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2019 (3) TMI 435 - AAAR - GSTValuation - 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 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 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. On going through the 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 - 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 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 Tools. 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 goods provided on FOC basis shall not be added to the value of supply of components. Thus, the cost of the tools supplied by the OEM customer on FOC basis to the Appellant is not required to be added to the value of the components supplied by the Appellant - the ruling of the AAR is set aside.
Issues Involved:
1. Whether the amortized cost of tools supplied free of cost (FOC) by the customer should be added to 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. Issue-wise Detailed Analysis: 1. Background and Facts of the Case: M/s. Nash Industries (I) Private Limited (Appellant) is a manufacturer of sheet metal pressed components. The tools required for manufacturing these components are designed and manufactured by the Appellant and billed to the customer, but retained by the Appellant for manufacturing components. The Appellant sought an advance ruling on whether the amortized cost of these tools should be added to the value of the goods supplied for GST purposes. 2. Initial Ruling by the Authority for Advance Ruling (AAR): The Karnataka Authority for Advance Ruling ruled that the amortized cost of tools supplied FOC by the customer to the Appellant should be added to the value of the components supplied as per Section 15 of the CGST/KGST Act, 2017. 3. Grounds of Appeal by the Appellant: The Appellant argued that: - The purchase order from the customer is only for manufacturing components using the tools supplied FOC by the customer. - CBIC Circular No. 47/21/2018-GST clarifies that the value of tools supplied FOC by the customer should not be added to the value of the components if the tools are owned by the customer. - The Appellant is not liable to include the cost of tools in the value of components as the tools are owned by the customer and supplied FOC. 4. Personal Hearing and Additional Submissions: During the personal hearing, the Appellant reiterated their submissions and provided additional documents including purchase orders and comparisons with similar cases. The Maharashtra AAR ruling in the case of Lear Automotive India Private Ltd was cited, where it was held that the amortized value of tools received FOC from the customer should not be included in the value of finished goods. 5. Discussion and Findings: The Appellate Authority examined the contractual terms between the Appellant and their customer, Daimler India Commercial Vehicles Pvt Ltd (DICV). The contract specified that: - The tools, once paid for by DICV, become DICV's property. - The Appellant retains the tools temporarily for manufacturing components. - The Appellant is obligated to maintain the tools and return them to DICV upon completion of the contract. 6. Analysis under GST Law: Under the GST regime, the taxable event is the 'supply' of goods or services. Section 15 of the CGST Act states that the transaction value should include any amount the supplier is liable to pay but is incurred by the recipient. However, in this case, the tools are supplied by the customer (DICV) FOC, and the contract does not place any obligation on the Appellant to incur the cost of the tools. 7. Clarification by CBIC Circular: CBIC Circular No. 47/21/2018-GST clarifies that the value of tools supplied FOC by the customer should not be added to the value of components if the tools are owned by the customer. The Appellate Authority found that the contractual terms between the Appellant and DICV align with this clarification, indicating that the tools are provided by DICV and not the Appellant's responsibility. 8. Conclusion and Ruling: The Appellate Authority set aside the ruling of the AAR and held that the cost of tools supplied FOC by the OEM customer (DICV) should not be added to the value of the components supplied by the Appellant. This ruling applies specifically to the contract with DICV and similar contracts with identical terms and conditions. 9. Disposition of Appeal: The appeal was disposed of with the ruling that the cost of tools supplied FOC by the customer is not required to be added to the value of the components supplied by the Appellant.
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