Appellate Authority excludes free tools cost from component value.

The Appellate Authority set aside the ruling of the AAR and held that the cost of tools supplied free of cost by the OEM customer should not be added to the value of the components supplied by the Appellant. This ruling applies specifically to the contract with the customer and similar contracts with identical terms and conditions.

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Issues Involved:
1. Whether the amortized cost of tools supplied free of cost (FOC) by the customer should be added to the value of the goods supplied for the purpose of GST under Section 15 of the CGST Act read with Rule 27 of CGST Rules.

Issue-wise Detailed Analysis:

1. Background and Facts of the Case:
M/s. Nash Industries (I) Private Limited (Appellant) is a manufacturer of sheet metal pressed components. The tools required for manufacturing these components are designed and manufactured by the Appellant and billed to the customer, but retained by the Appellant for manufacturing components. The Appellant sought an advance ruling on whether the amortized cost of these tools should be added to the value of the goods supplied for GST purposes.

2. Initial Ruling by the Authority for Advance Ruling (AAR):
The Karnataka Authority for Advance Ruling ruled that the amortized cost of tools supplied FOC by the customer to the Appellant should be added to the value of the components supplied as per Section 15 of the CGST/KGST Act, 2017.

3. Grounds of Appeal by the Appellant:
The Appellant argued that:
- The purchase order from the customer is only for manufacturing components using the tools supplied FOC by the customer.
- CBIC Circular No. 47/21/2018-GST clarifies that the value of tools supplied FOC by the customer should not be added to the value of the components if the tools are owned by the customer.
- The Appellant is not liable to include the cost of tools in the value of components as the tools are owned by the customer and supplied FOC.

4. Personal Hearing and Additional Submissions:
During the personal hearing, the Appellant reiterated their submissions and provided additional documents including purchase orders and comparisons with similar cases. The Maharashtra AAR ruling in the case of Lear Automotive India Private Ltd was cited, where it was held that the amortized value of tools received FOC from the customer should not be included in the value of finished goods.

5. Discussion and Findings:
The Appellate Authority examined the contractual terms between the Appellant and their customer, Daimler India Commercial Vehicles Pvt Ltd (DICV). The contract specified that:
- The tools, once paid for by DICV, become DICV's property.
- The Appellant retains the tools temporarily for manufacturing components.
- The Appellant is obligated to maintain the tools and return them to DICV upon completion of the contract.

6. Analysis under GST Law:
Under the GST regime, the taxable event is the 'supply' of goods or services. Section 15 of the CGST Act states that the transaction value should include any amount the supplier is liable to pay but is incurred by the recipient. However, in this case, the tools are supplied by the customer (DICV) FOC, and the contract does not place any obligation on the Appellant to incur the cost of the tools.

7. Clarification by CBIC Circular:
CBIC Circular No. 47/21/2018-GST clarifies that the value of tools supplied FOC by the customer should not be added to the value of components if the tools are owned by the customer. The Appellate Authority found that the contractual terms between the Appellant and DICV align with this clarification, indicating that the tools are provided by DICV and not the Appellant's responsibility.

8. Conclusion and Ruling:
The Appellate Authority set aside the ruling of the AAR and held that the cost of tools supplied FOC by the OEM customer (DICV) should not be added to the value of the components supplied by the Appellant. This ruling applies specifically to the contract with DICV and similar contracts with identical terms and conditions.

9. Disposition of Appeal:
The appeal was disposed of with the ruling that the cost of tools supplied FOC by the customer is not required to be added to the value of the components supplied by the Appellant.

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