gst treatment on molds

[Madhavan iyengar]

A Component manufacturer had received mold during pre-gst period and it had to deliver 10000 pieces of the component to the OEM

OEM took delivery of 5000 pieces but now no longer wants to the balance 5000 pieces

Issues: OEM wants the mold back from component manufacturer

How should component manufacturer send back the mold can it send under challan so that no gst is applicable

implications of amortisation costs if any on the components which have not been supplied

experts views solicited

[Rajagopalan Ranganathan]

Sir,

According to section 141 (1) of CGST Act, 2017-

"Where any inputs received at a place of business had been removed as such or removed after being partially processed to a job worker for further processing, testing, repair, reconditioning or any other purpose in accordance with the provisions of existing law prior to the appointed day and such inputs are returned to the said place on or after the appointed day, no tax shall be payable if such inputs, after completion of the job work or otherwise, are returned to the said place within six months from the appointed day:

Provided that the period of six months may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding two months:

Provided further that if such inputs are not returned within the period specified in this sub-section, the input tax credit shall be liable to be recovered in accordance with the provisions of clause (a) of sub-section (8) of section 142.

Clause (a) of sub-section 8 of Section 142 of CGST Act, 2017 stipulates that (a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act.

I do require exact date of dispatch of mold by the principal and the date of receipt pf the mold back from job worker to give suitable reply to you.

[Madhavan iyengar]

Sir

In this case it is mentioned as inputs so moulds may not fall under inputs and further the mold are sent for production of components so there is no job work

in light of above can you elaborate on the points raised

[Alkesh Jani]

Sir,

In this regards, I am of the view that mould can be sent on challan basis (as title of goods i.e. Invoice) is still on the name of the OEM, as no consideration is received in this case, it just returning the goods to its owner, No GST is applicable.

For remaining 5000 pieces, the job worker can clear it as waste or as supply and GST applicable shall be paid on transaction value.

As time limit of erstwhile law and GST law has already lapsed and assuming that no process of extension for time limit is initiated in the matter Section 19 of CGST Act, 2017, may be applicable in the case

Thanks,

[Rajagopalan Ranganathan]

Sir,

If the mold is not sent for job work, then the principal shall discharge the tax in such mold and dispatch it to the component manufacturer. The component manufacturer shall take ITC of the tax paid on the mold and utilize the same for payment of tax on the component when supplied to the principal. If only 5000 components are sent to the principal on payment of tax then proportionate credit taken in respect of mold in connection with remaining 5000 components shall be reversed.

[YAGAY andSUN]

In addition to above replies by the Experts, following is our submission on the GST implication on amortization costs:-

Tools supplied by OEM to Component manufacturer for free shall not be added to value of component Toolcomp Systems (P.) Ltd., In re - [2019] 108 taxmann.com 107 (AAR - KARNATAKA) = 2019 (8) TMI 471 - AUTHORITY FOR ADVANCE RULING, KARNATAKA

The applicant is a manufacturer and seller of plastic moulds, jigs, fixtures, gauges, etc. It receives tools from customers free of cost (FOC) for the manufacture of parts which are returned to the customers. It has sought an advance ruling to determine whether tools supplied for free shall be added to the value of component being manufactured and applicability of GST on such tools.

The Authority for Advance Rulings, Karnataka observed that as per the circular issued by CBIC in this regard it has been clarified that tools owned by original equipment manufacturer (OEM) that are provided to component manufacturer on FOC basis do not constitute supply as there is no consideration involved and, hence, value of tools shall not be added to the value of components. However, when a contractual obligation is imposed on the component manufacturer to provide tools but the same has been provided by OEM on FOC basis, then the same is required to be added to the value of components.

On examining the purchase order submitted by the applicant, it is not under any obligation to use its own tools for manufacture of components and the same are supplied to them free of cost and on returnable basis.

The Authority for Advance Rulings, Karnataka ruled that the cost of tools supplied by OEM for free is not required to be added to value of components supplied by the applicant and, hence, not liable to GST.

[Madhavan iyengar]

sirs

great discussion and expert views please also view the following points

the mold has been sent by supplier during the pre-gst period as that time if you would recollect if there was movement then the OEM supplier would have removed the mold on payment of excise duty under challan and the component manufacturer has availed cenvat on the mold now this is gst period so what would be the additional implications

a) can the component manufacturer send back the mold under challan now and no gst applicable

b) and if there is any balance amortisation left ie only part supply of components has taken place any gst liability

[Alkesh Jani]

Sir,

Here it should be well noted that reply is to be given from the end of job worker (as manufacturer OEM is on other end and is not our concern) as the time limit of Six month and one year has already been passed. (as mould are not capital goods for job worker and is supplied by OEM.) therefore, it can removed on basis of challan.

For remaining 5000 pieces, it is nothing but waste or scrap for job worker, as he not in the business of the said pieces, therefore, it can be cleared as waste or scrap and GST to be paid on transaction value. (OEM has taken ITC or not or has reversed or not or has shown as destroyed or disposed off is not relevant from job workers end and full GST by way of cash is to be paid.

Any other view in the matter is highly solicited.

Thanks

[KASTURI SETHI]

I agree with the experts but at the time I express my views as under :-

In pre-GST era, small scale exemption was available to Original Equipment goods. Where turnover exceeded threshold exemption limit, Chapter X procedure was allowed for movement of O.E. goods without payment of CE duty because CE duty was being paid on the finished product. Only bond was required to be executed. It is not a job work at all. Balance 5000 moulds cannot be treated as waste and scrap. These are OEM's goods and can be taken back under delivery challan and challan must be accompanied by photo copy of original invoice. No GST is payable.

[Alkesh Jani]

Dear Sh. Kasturiji Sir,

Thanks for your valuable views expressed. I invite your kind attention to Para 2 of the query raised

“OEM took delivery of 5000 pieces but now no longer wants to the balance 5000 pieces”.

How one can force someone to take delivery of goods, when he is not ready for it (the transportation cost will be again on job worker). As OEM is not ready to take the goods back what is the option available with Job worker?

With Due Regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

I agree with you. One cannot force for anyone. I am emphasizing on four aspects :-

(i) It is not job-work.

(ii) Return through delivery challan is possible.

(iii) At this stage we cannot term the said moulds as waste & scrap for disposal purpose.

(iv) The issue of return is a dispute between both the parties and should be resolved amicably and we cannot comment more than what all experts have already expressed. Sufficient material has been given to the querist, especially, in view of the fact that he (Sh.Madhavan Iyengar) is a knowledgeable and qualified person who grasps any point quickly.

I think I have neither exaggerated nor deviated from the main track.

Thanks & regards

[KASTURI SETHI]

Dear Querist,

You must peruse serial no.1 (Issue & Clarification) of Board's Circular No.47/21/2018-GST dated 08.6.2018, if not read earlier.