2023 (6) TMI 776 - AAAR - GST

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

In Re: M/s. CHEP India Private Limited.

AAAR Maharashtra ruled on GST implications for pallet leasing services between related entities. The Authority held that valuation for leasing services ... Classification of supply - supply of services - business of leasing of pallets, crates and containers - interstate movement of goods between the Units of the appellant or between the Unit of the appellant and customers premises - taxability of the aforesaid transaction since the business model is not operational - documentation for the movement of goods. Supply of leasing services - input tax credit as per the lease value charged by the supplier branch of CIPL - HELD THAT:- The recipient CIPL Karnataka who is recipient of the leasing services is eligible for full input tax credit in the transaction between the applicant and the CIPL Karnataka and hence the value declared in the invoice would be the value of goods or services or both as per the second proviso to Rule 28 and hence would be treated at the value of such supply - The aforesaid observation has been affirmed by AAR Maharashtra in the case of IN RE: M/S. B.G. SHIRKE CONSTRUCTION TECHNOLOGY PVT. LTD. [2021 (9) TMI 949 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] Wherein it has been held that we agree with the contention of the applicant that they may resort to valuation under Rule 28 of the CGST Rule in respect of transaction with related distinct persons who are eligible for full input tax credit as per the second proviso to Rule 28 of the CGST Rules 2017 - the valuation in the present case will be governed as per the Second proviso to Rule 28 of CGST Rules 2017 read with Section 15 of the CGST and MGST Act 2017. Documents that should be accompanied for the transaction - HELD THAT:- It is found that the question raised by the applicant doesn’t fall in any of the categories mentioned under the provisions of Section 97(2) of CGST Act, 2017. Also, the present application has been done under the provisions of Section 97(2)(c) and 97(2)(g) of CGST Act, 2017. The question sought by the applicant doesn’t fall in either of the categories and hence cannot be answered. Further, it is on record that no supply of goods or services in the scenario explained by the appellant has been undertaken. Whether movement of equipment from CIPL Karnataka to CIPL Tamil Nadu on the instruction of CIPL Maharashtra can be said to be mere movement of goods not amounting to supply in terms of Section 7 of the CGST Act and MGST Act, and thereby not liable to GST? - HELD THAT:- CIPL, Karnataka would be acting in two capacities, first as an independent entity under the CGST Act for the leased goods while the lease contract of the specific goods is in force and next as a bailee of CIPL, Maharashtra. Once the lease contract is over, the CIPL, Maharashtra should enter into lease transaction with the CIPL, Tamil Nadu for the specific goods which are given on lease or rent and in effect it would amount to CIPL, Maharashtra picking the goods and sending to CIPL, Tamil Nadu - it cannot be said that the goods are moving not as a result of supply under Section 7 of the CGST Act, 2017. It cannot be termed as a mere movement without any involvement of supply and the said transaction of supply of goods on rental or lease basis by CIPL, Maharashtra to CIPL, Tamil Nadu is liable to tax in the hands of CIPL, Maharashtra as the transaction is between CIPL, Maharashtra and CIPL, Tamil Nadu. Further, the services provided by CIPL, Karnataka to CIPL, Maharashtra in facilitating the transportation of goods to CIPL, Tamil Nadu are exigible to GST. Other questions are not covered under the ambit of the Advance Ruling in terms of section 97 of the CGST Act, 2017. 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.