AAR rules manufacture and supply of Precast Manholes constitutes goods supply, FOC materials included in valuation under Section 15(1)

AAR Rajasthan ruled that manufacture and supply of Precast Manholes and Rises constitutes supply of goods, not services, under GST Act 2017. The applicant engaged in complete manufacturing process creating movable property, distinguishing it from job work. Regarding valuation, materials supplied free of cost by recipient must be included in transaction value under Section 15(1) CGST/RGST Act 2017. The arrangement represents barter consideration where applicant receives both monetary payment and free essential inputs like cement and steel, requiring inclusion of FOC materials' value for tax computation purposes.

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Issues Involved:
1. Classification of supply as goods or services.
2. Determination of transaction value under Section 15(1) of the CGST/RGST Act, 2017.
3. Inclusion of free-of-cost materials in the transaction value for tax purposes.

Summary:

1. Classification of Supply:
The primary issue was whether the supply of precast manholes using steel and cement provided by the recipient constitutes a supply of goods or services. The Authority for Advance Ruling (AAR) determined that the activity involved manufacturing new goods (precast manholes) from raw materials, which qualifies as a supply of goods under the GST Act. The AAR concluded that this activity does not fall under the definition of job work, as the ownership of the goods remains with the applicant, and the activity involves manufacturing new goods rather than treating or processing goods belonging to another registered person.

2. Determination of Transaction Value:
The AAR examined whether the price charged by the applicant from the recipient (M/s Larsen & Toubro Ltd) for the supply of precast manholes constitutes the transaction value under Section 15(1) of the CGST/RGST Act, 2017. It was determined that the price quoted by the applicant does not fulfill the condition of being the sole consideration for the supply, as the main inputs (cement and steel) are supplied free of cost by the recipient. Therefore, the price charged by the applicant cannot be considered the transaction value under Section 15(1).

3. Inclusion of Free-of-Cost Materials in Transaction Value:
The AAR analyzed whether the value of materials provided free of cost by the recipient should be included in the transaction value for tax purposes. Referring to Section 15(2)(b) of the CGST/RGST Act, the AAR held that the value of such materials must be included in the transaction value. The provision stipulates that any amount the supplier is liable to pay in relation to the supply, but which has been incurred by the recipient and not included in the price paid or payable, should be included in the transaction value. Consequently, the free-of-cost materials provided by the recipient form part of the transaction value for the purpose of levy of tax.

Ruling:
1. The supply of precast manholes using steel and cement provided by the recipient is classified as a supply of goods, with the HSN Code 68109990 and a tax rate of 18%.
2. The price charged by the applicant to the recipient is not the transaction value under Section 15(1) of the CGST/RGST Act, 2017.
3. The value of materials provided free of cost by the recipient must be included in the transaction value for the purpose of levy of tax.

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