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 ... Classification of supply - Valuation - supply of goods or supply of services or both - manufacture and supply Precast Manholes and Rises to various government and non government entities - price to be charged from the recipient i.e. M/s Larsen & Toubro Ltd by the applicant for supply of precast manhole shall be transaction value in terms of Section 15(1) of the CGST/ RGST Act 2017 - material which are to be made available free of cost by the recipient - forming part of the transaction value for the purpose of levy of tax or not? HELD THAT:- It is observed that it is imperative for any act to be service that should not be goods. It would be worthwhile to mention that applicant himself stated that he has intention to manufacture and supply Precast Manholes and Rises. Even the manufacturing process submitted by the applicant itself shows that the applicant is engaged in manufacturing of goods ie Precast Manholes and Rises. The Precast Manholes and Rises are movable property; hence we conclude that supply of Precast Manholes and Rises is supply of goods and not a supply of services on the basis of aforesaid findings. The manufacturing activities carried out by applicant do not fall under the ambit of job work as it involved whole manufacturing process for manufacturing of Precast Manholes and Rises and it cannot be termed as any treatment or process undertaken by a person on goods belonging to another registered person. Even concept of job work in GST is govern by different set of Rules and procedures and these are not question in hand. Hence in this case Precast Manholes and Rises are to be manufactured by applicant on order from recipient wherein main ingredients are supplied by recipient, and applicant will manufacture a fresh Precast Manholes and Rises, so the ownership of goods remains with applicant hence Subject supply is supply of goods under GST Act 2017. Valuation - inclusion of value of material supplied Free of Cost (FOC) by the buyer - HELD THAT:-t Free of cost supply of main ingredients from recipient is nothing but mutual understanding between both parties which do not debar them from the essence of supply of goods and consideration received under GST. - Combine readings of provisions of section 15, we hold from such type of adjustments applicant will receive the consideration in barter. I.e. one consideration in the shape of price as per agreement and second in the shape of free issue of essential inputs like cement and steels. The price to be charged from the recipient i.e. M/s Larsen & Toubro Ltd by the applicant for supply of precast manhole shall not be transaction value in terms of Section 15(1) of the CGST / RGST Act 2017 - the material which are to be made available free of cost by the recipient and are not within the scope of applicant for supply of precast manhole shall form part of the transaction value for the purpose of 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.