2025 (1) TMI 662 - AAR - GST

AAR rules free silver supply from Naval formations must be included in taxable value of manufactured batteries under GST

AAR Tamil Nadu ruled that the value of silver supplied free of cost by Naval formations (through old batteries) must be included in the taxable value of ... Valuation of GST - Inclusion of value of the Silver supplied free of cost by the Naval Formations (in the form of old batteries) in the taxable value adopted by the applicant on the batteries manufactured by the applicant and supplied to the Naval Formations - HELD THAT:- It is found in the instant case that the supplier i.e the applicant and the recipient i.e. the naval formations obviously are not related persons, as per the Explanation to Section 15. Whereas, as observed from the facts of the case in the case on hand as discussed, it is seen that the consideration is not paid wholly in money. On perusal of the agreement it is inferred that the contract is for the supply of Silver Oxide - Zinc Torpedo propulsion Battery Type A-187M3-Complete with Hardware. Whereas the main input namely Silver is supplied free of cost against Bank Guarantee in the form of old and used batteries by the recipient, in addition to the consideration in money value for the supply of said Silver Oxide Zinc Torpedo propulsion Battery. Hence, the provision of Section 15 (1) of the CGST Act, 2017 i.e to adopt the transaction value as the value of supply of goods or services or both is not applicable for determining the value of supply in the applicant's case. In the instant case, old and used batteries are supplied by the naval formations i.e., by the Central Government Department to the applicant. For the said supply, unless otherwise exempted, the recipient of the said old used goods, that is the applicant is liable for payment of Central tax and State Tax or as the case may be the Integrated Tax, as envisages under Section 9(3) of the CGST Act or Section 5 (3) of the IGST Act, read with corresponding Notifications issued, viz., Notification No. 36/2017-Central Tax (Rate), dated 13/10/2017 and Notification No. 37/2017 Integrated Tax (Rate) dated 13/10/2017, respectively. With regard to the circular No. 47/21/2018-GST relied upon by the Applicant, on perusal of the said Circular, it would show that it was confined to that specific subject material of moulds and dies which are being supplied by the Original Equipment Manufacturer (OEM) to a Component Manufacturer free of cost. The clarification issued by the Board relates to Moulds and Dies which are tools used for manufacture, where as Silver in the instant case is one of the essential ingredients used as input in the process of manufacture of batteries. Therefore, the analogy put forth by the applicant is not applicable in the instant case - It is also seen that in the case of M/s Lear Automotive India Private Limited [2018 (12) TMI 766 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] the Maharashtra Advance Ruling Authority by placing reliance on the said Circular, had ruled that the amortized value of tool received on FOC basis from the customer is not required to be included in the value of finished goods manufactured and supplied by the applicant to the customer. Where as in the case on hand from the used batteries supplied by the recipient, Silver has been extracted, which is the main input for the manufacture of the Silver Oxide-Zinc battery and hence the above said Circular as well as the Advance Rulings have no relevance on the subject issue. Conclusion - The value of silver supplied free of cost by the Naval formations (in the form of old batteries) is to be included in the taxable value adopted by the applicant on the batteries manufactured and supplied by them to the Naval formations for the purpose of payment of GST as discussed in para 8.0 to 8.12. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issue presented in this judgment is whether the value of silver supplied free of cost by Naval formations (in the form of old batteries) should be included in the taxable value adopted by the applicant for the batteries manufactured and supplied to the Naval formations for the purpose of payment of GST.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The relevant legal framework involves the interpretation of Sections 9 and 15 of the Central Goods and Services Tax (CGST) Act, 2017, particularly focusing on the determination of taxable supply value and the definition of 'consideration' under Section 2(31) of the Act. Additionally, Rule 27 of the CGST Rules, 2017, which deals with the valuation of supplies where consideration is not wholly in money, is pertinent.Court's interpretation and reasoning:The court analyzed the contractual arrangement between the applicant and the Naval formations, noting that the silver required for manufacturing the batteries was supplied free of cost in the form of old batteries. The court examined whether this free supply of silver constituted part of the 'consideration' for the supply of new batteries. It was determined that the transaction value should include the value of any non-monetary consideration, such as the silver extracted from the old batteries.Key evidence and findings:The court considered the contract between the applicant and the Naval formations, which specified the terms of the silver supply, including its purity and the conditions under which it was provided. The court also reviewed the applicant's argument that the cost of silver extraction was included in the price of the batteries, but the silver itself was not valued for GST purposes.Application of law to facts:The court applied Section 15(1) and 15(2)(b) of the CGST Act, which require the inclusion of any amount the supplier is liable to pay in relation to the supply but incurred by the recipient. The court concluded that the free supply of silver by the Naval formations constituted a non-monetary consideration that should be included in the taxable value of the batteries.Treatment of competing arguments:The applicant argued that the free supply of silver should not be included in the taxable value based on a CBIC circular and previous advance rulings. However, the court distinguished these precedents, noting that they pertained to tools and dies, not essential raw materials like silver. The court emphasized that the statutory provisions of the CGST Act take precedence over contractual agreements between parties.Conclusions:The court concluded that the value of silver supplied free of cost by the Naval formations must be included in the taxable value of the batteries for GST purposes.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:'The consideration for the supply of Silver Oxide Zinc Torpedo propulsion Battery is paid in terms of money and Old and used Batteries.'Core principles established:The judgment reinforces the principle that the value of non-monetary consideration, such as goods supplied free of cost, must be included in the taxable value of supply under the CGST Act. It also clarifies that statutory provisions cannot be overridden by contractual agreements.Final determinations on each issue:The court ruled that the value of silver supplied free of cost by the Naval formations should be included in the taxable value adopted by the applicant for the purpose of GST payment.