2019 (4) TMI 2026 - AAR - GST

AAR rules tooling kit manufacture for forging production constitutes separate taxable supply under GST, not incidental to forgings

AAR Jharkhand ruled that manufacture of tooling kits for forging production constitutes a separate taxable supply under GST, not incidental to the ... Classification of supply - forgings - whether the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or it may be said that manufacture of tooling kit is only incidental to the ultimate supply of forgings? - amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST - whether amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated? HELD THAT:- On going through the application and other documents submitted by the applicant as well as the view of the applicant, it is observed that the applicant is engaged in manufacture of forgings. For manufacture of forgings the applicant manufacture capital goods namely tools, dies and mould, generally known as the tooling kit based on the drawing and design specifications given by each customer and the charges incurred for the manufacture of this tool kit is borne by the customer. This agreed charge has been recovered from their customer by raising separate invoice which is reflected in the copy of invoice, submitted by the applicant. The legal provisions as stated above, it is clear that the liabilities of tax arise on the date of issue of invoice by the supplier with respect to the supply. In the instant case, the applicant has issued separate invoice to their customers to recover the agreed amount for manufacture of tooling kit, which is treated as a supply of the goods as per Paragraph 1 of Schedule II of the Act. Hence, the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply and chargeable to GST. The amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated. The view if the applicant, in this regard, is that since the supply of forgings to a foreign customer involves movement of forgings to a place outside India, the supply shall be treated as an export of forgings further, since the amount recovered after manufacture of tooling kit is incidental to such export of forgings, the amount so received is actually a consideration for export of goods. Hence, the amount so received shall also be zero rated as the export of forgings attracts zero rated under Section 16 of the IGST, Act. Thus, it is clearly established that the amount recovered from foreign customers after the manufacture of tooling kit cannot be treated as export, hence no question of zero rated arises. Issues Involved:1. Whether the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or incidental to the ultimate supply of forgings.2. Whether the amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST.3. Whether the amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero-rated.Issue-wise Detailed Analysis:1. Separate Supply or Incidental Supply:The applicant argued that the manufacture of the tooling kit is incidental to the supply of forgings and does not constitute a separate supply. They referenced Section 7 of the CGST Act, which defines 'supply' and includes incidental expenses in the value of the supply as per Section 15(2). The applicant contended that the tooling kit is an intermediate product used exclusively for manufacturing forgings, and the charges for the tooling kit are recovered as part of the overall supply of forgings.Upon examination, the Authority observed that the applicant raises separate invoices for the tooling kit, indicating it as a distinct supply. According to Section 12 of the CGST Act and Rule 3 of the Point of Taxation Rules, the liability to pay tax arises at the time of issuing the invoice. The Authority concluded that the tooling kit should be treated as a separate supply and chargeable to GST, as it aligns with Paragraph 1 of Schedule II of the CGST Act.2. CGST and SGST or IGST on Amount Recovered from Indian Customers:The applicant asserted that the determination of whether the amount recovered attracts CGST and SGST or IGST depends on the place of supply of the forgings, as per Sections 7(1) and 8(1) of the IGST Act. They argued that if the forgings are supplied to customers outside Jamshedpur, it should be treated as an inter-state supply, and IGST should be levied. Conversely, if the customer is within Jamshedpur, it should be treated as an intra-state supply, and CGST and SGST should be levied.The Authority clarified that Jamshedpur falls under the jurisdiction of Jharkhand State and has not been given the status of a separate state. Therefore, goods supplied to customers outside Jharkhand are treated as inter-state supplies, attracting IGST, while supplies within Jharkhand are treated as intra-state supplies, attracting CGST and SGST.3. Zero-Rated Export for Amount Recovered from Foreign Customers:The applicant contended that the supply of forgings to foreign customers involves moving goods out of India, qualifying as an export under Section 2(5) of the IGST Act. They argued that the amount recovered for the tooling kit is incidental to the export of forgings and should be zero-rated under Section 16 of the IGST Act.The Authority noted that the tooling kit itself is not exported but used within India to manufacture forgings. As per the definition of 'export of goods,' the goods must be taken out of India. Since the tooling kit remains in India, the amount recovered from foreign customers for the tooling kit cannot be treated as an export and, therefore, is not zero-rated.Advance Ruling:1. The manufacture of the tooling kit for further manufacture of forgings is to be treated as a separate supply.2. The amount recovered from Indian customers after the manufacture of the tooling kit is leviable to CGST and SGST or IGST, depending on whether the supply is intra-state or inter-state.3. The amount recovered from foreign customers after the manufacture of the tooling kit cannot be treated as export and thus is not zero-rated.