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TMI Blog2022 (1) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish the list of assets proposed to be consolidated, they had submitted that the proposal is still in proposal stage only and they are unable to furnish any documents to that effect also - the MOU submitted by them cannot be relied upon to understand the terms on which the different units of the applicant agree upon. The accounting part of the transactions also will not be reflected in their accounts as the entries are said to be nullified as the audited financial statement will be for the whole company. Thus the applicant has not furnished any clear terms on which the proposed business model will be operational. The proposed business model appears to be a mere plan which may or may not fructify with the assets at the disposal of the applicant for further supply. Hence the merger and consolidation of assets are merely planned and has not reached the stage with clear roadmap of how the proposal will take effect - Without knowing if assets will be consolidated in Tamil Nadu or not, facilitating the further supply of such assets, the questions on the value to be adopted for such supply, etc are pre mature and this authority is constrained to examine the issue without any substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as lease transaction and accordingly taxable as supply of services in terms of Section 7 of the Central Goods and Services Tax Act, 2017 ( CGST Act ) and Tamil Nadu Goods and Services Tax Act, 2017 ( TNGST Act )? 2. If the answer to Question 1 is Yes, what is the value on which GST has to be charged i.e. whether it should be lease charges or the value of equipment in terms of Section 15 of the CGST Act and TNGST Act read with relevant Rules? 3. What are the documents that should accompany the movement of the goods from CIPL, Tamil Nadu to CIPL. Kerala? 4. Whether movement of equipment from CIPL, Kerala to CIPL, Karnataka on the instruction of CIPL, Tamil Nadu can be said to be mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act and TNGST Act, and thereby not liable to GST? 5. With reference to Question 4 above, what are the documents that should accompany the movement of the goods from CIPL, Kerala to CIPL, Karnataka? The Applicant has submitted the copy of application in Form GST ARA 01 and also submitted a copy of Challan evidencing payment of application fees of ₹ 5,000/- each under sub-rule (1) of Rule 104 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aka. In such a case, the moment equipment reaches CIPL Karnataka, CIPL, Tamil Nadu would stop charging CIPL, Kerala and start charging CIPL, Karnataka towards lease charges (basis number of days of usage). Further, CIPL, Kerala would charge CIPL, Tamil Nadu a consideration for facilitation and arrangement of movement of equipment to CIPL, Karnataka basis the instruction. The diagrammatic representation is provided below:- 2.2 On interpretation of law, the applicant has referred to various statutory provisions under the CGST Act 2017 and the applicant s view in respect of the questions raised in the Advance Ruling application is as below: In respect of Q.No 1 the applicant has stated that the definition of supply is wide enough to include lease within its ambit. Also, as per point 5(1) of Schedule II, transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is deemed as service under GST. The term lease is not defined under the GST law. Accordingly, the applicant has referred to Indian Accounting Standard (Ind AS) 116 which provides for principles for the recogniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, since the definition of supply contains lease within its ambit, there can be a lease transaction entered into between two different registrations of the same Company similar to the lease transaction entered with third party customer. Hence, the applicant has viewed that CIPL, Tamil Nadu can enter into lease transaction with CIPL branches in other States registered under the respective State GST legislation across India say for e.g., CIPL, Kerala and such transaction would be taxable under GST as a lease transaction between the two branches which are deemed to be distinct entities for the purpose of GST legislation. In respect of Q.No.2 The applicant has stated that CIPL, Tamil Nadu has entered into agreement with CIPL, Kerala to provide equipment on lease basis for which the consideration would be charged at an agreed rate (i.e. Lease charges or rental per day) depending on number of days of usage of equipment. Invoice in this regard would be raised by CIPL, Tamil Nadu periodically on the other CIPL branches for the equipment taken on lease by them. As per Rule 28 of CGST Rules read with Section 15 of the CGST Act mentioned in the legal background above in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply of service under the CGST Act. Accordingly. a delivery challan is required to be issued for the purpose of transportation of such goods. Also, since the lease charges would be billed basis the number of days of usage by service recipient, the equipment would be transferred to the service recipient at the inception under the delivery challan without discharging taxes and the tax would be paid based of service invoice issued periodically. They have also stated that as per Rule 138 of the CGST Rules, the consignor has to issue e-way bill in case the value of goods exceeds INR 50,000. Accordingly. the Applicant would also be issuing e-way bill along with delivery challan in terms of the said Rules. In respect of Q.No.4 they have stated that the, levy of GST is on supply and the scope of supply is discussed in Section 7 of the CGST Act. Accordingly, it is necessary to determine whether the movement of equipment between CIPL Offices will qualify as supply under Section 7(1) of the CGST Act. The applicant has stated that the modes of transfer which have been enumerated in Section 7(1)(a) of the CGST Act are as below: a) Sale is defined in Section 54 of the Transfer of Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the consideration / fee that it would receive for the service. In respect of Q.No.5 they have stated that in case of supply of goods for reasons other than by way of supply, a delivery challan is required to be issued in terms of Rule 55 of the CGST Rules. As mentioned above, the movement of equipment between CIPL, Kerala to CIPL, Karnataka per se is not taxable under GST. Accordingly, it can be said that movement of equipment are for reasons other than by way of supply. In such a case, no invoice is required to generated under GST and the movement would be made under the cover of delivery challan in terms of Rule 55 of the CGST Rules. Also Rule 138 of the CGST Rules. requires the consignor to issue e-way bill in case the value of goods exceeds INR 50,000. Accordingly, CIPL, Kerala would also be issuing e-way bill along with delivery challan in terms of the said Rules. 3.1 Due to the prevailing PANDEMIC situation and in order not to delay the proceedings, the applicant was addressed through the Email Address mentioned in the application to seek their willingness to participate in a virtual Personal Hearing in Digital media. The applicant consented and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. They have submitted a document containing broad contours of the MoU which is proposed to be entered among different GSTINs of the applicant in the new business model. 4.2 Further, letter was issued to the applicant on 29.10.2021 seeking the following specific details: 1. In para (A2a) of their submissions it is stated that the ownership of all existing equipment in India shall be consolidated in the applicant s GSTIN in Tamil Nadu. On perusal of the ruling issued by AAR, Karnataka, it is seen that under para 4.2.1, it is stated that the applicant would be consolidating the ownership of all existing equipment in the state of Karnataka. The applicant was asked to explain with establishing documents as to how CIPL proposed to consolidate all the existing equipment as assets of CIPL, Tamil Nadu and CIPL, Karnataka along with the list of equipment proposed to be consolidated. The factual proposal regarding the consolidation of ownership in the books of accounts of M/ s. CIPL, the company may be furnished with the supporting documentation i.e., assets to be consolidated and the relevant registers. The same is required to establish the factual position of the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrespondence exchanged. The Company has also submitted a sample agreement which is entered by the Company with the customer under the current operating model. It is also submitted that the Company is engaged in the business of pooling and leasing of pallets and crates to the customers across India. Hence, the proposed consolidation would be with respect to such assets lying in different States of the country. (ii) Response: It must be noted that the goods shall always be owned by CIPL Tamil Nadu. However, the possession of the goods may be with another CIPL registration (CIPL Kerala in the present case). During business, there are chances that other units say, CIPL Karnataka may require equipment from the Applicant which are available with CIPL Kerala (under lease from CIPL Tamil Nadu). In such a case, basis the instructions from the Applicant, CIPL Kerala would transfer the equipment to CIPL Karnataka. The moment equipment reaches CIPL Karnataka, the Applicant would stop charging CIPL Kerala and start charging CIPL Karnataka towards lease charges. It must be noted that it is proposed that as per the Memorandum of Understanding (`MoU ) between CIPL Tamil Nadu and CIPL Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cers. Applicant have submitted that they are contemplating to consolidate the ownership of their assets in the state of Tamil Nadu under a proposed business model called pooling , wherein the ownership is said to rest with the applicant. They propose to rent/lease such equipment to their customers and their units situated in other states. In this scenario, they have applied for ruling on the following issues:- 1. Whether the pallets, crates and containers (hereinafter referred as equipment ) leased by CHEP India Private Limited (CIPL) located and registered in Tamil Nadu to its other GST registrations located across India (say CIPL Kerala), would be considered as lease transaction and accordingly taxable as supply of services in terms of Section 7 of the Central Goods and Services Tax Act, 2017 ( CGST Act ) and Tamil Nadu Goods and Services Tax Act, 2017 ( TNGST Act )? 2. If the answer to Question 1 is Yes, what is the value on which GST has to be charged i.e. whether it should be lease charges or the value of equipment in terms of Section 15 of the CGST Act and TNGST Act read with relevant Rules? 3. What are the documents that should accompany the movement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me company and the audited financial statements are prepared for the company as a whole. Therefore the transactions get nullified in the audited financial statements and thus do not separately form part of revenue/cost of the company. (v) As the model is a proposed one, no MOU has been executed between the different GSTINs of the company which are considered as distinct person under GST law so far. However to provide a better understanding they had furnished a document containing broad contours of the MOU which is proposed to be executed. It is observed that the MOU has a disclaimer that the clauses contained therein are just indicative broad pointers which may form part of the MOU and that it is not the final MOU. Further commercial and legal aspects may be added in the final draft. (vi) They had submitted a copy of agreement entered between them and their customer namely, M/s. Trac Auto Transmission. 8.1 From the submissions above, it is observed that the business model proposed is in the stage of contemplation and has not attained finality with respect to merger, disposition of the assets and the following supply, in as much as the applicant could not provide a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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