2019 (8) TMI 471 - AAR - GST

Clarification regarding applicability of Tool Amortisation cost (Transaction Value) in GST Regime - Capital Goods received freely on returnable basis from the recipients (Customer) for parts production and supply - HELD THAT - The CBIC in its Circular No 47/21/2018-GST dated 08.06.2018 has clarified that Moulds and dies (Tools) owned by OEM that are provided to a component manufacturer on FOC basis do not constitute 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. The issue raised by the applicant is covered under Issue number I and Clarification 1.1 and 1.2 of the Circular No 47/21/2018-GST dated 08.06.2018 - This Ruling is based on examination of the contract / purchase order furnished by the Applicant in the case of their customer M/s. Tata Autocomp systems Ltd., (OEM) where the applicant is not under any obligation to use their own tools/ moulds for manufacture of the components and the same are supplied to them free of cost and on returnable basis. This ruling will apply to other contracts entered into by the Applicant if and only if the terms and conditions contained therein are the same as those contained in the contract placed before us. The cost of the tool/s supplied by the OEM on FOC basis, under the situations discussed in para 11 and 14, to the Applicant is not required to be added to the value of the parts supplied by the Applicant and hence the said value is not liable for GST.

Summary

Issues Involved:
Clarification on applicability of Tool Amortisation cost in GST regime for Capital Goods received freely on returnable basis.

Analysis:

Issue 1: Applicability of Tool Amortisation cost in GST Regime
The Applicant, a private limited company involved in manufacturing plastic moulds and parts, sought an Advance Ruling on whether the Tool Amortisation cost (Transaction Value) should be applicable under GST for Capital Goods received freely on a returnable basis from customers. The Applicant clarified that the tools were either manufactured by them or provided by customers at no cost for production of parts. The key question was whether the cost of the tool should be added to the transaction value for GST purposes.

Discussion:
During the personal hearing, the Applicant reiterated their stance, emphasizing that the tools were supplied by customers for production on a returnable basis. The Applicant provided a copy of the purchase order from Tata Autocomp Systems Ltd., highlighting that the tools supplied by the customer remained their property and were to be used exclusively for the customer's parts. The condition in the purchase order mentioned that no amortised value should be added to the transaction value for GST from July 1, 2017, onwards.

Conclusion:
The Authority referred to Circular No. 47/21/2018-GST, which clarified that tools provided by the Original Equipment Manufacturer (OEM) on a free-of-cost basis do not constitute a supply if there is no consideration involved. In cases where the component manufacturer is obligated to provide tools but they are provided by the OEM for free, the amortised cost of the tools should be added to the value of components supplied. Based on the examination of the contract with Tata Autocomp Systems Ltd., the ruling stated that the cost of tools supplied by the OEM on a free-of-cost basis did not need to be added to the value of parts supplied by the Applicant, making it not liable for GST.

This ruling was specific to the contract with Tata Autocomp Systems Ltd. and would apply to other contracts only if the terms and conditions were similar. The ruling clarified that the cost of tools provided by the OEM on a free-of-cost basis did not attract GST on the value of parts supplied by the Applicant.