2023 (6) TMI 776 - AAAR - GST

GST applies to pallet leasing between related entities under Rule 28 and Section 15 valuation provisions

AAAR Maharashtra ruled on GST implications for pallet leasing services between related entities. The Authority held that valuation for leasing services ... Supply under Section 7 - Value of supply - transaction value and valuation rules - Rule 28 - second proviso (invoice value deemed open market value where recipient eligible for full ITC) - Valuation between distinct persons / related persons - Scope of advance ruling under Section 97(2)Rule 28 - second proviso (invoice value deemed open market value where recipient eligible for full ITC) - Value of supply - transaction value and valuation rules - The value on which GST is to be charged for leasing of equipment by the appellant to its other registrations. - HELD THAT: - The invoice value cannot be taken as transaction value under Section 15(1) because the supplies are between distinct registrations of the same legal entity. Where transaction value cannot be determined under Section 15(1), the prescribed rules apply. Rule 28 provides a hierarchical method for valuation between distinct or related persons, and its second proviso states that where the recipient is eligible for full input tax credit the value declared in the invoice shall be deemed to be the open market value. The Appellate Authority concurred with precedents and the reasoning of the advance ruling and held that the recipient branches would be eligible for full input tax credit; accordingly the invoice value declared by the appellant is to be treated as the value on which GST is chargeable in terms of Section 15 read with the second proviso to Rule 28. [Paras 18, 19, 20, 28]The value declared in the invoice issued by the appellant is the value on which GST has to be charged in terms of Section 15 of the CGST Act read with the second proviso to Rule 28 of the CGST Rules.Supply under Section 7 - Supply vs mere movement of goods - Whether movement of equipment from one branch to another on instructions of the owner-branch is a mere movement or a supply taxable under Section 7. - HELD THAT: - The Authority found that although an intermediate branch (lessee) may be in possession of the goods, ownership rests with the owner-branch. When the owner instructs transfer of the goods from one branch to another, the earlier lease with the intermediate branch effectively ends and the goods are returned to the owner who then enters into a new lease with the receiving branch. This sequence constitutes a supply by the owner-branch (lease/rental) to the receiving branch rather than a mere movement. Further, when the intermediate branch facilitates transportation under the owner's instruction, it acts as bailee/agent and the facilitation service rendered by that intermediate branch to the owner is a taxable service for which facilitation fees with GST are exigible. [Paras 22, 23, 24, 25, 28]Movement of equipment on instruction of the owner-branch is not a mere movement and falls within the ambit of supply under Section 7; the owner-branch's lease to the receiving branch is taxable, and facilitation services by the intermediate branch are also exigible to GST.Scope of advance ruling under Section 97(2) - Whether the Authority may answer questions on the documents required to accompany movement of goods (delivery documentation) as part of an advance ruling application. - HELD THAT: - The Authority examined the scope of matters admissible under Section 97(2) and observed that questions on documentation (documents to accompany movement) do not fall within the specified categories for advance rulings. The application had been filed under provisions addressing time, value and whether an activity amounts to supply, whereas questions 3 and 5 sought guidance on documentary requirements. The Authority therefore held that such documentary questions are not answerable within the advance ruling jurisdiction as they do not fall under Section 97(2)'s enumerated categories. [Paras 21, 26, 28]Questions on what documents should accompany movement of the goods cannot be answered as they are outside the ambit of advance ruling under Section 97(2) of the CGST Act.Final Conclusion: The Appellate Authority modified the MAAR ruling: (i) invoice value declared by the appellant shall be treated as the value for GST under Section 15 read with the second proviso to Rule 28; (ii) movement of equipment on instruction of the owner-branch is a taxable supply (and facilitation by intermediate branch is taxable); and (iii) questions on documentary requirements for movement are not answerable within the advance ruling scheme. Issues Involved:1. Taxability of lease transactions between different GST registrations of the same entity.2. Valuation of supply for GST purposes.3. Documentation required for the movement of goods.4. Tax implications of inter-state movement of goods based on instructions from another state unit.Summary:Issue 1: Taxability of Lease TransactionsQuestion 1:- The transaction between CIPL Maharashtra and CIPL other locations may be treated as a supply of leasing services.Issue 2: Valuation of SupplyQuestion 2:- The value on which GST is to be charged should be the value declared in the invoice issued by the appellant, in terms of Section 15 of the CGST Act, 2017 read with the second proviso to Rule 28 of the CGST Rules, 2017.- The valuation mechanism suggested by the Advance Ruling Authorities is based on presumptions and not aligned with the relevant valuation rules prescribed under GST.- The correct valuation should be governed by Rule 28 of the CGST Rules, which states that the invoice value shall be deemed to be the open market value where the recipient is eligible for full input tax credit.Issue 3: Documentation for Movement of GoodsQuestion 3:- The question regarding documentation cannot be answered as it is not covered within the ambit of advance ruling in terms of Section 97 of the CGST Act, 2017.Question 5:- Similarly, the question regarding the documents required for the movement of goods from CIPL Karnataka to CIPL Tamil Nadu cannot be answered as it is outside the purview of Section 97 of the CGST Act, 2017.Issue 4: Tax Implications of Inter-State MovementQuestion 4:- Movement of equipment from CIPL Karnataka to CIPL Tamil Nadu on the instruction of CIPL Maharashtra cannot be said to be mere movement of goods not amounting to a supply. It is considered a supply of services in terms of Section 7 of the CGST Act, 2017.- The transaction involves CIPL Karnataka acting as a bailee for CIPL Maharashtra, and the facilitation service provided by CIPL Karnataka is taxable.- The movement of goods will be treated as a supply of lease rental services by CIPL Maharashtra to CIPL Tamil Nadu.Conclusion:The appellate authority modified the advance ruling pronounced by the MAAR, clarifying the valuation of supply and tax implications of inter-state movement of goods while maintaining that documentation-related questions are outside the scope of advance ruling.