2024 (3) TMI 671 - AAR - GST

Nature of activity - replacing the old scrap received from the customers with the already processed Winding wire, then and there, at a fixed differential price - sale of goods or service? - composite supply or not - rate of tax - HSN code / SAC code - If RCM is applicable on the purchase old Copper Scraps from the Motor Mechanics, then what is the Tax rate? - If RCM is applicable, can they take Input Tax Credit on the RCM paid? - Tax Structure and the related procedures and documents to be followed for the movement of goods from Hub to Factory to Hub. HELD THAT - The instant transaction of the applicant involving replacement of copper scrap, with the enameled copper winding wire cannot be considered as a supply of service , whatsoever, and that the same amounts to supply of goods. That is to say, the supply of enameled copper wire by the applicant to the customer is to be considered as an outward supply of goods by the applicant, and that the receipt of copper scrap from the customers is to be considered as an inward supply of goods to the applicant. Overall, it is clear that both the legs of this transaction (inward and outward) are independent of each other, and we hold that both relates to supply of goods . Having held that the supply of enameled copper wire by the applicant to the customer is an outward supply of goods by the applicant, the HSN code relating to the same is now required to be determined. From the submissions made by the applicant, it is observed that it is not just the winding wire of copper which is being supplied to the customers, but enameled copper winding wire. While plain copper wire of different specifications merit classification under 7408, we observe that an enameled winding wire of copper serves a specific purpose of insulation, as the enamel coating forms an electrical insulation film in order to provide thermal and chemical resistant properties. Therefore, enameled winding wire of copper which operates as an insulated electric conductor merits classification under chapter sub-heading 8544 11 10 of the GST Tariff which attracts IGST at 18%, or CGST at 9% plus SGST at 9%, as the rate of tax. Composite supply or not - HELD THAT - Composite supply, as the name denotes, involves two or more taxable supplies which are naturally bundled and supplied in conjunction with each other - the supply of the fully finished manufactured product, viz., enameled copper winding wire to the customers is the one and only outward supply of goods made by the applicant. It can also be seen that the illustration attached to the definition of composite supply explains the case in point. Therefore, as only one outward supply of goods is made by the applicant in the instant case, it does not get covered under the category of composite supply . Liability under reverse charge mechanism (RCM) applicable on the purchase old Copper Scraps from the motor mechanics (customers), the tax rate to be adopted and whether input tax credit (ITC) can be availed on the same by the applicant - HELD THAT - RCM provisions on purchases from unregistered persons was applicable only on the class of registered persons to be notified in future, and hence the temporary blanket exemption from RCM provisions on such purchases was made permanent through the said amendment. It is observed that only one notification since then have been notified to specify Promoters and Builders, as the category of registered persons liable to pay taxes under RCM under this section, vide Notification No. 07/2019-Central Tax (Rate) dated 29.03.2019. As on date, except Promoters , no other registered person is liable to pay taxes under RCM in respect of the receipt of goods or services from an unregistered supplier, and therefore, the applicant is not liable to pay taxes under RCM on the purchase of copper scraps from Motor mechanics. Once the issue relating to discharge of liability under RCM by the applicant stands settled, i.e., answered in negative, the other related queries as to the tax rate to be adopted for such RCM payments, and whether ITC can be availed on the taxes under RCM paid by the applicant are rendered redundant and does not merit consideration.

Summary

Issues Involved:
1. Sale of goods or service.
2. Tax structure if it is a service.
3. Tax structure if it is a sale of goods.
4. Whether it comes under composite supply.
5. Applicability of RCM on the purchase of old copper scraps from motor mechanics and the tax rate.
6. Eligibility to take Input Tax Credit on RCM paid.
7. Tax structure, related procedures, and documents for the movement of goods from Hub to Factory to Hub.
8. HSN code/SAC code to be followed.

Summary of Judgment:

Issue 1: Sale of Goods or Service
The Authority ruled that the transaction involving the replacement of copper scrap with enameled copper winding wire is a sale of goods. The processing activity does not qualify as a service or job-work since the processed goods are not returned to the same customer and the title of the scrap does not remain with the customer.

Issue 2: Tax Structure if it is Service
This query was not answered as it was deemed not applicable since the activity was classified as a sale of goods.

Issue 3: Tax Structure if it is Sale of Goods
The tax structure for the sale of goods was determined to be IGST at 18%, or CGST at 9% plus SGST at 9%.

Issue 4: Composite Supply
The Authority concluded that the transaction does not come under 'Composite Supply'. The receipt of copper scrap is an inward supply and the supply of enameled copper winding wire is an outward supply, both independent of each other.

Issue 5: Applicability of RCM on Purchase of Old Copper Scraps
RCM is not applicable on the purchase of copper scraps from motor mechanics as per the provisions and notifications under the CGST Act, 2017. The Authority noted that only specified categories of registered persons are liable for RCM, which does not include the applicant.

Issue 6: Input Tax Credit on RCM Paid
This query was not answered as it was deemed not applicable due to the non-applicability of RCM.

Issue 7: Tax Structure and Related Procedures for Movement of Goods
The Authority did not answer this query as it does not fall under any of the clauses from (a) to (g) of Section 97(2) of the CGST Act, 2017.

Issue 8: HSN Code/SAC Code
The HSN code for the enameled copper winding wire was determined to be 8544 11 10 of the GST Tariff.

Ruling Table:
| SI.No. | Query Raised by the Applicant | Ruling |
|--------|-------------------------------|--------|
| 1 | Is it sale of goods or service? | It is sale of goods. |
| 2 | If it is service, what is the tax structure? | Not answered as it is not applicable. |
| 3 | If it is sale of goods, what is the tax structure? | IGST at 18%, or, CGST at 9% plus SGST at 9%. |
| 4 | Does it come under Composite supply? | It does not come under 'Composite Supply'. |
| 5 | If RCM is applicable on the purchase of old copper scraps from the Motor Mechanics, then what is the tax rate? | RCM not applicable. So tax rate not required to be specified. |
| 6 | If RCM is applicable, can we take Input Tax Credit on the RCM paid? | Not answered as it is not applicable. |
| 7 | Clarify the tax structure and related procedures and documents for the movement of goods from Hub to Factory to Hub. | Not answered as the query does not get covered under Section 97(2) of the CGST/TNGST Act, 2017. |
| 8 | What is the HSN code / SAC code we should follow | HSN Code 8544 11 10 of the GST Tariff. |