2023 (4) TMI 960 - AAR - GST

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 ... Supply of goods - supply of services - transaction value under Section 15 - inclusion of value of goods supplied free of cost in transaction value - job work - considerationSupply of goods - supply of services - job work - Classification of supply of precast manholes manufactured by the applicant using cement and steel provided by the recipient - HELD THAT: - The Authority found that the applicant undertakes the entire manufacturing process of precast manholes and risers producing new movable goods. The activity therefore results in a supply of goods and not a supply of services. The facts showed the applicant would manufacture fresh goods (not merely perform a treatment or process on goods belonging to another), so the transaction falls outside the statutory definition of job work. The AAR rejected the applicant's reliance on the bus body circular and Notification entry for manufacturing services on inputs owned by others because those authorities concern modification/treatment of an existing good (e.g., body on chassis) rather than creation of new goods from raw materials. Consequently the supply is classified as goods (HSN 68109990) taxable at 18%. [Paras 5]Supply is a supply of goods; HSN 68109990; 18%.Transaction value under Section 15 - consideration - inclusion of value of goods supplied free of cost in transaction value - Whether the price charged by the applicant alone constitutes the transaction value under Section 15(1) when main inputs (cement and steel) are supplied free of cost by the recipient - HELD THAT: - The Authority analysed Sections 15(1) and 15(2)(b) together with the definition of consideration and concluded that where essential inputs are provided by the recipient free of cost, the supplier receives consideration in more than one form. The free provision of main inputs operates as a form of consideration (a non monetary element) alongside the monetary price; therefore the price quoted by the applicant is not the sole consideration required by Section 15(1). In such circumstances Section 15(2)(b) mandates inclusion of amounts that the supplier is liable to pay but which have been incurred by the recipient and not included in the price. The AAR rejected the applicant's contention that the commercial contract alone precludes inclusion, holding that GST valuation must be determined within the statutory framework of Section 15. [Paras 6]No - the monetary price alone is not the transaction value under Section 15(1).Inclusion of value of goods supplied free of cost in transaction value - transaction value under Section 15 - Whether materials supplied free of cost by the recipient (and not within the supplier's scope) must be included in the transaction value for levy of tax - HELD THAT: - Applying Section 15(2)(b) to the facts, the Authority held that where the recipient supplies essential inputs that the supplier would otherwise have been liable to procure, and those inputs are used up in manufacture, their value constitutes consideration and must be included in the value of supply. The AAR distinguished circulars and examples concerning returnable moulds/dies (which are not consumed) and noted that consumed inputs (cement and steel) lose identity and thus their value is includible. The Authority therefore held that the value of such free supplies forms part of the transaction value for GST valuation. [Paras 6]Yes - materials supplied free of cost by the recipient shall form part of the transaction value.Final Conclusion: The Authority ruled that the activity is supply of goods (HSN 68109990 at 18%); the monetary price alone is not the transaction value where essential inputs are provided free by the recipient; and the value of those free supplied materials must be included in the transaction value for levy of tax. 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.