2022 (12) TMI 512 - AAR - GST

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

The AAR, Maharashtra ruled that leasing of pallets, crates and containers by a company to its other GST registrations across India constitutes supply of ... Lease as supply under Schedule II - distinct persons under Section 25 - valuation between distinct persons under Rule 28 - delivery challan and e way bill for movement not amounting to supply - jurisdictional limitation of State Authority for Advance Ruling under section 96Lease as supply under Schedule II - distinct persons under Section 25 - Leasing of pallets, crates and containers by CIPL, Maharashtra to other GST registrations of the same company (for example CIPL, Karnataka) is a taxable supply. - HELD THAT: - The Authority noted that the definition of 'supply' is wide and that Schedule II treats transfer of the right to use goods for consideration as a service. Section 25 creates a deeming fiction treating multiple registrations of the same person as distinct persons for GST purposes; transactions between such distinct persons fall within the ambit of supply (including entries in Schedule I). Applying these principles to the facts as pleaded, the Authority agreed with the applicant that the proposed intra group leasing transactions constitute supply and are taxable under the GST law.Yes; the intra group lease transactions as described are supply liable to GST.Valuation between distinct persons under Rule 28 - transaction value under Section 15 - Value for levy of GST on the intra group lease is to be determined in accordance with the valuation principles applicable to supplies between distinct persons, with the lease charges being the relevant basis in the facts pleaded. - HELD THAT: - The Authority observed that where supplies occur between distinct persons, Rule 28 (read with Section 15) governs valuation and permits adoption of the invoice/transaction value where the recipient is eligible for full input tax credit. The applicant stated that lease charges would be agreed and invoiced periodically (based on days of usage) and that branches are eligible to claim input tax credit. The Authority further noted that, given the nature of the leasing business and the likely parity of rates charged to external customers and branches, the lease charges (as invoiced) are the appropriate basis of valuation for GST.Adopt lease charges (invoice value) as the value for GST subject to applicable valuation rules for supplies between distinct persons.Delivery challan and e way bill for movement not amounting to supply - Advance ruling on what documents should accompany movement of goods from CIPL, Maharashtra to CIPL, Karnataka was not admitted and therefore not decided. - HELD THAT: - The Authority recorded that questions concerning what documents should accompany movement (questions 3 and 5) were not admitted because they fall outside the scope of the advance ruling under section 97 as raised before this State Authority. Consequently the Authority did not pronounce on documentary formalities in respect of such movements in this ruling.Question not admitted; no ruling on accompanying documents was given.Jurisdictional limitation of State Authority for Advance Ruling under section 96 - The question whether movement of equipment from CIPL, Karnataka to CIPL, Tamil Nadu on instruction of CIPL, Maharashtra amounts to a supply was not answered by this Authority for want of jurisdiction. - HELD THAT: - The Authority explained that the situs/place of supply rules and the fact situation relied upon indicate the primary question arises outside the State of Maharashtra. Under the statutory scheme the State Authority for Advance Ruling has jurisdiction limited to matters within the State; section 96 and related provisions prevent this Maharashtra AAR from adjudicating questions whose situs of transaction is not within Maharashtra. For that reason the Authority refrained from answering question 4 on merits.Not answered by this Authority due to lack of jurisdiction.Delivery challan and e way bill for movement not amounting to supply - Advance ruling on what documents should accompany movement of goods from CIPL, Karnataka to CIPL, Tamil Nadu was not admitted and therefore not decided. - HELD THAT: - As with question 3, the Authority held that the questions on documentary requirements for inter state movement involving locations outside Maharashtra were not admitted before this State Authority under the advance ruling provisions and hence no determination was made.Question not admitted; no ruling on accompanying documents was given.Final Conclusion: The Authority ruled that the intra group provision of pallets, crates and containers by CIPL, Maharashtra to other GST registrations of the same company constitutes a taxable lease (supply). Valuation for GST is to be determined in accordance with Section 15 and Rule 28, with lease charges (invoice value) being the appropriate basis on the facts pleaded. Questions on documentary formalities (Questions 3 and 5) and the specific issue as to movements between branches outside Maharashtra (Question 4) were not adjudicated by this Maharashtra Authority-the document questions were not admitted and the movement question was not answered for want of jurisdiction. 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.