the GST rate structure in India covers in its fold multiple rates to address the diversity in the Indian social stratification. Accordingly, a lower rate of 5% is assigned to many of the articles which are of social significance and are in the interest of public at large. The necessity of a lower rate of GST has been widely discussed by many stakeholders in the incumbent government as well as bureaucrats.
4.16 The rationale behind introducing GST with varied rate structure, is also evident from the fact that entire Chapter 86 which covers in its fold articles such as Railways, locomotive, rolling stock and parts thereof which are of substantial significance for public at large is subject to a levy of GST at the rate of 5%. This submission also finds force by Circular No. 30/4/2018-GST dated January 25, 2018 which c
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cannot be superseded by generic Note 2;
b. Note 2, by theme, seem to be exclusion for generic parts and accessories, which may have multiple application notwithstanding its usability inter-alia with articles falling in Section XVII;
c. Reference is also invited to note 1(I) of Section XVI, which is inter-alia governs coverage under Chapter 84 (which falls in Section XVI) provides as follows:
“1. This section does not cover:
(I) articles of Section XVII A” The above implies that where by virtue of specific provisions, if goods are covered in Section XVII (ie. Chapter 8607 in present facts) its coverage under Section XVI (ire Heading 8408 in present facts) is automatically ruled out. Again re-enforcing that Subject goods should fall within ambit of Chapter 8607 only and not otherwise.
d. Note 2(e) and 3 to Section. XVII are seen competing and irreconcilable, and are hence, repugnant to each other, in such state, the rules of statutory interpretation suggest that the last provisio
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owing to their sole and principal use. The said view is further strengthened by available jurisprudence, which without exception favours and approve the Applicant's view.
4.22 Reliance is placed on the decision of the Hon'ble Tribunal in the case of Diesel Components Works vs. CCE, Chandigarh (2000 (120) ELT 648] = 2000 (6) TMI 68 – CEGAT, COURT NO. I, NEW DELHI, which deals with an identical issue wherein articles of heading 8409 were proposed to be classified under heading 8607 in view of Section Note 3 owing principal usage in the railways. However departmental authorities sought to invoke provisions of Note 2(e) to disallow the said classification under heading 8607.
4:23 in the said case, while laying down its ratio the Hon'ble Tribunal took cognizance of the provisions of Section Note 2(e) as well as Section Note 3 and held that articles in question attract classification under heading. 8607 in view of the collective reading of the Section Notes. The Relevant portio
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Even after coming to this conclusion, lie found the parts of the engine to fall under Chapter Headings 84 and 85 because of Section Note 2(e) to Section XVIL After referring to Note 2, learned Commissioner failed to read Note 3 to that Section. That Note reads:
“3. References in Chapters 86 to 88 to 'parts' or accessories do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory.”
In relation to Chapter Note 3, what HSN states is: (B) Criterion of sole or principal use. (1) Parts and accessories classifiable both in Section XVII an in another Section. Under Section Note 3, parts and accessories which are not suitable for use solely or principally with the articles of Chapters 86 to 88 are excluded from thos
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hicles are parts of motor vehicles came up for consideration. The Tribunal gave the answer in the affirmative. These parts of IC engines which were the main parts in the locomotive should also be termed as part of the locomotive and not as IC engines coming under the general category. Central Board of Excise and Customs had to consider the issue as to whether a radiator assembly supplied to Indian Railways is to be classified under sub-heading 8607.00 or otherwise. The Board observed that product radiator assembly is designed according to the specifications of the Indian Railways and is for use solely and principally with locomotives of Heading 8601 and 8602. It is clarified that the radiator assembly is not to be classified as parts of IC engines under Heading 8409. This understanding of the Central Board of Excise and Customs is discernible from circular No. 16/90 dated 77-6-7 990, which still holds good. If radiator assembly manufactured for Railways for being fitted in locomotives
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(e) fails to exclude the subject engine from the coverage of Section XVII and owing to sole and principal usage, these engines continue to be classified under Chapter 86.
4.26 Given the settled ratio emerging from the ruling above, which has an identical/ similar fact pattern as in the present case, it is prayed that the said view is concluded in context of the present application as well.
4.27. The Applicant is further wishful of the aforesaid conclusion in view of the Board Circular 17/90-CX quoted above, which also confirms the Applicant's point of view though under the excise regime.
However, since the basis of classification under excise and GST (which in turn relies on customs) is HSN, a reliance of the aforesaid circular is helpful.
INTERPRETATION OF STATUE – CUSTOMS TARIFF – OTHER CONSIDERATIONS
Specific entry would prevail over general entry for classification of goods
4.28 Without prejudice to averments above, the Applicant humbly submits before the Hon'ble Auth
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sion Assuming for sake of argument, and without admitting, even if the competing Headings equally merit consideration and there is a state of indecision, for classification of goods, the general rules of interpretation of the Harmonized System prescribe that goods should be classifiable under the heading occurring last in the numerical order (commonly known as latter the better rule).
4.31 in the instant case, if the said rule is applied that also yields conclusion in favour of Heading under Section XVII only i.e. 8607.
5. PRAYER
“Owing to sole and principal usage for Railway/locomotives (Chapter 86 goods) the engines manufactured by Applicant are rightly classifiable as parts of goods falling under Chapter 86 and hence, classifiable under heading 8607 and not elsewhere. GST rales should therefore, be determined accordingly.”
1. STATEMENT OF THE RELEVANT FACTS
1.1 The Applicant has its presence across various states in India through its manufacturing/service/sales units. These uni
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Jaipur, Rajasthan, 302016
Depot
09AAACC7258B1 ZU
Uttar Pradesh
102,First floor,Cyber Heights, TE G2/2;&:3/5, Vibhuti Khanc Gomali Nagar, Lucknow: 226010
Area Office
18AAACC7258B2ZU
Assam
4th Floor, NA, Archon Arcade, Dr. B. Barua Road, Ulubari, Guwahati, Kamrup Metropolitan, Assam 781007
Area Office
19AAACC7258B225
West Bengal
204/2, Ceramic Road, GT: Road, Asansol, Bardhaman, West Bengal,713303
Depot
20AAACC7258B1ZA
Jharkhand
Plot No 43; Near Imam Kothi, hazaribagh Road, Kokar, Ranchi, Ranchi, Jharkhand, 834009
Depot
21AAACC7258B1Z8
Odisha
PLOT NO 1473/3230, KHATANO 808/255, Rourkela, Sundargarh Odisha, 769041
Depot
22AAACC72583126
Chhattisgarh
Ground Floor, Hot No 69, M A Rappai and KX Poulose, “Transport Nagar, Korba, Korba, Chhattisgarh, 495677
Depot
23AAAC07258B124
Madhya Pradesh
House No 357, New Market Near BEML Colony, Singrauli, Singrauli, Madhya Pradesh, 486889
Depot
24ANACC72588122
Gujarat
13-703 & 704,7th floor, Block-B, Westgate, Near YMCA c
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oil street, G. N. Palayam, Arumparthapuram,Puducherry;605110
Area Office
36AAAG0725861ZX
Telangana
4th Floor, 404/1 404/2. Block I, White House, Kundan Bagh, Begumpet, Hyderabad, Telangana, 500016
Depot
1.2 The Applicant, being a registered person and engaged in the activity of making taxable supply, is eligible to avail Input Tax Credit (“IT:C”) of GST paid on all the input, capital goods and input services procured in the course of furtherance of business.
1.3 Amongst all such procurements, certain common input services are availed by head office of the Applicant located in Pune. Further, the units of the Applicant may also avail common services. Accordingly, the head office or the respective unit, as the case may be, avails ITC of GST paid on such common input supplies subject to provisions of Section 17 of the CGST Act.
1.4 The costs incurred by head office/ units for procurement of such common in head office/ units for procurement of such common input services, is booked b
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AX ON COMMON INPUT SERVICE ON BEHALF OF ALL THE UNITS QUALIFIES AS 'SUPPLY' AND ATTRACTS GST THEREON
3.1 Availment of common input tax credit of tax on input services on behalf of the other distinct person/s, is in the nature of an activity of facilitating such availment to distinct persons and attracts scrutiny of Section 2(102) and Section 7 of CGST Act to determine whether such facilitation partakes the character as 'service' and results in 'supply of service'. Section 2(102) defines the term 'service' and the same is extracted below for reference:-
(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
3.2 The Applicant submits that on a bare perusal, the definition of service' is very wide and covers
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furtherance of business:”
3.4 As such the units of the Applicant located in different states qualify as distinct person, and any service inter se qualifies as 'supply irrespective of whether there is any consideration for the same.
3.5 The Hon'ble Authority is therefore requested to kindly pass a ruling to clarify that the facilitation of availing common input services by Units of the Applicant to its other units registered as distinct persons qualifies as 'supply of service'.
SUPPLY OF FACILITATING COMMON INPUT SERVICES BETWEEN DIFFERENT UNITS WHICH ARE REGISTERED AS DISTINCT PERSON CAN BE ASSESSED AT A NOMINAL VALUE
3.6 Since each of Applicant's unit is registered independently and is treated as a 'distinct person in view of provisions of Section 25(4) of the CGST Act, value of supply made between such distinct person is required to be assessed in view of Rule 28 of the Central Goods and Service Tax Rules, 2017 (“CGST Rules”). Relevant portion of Rule 28
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etermined by application of Rule 30 or Rule 31:-
– Rule 30 prescribes for value of supply of goods or services or both based on cost of production or manufacture
– Rule 31 prescribes residual method of referring to reasonable means consistent with Section 15 and provisions of CGST Rules, 2017
3.8. It is submitted that, facilitation as undertaken by one unit/ head office to avail the common input supplies on behalf of its other units is an activity specific to Applicant's business and is not being supplied in open market. Consequently, there does not exist any comparable 'open market value' to measure consumption of referred common input supplies. In such a case, the subject supply cannot be assessed with reference to open market value. For the same reason of exclusivity of subject transaction to the Applicants own business, it cannot be assessed with reference to value of 'supply of like kind and quality' as well.
3.9 Further, the subject supply being 'ser
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egistered unit can be assessed by assigning a nominal charge for facilitating common input supplies to each of the distinct unit.
3.12 It is therefore submitted that, it is only judicious for Hon'ble authority to pass a ruling to accept nominal value as to be assigned for facilitating common input supplies by Unit of the Applicant to its other units registered as distinct person, to be a statutorily correct assessable value.
THE FACILITY OF REGISTERING AS AN ISD IS AN OPTION PROVIDED BY THE STATUTE AND THERE IS NO COMPULSION FOR A TAXABLE PERSON TO REGISTER ITSELF AS AN ISD
3.13 The common input services and related expenses are booked in the books of the account of the head office/unit which received it on behalf of other unit. However, since the common input supplies have been consumed by more than one unit of the Applicant, it has allocated and recovered the costs so incurred from each of such unit. Based on the stated facts and submissions made hereafter, the Applicant seeks
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tributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office;”
3.16 As such, when the input supplies are being received by a unit on behalf of distinct persons the ISD mechanism ensures that credit fungibility is maintained by passing on the relevant proportion of ITC to the respective distinct person. However, it does not indicate that such issuance of invoice for distribution of ITC as a mandatory activity and it appears that operating as an ISD is an option.
3.17 We further refer to provision of Section 24 of the CGST Act which enlists the entities that are required to be registered as a taxable person, and the said Section at its sub-clause (viii) requires an ISD to obtain an independent registration. The Applicant submits that, Section 24 merely refers to the necessity' of an independent registration if a pe
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e. I: is mandatory to opt for ISD and allocate credit?
3.19 Based on the submissions expounded and supporting twitter clarifications referred above, the applicant herein humbly prays to the Hon'ble authorities to pass a ruling to clarify that the mechanism of ISD as provided under CGST Act is an optional facility and the applicant has the right to exercise its discretion to either opt or refrain from availing the ISD mechanism.
4. PRAYER
In view of the submissions made above, it is most humbly prayed that Hon'ble authorities may kindly pass a ruling to clarify as follows:-
a. Facilitation of common input supplies by one unit to all the other units registered as distinct persons qualifies as 'Supply';
b. Such facilitation of common input supplies can be assessed for GST with reference to a nominal value, which is deemed to be treated as 'open market value'; and
c. The facility of ISD is an option provided under CGST Act and Applicant is at liberty to exerci
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g 8408 as Compression-Ignition Internal Combustion Piston engines (Diesel or Semi-diesel engines) as well as heading 8607 as Tarts of Railway or Tramway Locomotives or Rolling Stock' in as much as these engines are used 'solely and principally' in rail ways/ tramway/locomotives.
For discussing the issue raised by the applicant, the Section Note 2 of Section XVII which deals in goods like vehicles, aircrafts, vessels and associated transport equipments is reproduced as below:-
2. The expressions “parts” and “parts and accessories” do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:-
(a) joints, washers or the like of any material (classified according to their constituent material or in heading 8484) or other articles of vulcanized rubber other than hard rubber (heading 4016)
(b) parts of general use, as defined in Note 2 of Sec.XV, of base metal (Sec XV), or similar goods of plastics (Chap 39);
(c) articles of
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duced as under:-
(a) axles, wheels, wheel sets (running gear), metal tyres, hoops and hubs and other parts of wheels;
(b) frames, under frames, bogies and bissel-bogies;
(c) axle boxes, brake gear;
(d) buffers for rolling-stock; hooks and other coupling gear and corridor connections;
(e) coachwork.
The issue raised by the applicant is examined in light of above Section note and Chapter note of relevant Chapter and Sections of the Customs Tariff and merits classification under heading 8408 for the following reasons:
a. Note 2(e) of the Section XVII of the Customs Tariff clearly states that the expression “parts” and “parts and accessories” do not apply to the machines or apparatus of heading 8401 to 8479, or parts thereof; articles of heading 8481 or 8482 or, provided they constitute integral parts of engines or motors, articles of heading 8483
b. Note 2 of the Chapter 86 of the Customs Tariff states that Heading 8607 applies, inter alia to axels, wheels, wheel sets (running gea
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ed and supplied for use in railway, locomotives are classifiable under HSN Heading 8408 and not under Heading 8607 of the Customs Tariff.
I. Common Input Services: Levy, Assessable value and ISP Registration:
The applicant stated that it has presence across various states in India through its manufacturing/service/sales units and they are located in different states in India. As per provisions of Section 25(4) of CGST Act, 2017, units located in each such state are to be treated as a 'distinct person' from units located in other states. The applicant further stated that certain common input services are availed by the head office located in Pune and the units of the applicant. The costs incurred by head office/ units for procurement of such common input services, is booked by head office/such unit in its own books of account and is then allocated and recovered proportionately from each of the recipient unit to determine the office/plant wise profitability, which is an interna
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ant seeks a parallel ruling as to whether availment of input tax credit of tax on common input supplies on behalf of other unit/ units registered as distinct person and further allocation of the cost incurred for same to such other units qualifies as supply and attracts levy of GST. As per provisions of Section 7 of the CGST Act, 2017 and activity enlisted at Sr. no. 2 in Schedule -I of the CGST Act, 2017, supply of goods or services or both between related persons or between distinct persons as specified in Section 25 when made in the course or furtherance of business is to be considered as supply. Hence, the Applicant is required to pay GST on such supply.
The applicant at their submissions to the application at Para 3.7 to 3.10 stated that they are unable to arrive at assessable value as per provisions of Rule 28 as their does not exist any comparable “Open market value” and also cannot be assessed with reference to value of “Supply of like kind and quality”. They stated that they
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of provisions of such services.”
In view of the above, the valuation for such supply can be done under the provisions of Rule 30 of the CGST Rules, 2017 and applicant's request to accept nominal value may not be accepted.
04. HEARING
The case was scheduled for 11.09.2018 for Preliminary hearing when Sh. Rohit Jain, Advocate along with Sh. Narender Vaidya, DGM Taxation appeared and made oral contentions for admission of application as per contentions in their ARA application. Jurisdictional Officer Sh. B. K. Mishra, Supt., Pune II, CGST Commissionerate, appeared and stated that they would be making submissions in due course.
The application was admitted and called for final hearing on 27.11.2018, Sh. Rohit Jain, Advocate along with Deepak L Bahirwani, Tax Director-Cummins India Group, Group CFO's Officer and Sh. Vivek Baj, C.A. ELP appeared and made oral contentions as per details submitted by them. No one from the side of the department was present.
05. OBSERVATIONS
We h
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classifiable under heading 8408 as Compression- Ignition Internal Combustion Piston Engines (Diesel or Semi- Diesel Engines) or under heading 8607 as 'Parts of Railways or Tramway Locomotives or Rolling-Stock'.
The applicant has submitted that the rationale behind introducing GST with varied rate structure, is evident from the fact that entire Chapter 86 which covers in its fold articles such as railways, locomotive, rolling stock and parts thereof which are of substantial significance for public at large is subject to a levy of GST at the rate of 5%. According to them this submission also finds force by Circular No. 30/4/2018-GST dated January 25,2018 which clarifies that goods supplied to railways, which are classified under Chapter 86 attract GST at the rate of 5%.
We find that Circular No. 30/4/2018-GST dated January 25, 2018 has clarified that only the goods classified under Chapter 86, supplied to the railways attract 5% GST rate with no refund of unutilised input tax c
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cannot be called as parts of goods falling under Chapters 86 to 88. Thus this note 2(e) is self-explanatory and does not contradict any other Note 3 of Chapter XVII as claimed by the applicant. Further Note 2 of Chapter 86 states that Heading 8607 applies to (a) axles, wheels, wheels sets (running gear), metal tyres, hoops and hubs and other parts of wheels, (b) frames, under frames, bogies and bissel-bogies, (c) axle boxes, brake gear, (d) buffers for rolling-stocks; hooks and other coupling gear and corridor connections, and (e) coachwork. Therefore it is crystal clear that Heading 8607 does not cover engines of any type.
Finally we agree with the submissions made by the jurisdictional officer the goods classified under Heading 8607 are subjected for assessment on the basis of quantity cleared on weight basis whereas the goods classified under Heading 8408 are subjected for assessment on the basis of quantity cleared on number basis. This shows that the nature of goods classified un
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paid on such common input supplies subject to provisions of Section 17 of the CGST Act.
The applicant stated that it has presence across various states in India through its manufacturing/service/sales units and they are located in different states in India. As per provisions of Section 25(4) of CGST Act, 2017, units located in each such state are to be treated as a 'distinct person' from units located in other states. The applicant further stated that certain common input services are availed by the head office located in Pune and the units of the applicant. The costs incurred by head office/ units for procurement of such common input services, is booked by head office/such unit in its own books of account and is then allocated and recovered proportionately from each of the recipient unit to determine the office/plant wise profitability, which is an internal procedure.
The applicant seeks to get ruling as to whether availment of input tax credit of tax on common input supplie
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gistration, be treated as distinct persons for the purposes of this Act.” Hence the applicant and their various offices will be distinct persons.
As per the provisions of Section 7 of the CGST Act, 2017 read with Sr. no. 2 in Schedule -I of the CGST Act, 2017, supply of goods or services or both between related persons or between distinct persons, when made in the course or furtherance of business is to be considered as supply. Hence, the applicant is required to pay GST on such supply made to their offices/branches having different registration numbers. This brings us to the next question raised by the applicant which is as under:-
“If GST is leviable, whether assessable value can be determined, by arriving at nominal value?”
The applicant in their submissions have stated that, on they are unable to arrive at Assessable value as per provisions of Rule 28 as their does not exist any comparable “Open Market Value” and also cannot be assessed with reference to value of “Supply of like
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is not determinable by any of the preceding rules of this chapter, the value shall be one hundred and ten percent of the cost of production or manufacture or the cost of acquisition of such goods or the cost of provisions of such services.”
Rule 30 prescribes for value of supply of goods or services or both based on cost of production or manufacture. The applicant has submitted that they are engaged in manufacture, sale of a variety of diesel engines, parts thereof and related services; and undertakes all day-to-day activities required therefore. Thus they have available the cost of production of such goods and therefore it would be prudent for them to arrive at a value which is 110% of the cost of production. Hence we find that Rule 30 is very much applicable in the applicant's case.
In view of the above, we rule that the provisions of Rule 30 of the CGST Rules, 2017 should be followed by the applicant to arrive at the assessable value.
The final question raised by the applican
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ibute common cenvat credit received by the HO for which payments/billings are done by them. If they want to distribute such credit than they will be an Input service Distributor. Once an ISD, then it follows that they must compulsorily obtain separate registration as an ISD. Hence we do not agree with the applicant's contention that the provisions of Section
24 (viii) of the CGST Act merely refers to the necessity of an independent registration if a person intends to avail the facility of ISD and does not create any stipulation as to necessity of availing the ISD facility itself.
05. In view of the extensive 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)
For reasons as discussed in the body of the order, the questions are answered thus-
Question:- “Whether engine manufactured and supplied solely and principally for use in railways/loc
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