2022 (12) TMI 512 - AAR - GST

Company leasing pallets and containers to its own GST registrations constitutes taxable supply under Schedule II

In Re: M/s. Chep India Pvt. Ltd.

The AAR, Maharashtra ruled that leasing of pallets, crates and containers by a company to its other GST registrations across India constitutes supply of ... Classification of supply - supply of services or not - pallets, crates and containers leased by CHEP India Private Limited located and registered in Maharashtra to its other GST registrations located across India - lease transaction or not - value of GST - documents that should accompany the movement of the goods from CIPL, Maharashtra to CIPL, Karnataka - movement of leased equipment from CIPL, Karnataka to CIPL, Tamil Nadu on the instruction of CIPL, Maharashtra - documents that should accompany the movement of the goods from CIPL, Karnataka to CIPL, Tamil Nadu. HELD THAT:- The GST is leviable on supply of goods or services. The definition of supply is wide and includes “lease” within its ambit. Also, as per point 5(f) 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 applicant has rightly referred to Ind AS 116 and also referred to Section 105 of the Transfer of Property act, 1882, in this respect. Accordingly, any lease transaction is deemed as supply of services as per Schedule II, since it involves transfer of right to use the goods for a consideration. In the current case, CIPL, Maharashtra transfers the right to use the equipment for a period of time to third party customers in Maharashtra and other CIPL registrations across India for periodical considerations. In respect of the customers in Maharashtra, the Applicant is considering the transaction as leasing. CIPL, Maharashtra is discharging GST on the invoice amount which is computed on the basis of period of usage of equipment (as per pleadings made by the applicant) - as per the entry in Schedule I of the CGST Act, there can be supply of goods or services between such registrations even in case no consideration is involved. In the current case, Cl PL, Maharashtra can enter into lease transaction with CIPL branches in other States registered under the respective State GST legislation across India say for e.g., Cl PL, Karnataka 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. 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 MGST Act read with relevant Rules? - HELD THAT:- The rates to be applied for leasing to equipment to the other customers and to the branches of applicant would be same or similar. If such rates (for leasing of equipment) are by and large same or similar there would not be any problems as such. Since in leasing transactions the equipment is returned back to the original person who leased the equipment (after completion of lease period), the rate of leasing is normally fixed by such lessor at such a price which would cover the cost plus other overheads and profit. So, whatever rates are fixed for normal customer, if applied to branch, would not cause any serious problem - When the movement (from Maharashtra to other state) happens because of order by customer at the other state branch, the value as offered by the ultimate customer for providing lease services is available and that may be considered for adopting value of supply for branch transfer. Whether movement of leased equipment from CIPL, Karnataka to CIPL, Tamil Nadu on the instruction of CIPL, Maharashtra can be said to be mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act and MGST Act, and thereby not liable to GST? - HELD THAT:- If the situs of transaction in question is not within the state of Maharashtra, then as per provisions of section 96 of the Central Goods and service Tax Act 2017 (and similar provision under the MGST Act), the Maharashtra Advance Ruling Authority cannot acquire the jurisdiction over the questions raised, hence no ruling can be given on this question. Issues Involved:1. Taxability of leased equipment as supply of services.2. Determination of the value on which GST has to be charged.3. Documentation required for movement of goods.4. Taxability of inter-state movement of leased equipment.5. Documentation required for inter-state movement of goods.Detailed Analysis:Issue 1: Taxability of Leased Equipment as Supply of ServicesThe primary issue is whether the leasing of pallets, crates, and containers (equipment) by CHEP India Private Limited (CIPL) from its Maharashtra registration to its other GST registrations across India constitutes a lease transaction and is taxable as a supply of services under Section 7 of the CGST Act.The judgment confirms that GST is leviable on the supply of goods or services, and the definition of supply includes 'lease' within its ambit. As per point 5(f) of Schedule II, the '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 a service under GST. The judgment agrees with the applicant's interpretation that Section 25 of the CGST Act creates a deeming provision whereby two registrations of the same company are considered distinct persons under GST. Therefore, lease transactions between different registrations of the same company are taxable under GST as supply of services.Issue 2: Determination of the Value on Which GST Has to be ChargedThe second issue pertains to the value on which GST should be charged, whether it should be the lease charges or the value of the equipment. The judgment acknowledges that the business model proposed by CIPL involves consolidating ownership of all equipment in Maharashtra and leasing it to other units at agreed leasing or hiring charges. Since the business model is not yet operational, the judgment considers the question hypothetical but provides guidance.The value on which GST has to be charged would be the lease charges that would be charged by the other branch to the ultimate customer in the other state, or such other normal value derived from the lease rate normally charged to customers. The judgment emphasizes that the rate applied for leasing equipment to branches should be similar to that charged to customers, ensuring consistency in the valuation.Issue 3: Documentation Required for Movement of GoodsThe third issue involves the documents that should accompany the movement of goods from CIPL, Maharashtra to CIPL, Karnataka. This question was not admitted as it falls outside the scope of Advance Ruling under Section 97 of the GST Act. The judgment does not provide an answer to this issue.Issue 4: Taxability of Inter-State Movement of Leased EquipmentThe fourth issue addresses whether the movement of leased equipment from CIPL, Karnataka to CIPL, Tamil Nadu on the instruction of CIPL, Maharashtra constitutes mere movement of goods not amounting to a supply under Section 7 of the CGST Act, and thereby not liable to GST.The judgment notes that the main question involves the movement of goods located in a state other than Maharashtra. It refers to Section 10 of the Integrated Goods and Services Tax (IGST) Act, which determines the place of supply based on the location of goods at the time of delivery. The judgment concludes that the Maharashtra Advance Ruling Authority does not have jurisdiction over questions related to transactions outside Maharashtra. Therefore, no ruling is given on this issue.Issue 5: Documentation Required for Inter-State Movement of GoodsThe fifth issue involves the documents that should accompany the movement of goods from CIPL, Karnataka to CIPL, Tamil Nadu. Similar to Issue 3, this question was not admitted as it falls outside the scope of Advance Ruling under Section 97 of the GST Act. The judgment does not provide an answer to this issue.Conclusion:- Question 1: The leasing of equipment by CIPL from Maharashtra to other GST registrations across India is considered a lease transaction and taxable as a supply of services.- Question 2: The value on which GST has to be charged would be the lease charges, as discussed.- Question 3 & 5: Not admitted.- Question 4: No ruling provided due to jurisdictional limitations.The judgment provides clarity on the taxability of lease transactions between different registrations of the same company and the valuation for GST purposes, while noting jurisdictional limitations for certain inter-state issues.