2022 (8) TMI 919 - AAR - GST

Levy of GST - supply of goods or supply of services - transaction of transfer of right to do integration testing, install and market software from Tamilnadu cost centre to Karnataka Cost centre - the transaction is being executed between two cost centers of same entity - HELD THAT - As per the definition, any transaction is a supply only when it is made for consideration and is a taxable supply. In the instant case, the supply is that of transfer of right to do integration testing, install and market software from the applicant to Karnataka Cost center and the consideration involved is agreed upon by both centers, wherein it has been stated that the applicant is charging a recurring consideration from Karnataka cost center for the transfer of right. The first payment of such recurring consideration has been agreed upon at Rs.1,05,00,00,000J- and the invoice no. OET/CC/001 dt. 30.09.2021, for Rs.1,02,75,11,617/- has been raised. Applicant claims that such an invoice has been raised to set out the books of accounts of cost centers and to charge each cost center for the work being carried out by them - the criterion for the transaction being a supply is satisfied in as much as the transfer of right is made for a consideration. The supply of goods or services between both related and distinct person when made in the course of furtherance of business is an activity to be treated as supply. In the case at hand, the cost centers are located at two different states and applicant has admitted that they have two separate registrations for such centers. Hence they are distinct persons and the supply is also found to be in furtherance of business only in as much as the software when installed is charged a specific cost and it is said to optimize certain features of the product - the extension of right by the applicant to the distinct persons as specified in Section 25, is in the course of furtherance of business for a pre-determined consideration therefore such transfer of right is clearly a supply which is leviable to GST. Supply of goods or services? - HELD THAT - The vehicles move from the applicant to all distribution centers in India namely Gujarat, Maharastra and the Peformance upgrade software is marketed by the Karnataka cost center, on the applicant agreeing for the same. Hence the applicant is only agreeing to the act of carrying out integration testing, install, and market the software on the vehicles manufactured by them by the Karnataka Cost Centre, at the behest of the end-users. Thus the supply taking place between the applicant and the Karnataka cost center is of the Agreeing the Karnataka Cost Center to carry out the installation and marketing of the software. Hence it is clear that the supply involved is the supply of 'Service' and not of goods. The transfer of right to do integration testing, installation and marketing software from the applicant to Karnataka Cost centre is leviable to GST as such transaction is being executed between two distinct persons i.e., two cost centers of the same entity. Further as such supply is found to be involving only transfer of the said right, it is concluded that the supply is of services and not of goods.

Summary

Issues Involved:
1. Whether the transaction of transfer of right to do integration testing, install, and market software between two cost centers of the same entity is leviable to GST.
2. If yes, whether such supply is considered as goods or services.

Issue-wise Detailed Analysis:

1. GST Levy on Transaction Between Cost Centers:
The applicant sought clarity on whether the transaction of transferring the right to do integration testing, install, and market software from the Tamil Nadu cost center to the Karnataka cost center is subject to GST. The applicant argued that since both cost centers are part of the same legal entity, the transaction should not qualify as a supply under GST. However, the ruling clarified that for GST purposes, different cost centers with separate GST registrations are considered distinct persons. The transaction involves a recurring consideration, which qualifies as a supply under Section 7 of the CGST Act, 2017. The transfer of rights for integration testing, installation, and marketing of software is a supply made for consideration and in the course of business, thus falling within the ambit of GST.

2. Classification of Supply as Goods or Services:
The ruling further examined whether the supply should be classified as goods or services. The applicant's vehicles are manufactured by the Tamil Nadu cost center and distributed across India, while the performance upgrade software is developed and marketed by the Karnataka cost center. The software is sold separately as an optional upgrade to enhance the vehicle's performance. The transaction between the cost centers involves the Tamil Nadu cost center agreeing to allow the Karnataka cost center to install and market the software. This activity is classified as a supply of services, not goods, as it involves the right to perform certain actions rather than the transfer of tangible items.

Conclusion:
The ruling concluded that the transaction of transferring the right to do integration testing, install, and market software between the Tamil Nadu and Karnataka cost centers is leviable to GST. Furthermore, the supply involved is classified as a supply of services. Thus, the applicant must comply with GST regulations for such transactions between distinct persons within the same legal entity.