OEM tools provided free not subject to GST, ruling based on contract with customer.

The ruling clarified that the cost of tools provided by the Original Equipment Manufacturer (OEM) on a free-of-cost basis did not need to be added to the value of parts supplied by the Applicant, making it not liable for GST. The decision was based on the examination of the contract with Tata Autocomp Systems Ltd., stating that the tools supplied by the customer on a returnable basis without any consideration did not attract GST. The ruling would apply to similar contracts where tools are provided by the OEM at no cost for production purposes.

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Issues Involved:
Clarification on applicability of Tool Amortisation cost in GST regime for Capital Goods received freely on returnable basis.

Analysis:

Issue 1: Applicability of Tool Amortisation cost in GST Regime
The Applicant, a private limited company involved in manufacturing plastic moulds and parts, sought an Advance Ruling on whether the Tool Amortisation cost (Transaction Value) should be applicable under GST for Capital Goods received freely on a returnable basis from customers. The Applicant clarified that the tools were either manufactured by them or provided by customers at no cost for production of parts. The key question was whether the cost of the tool should be added to the transaction value for GST purposes.

Discussion:
During the personal hearing, the Applicant reiterated their stance, emphasizing that the tools were supplied by customers for production on a returnable basis. The Applicant provided a copy of the purchase order from Tata Autocomp Systems Ltd., highlighting that the tools supplied by the customer remained their property and were to be used exclusively for the customer's parts. The condition in the purchase order mentioned that no amortised value should be added to the transaction value for GST from July 1, 2017, onwards.

Conclusion:
The Authority referred to Circular No. 47/21/2018-GST, which clarified that tools provided by the Original Equipment Manufacturer (OEM) on a free-of-cost basis do not constitute a supply if there is no consideration involved. In cases where the component manufacturer is obligated to provide tools but they are provided by the OEM for free, the amortised cost of the tools should be added to the value of components supplied. Based on the examination of the contract with Tata Autocomp Systems Ltd., the ruling stated that the cost of tools supplied by the OEM on a free-of-cost basis did not need to be added to the value of parts supplied by the Applicant, making it not liable for GST.

This ruling was specific to the contract with Tata Autocomp Systems Ltd. and would apply to other contracts only if the terms and conditions were similar. The ruling clarified that the cost of tools provided by the OEM on a free-of-cost basis did not attract GST on the value of parts supplied by the Applicant.

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