GST valuation clarification on Partial material supply by the customer

[suresh sathyamurthy]

As per the Purchase Order between A & B

a) A has to supply goods to B,

b) B will have supplying some critical parts to A at Free of cost, which will be part in the final product ( the parts supplied by B is out of scope of the above Purchase Order, A along with the material purchased by him, while assembling will incorporate the parts supplied by B in the final product as per the design given by B, and will be charging as per PO excluding the cost of material supplied by B)

c) Now B has request A to import the material in A's name from B’s parent company situated in foreign country

and B has agreed to reimburse custom duty, GST & clearing charges to A, for which A has to raise separate debit note with GST for claiming the reimbursement.

A will not be paying for the importer, ( the importer will be remaining unpaid)

Request to know from expert

i) Will there be any valuation issue for transaction mentioned in point b

ii) That could be implication for transaction as mentioned in point c above

Thanks in advance

[Amit Agrawal]

It is my understanding that goods supplied by A are 'manufactured goods by A' where critical components - given on FOC basis by B - are used in the manufacturing by A.

In such a supply of goods by A, critical components given on FOC basis amounts to 'additional non-monetary consideration' flowing from B to A for supply of the manufactured goods. And valuation for supply by A - for the purpose of charging & paying GST - needs to be arrived as per applicable valuation rule.

Same will be applicable for both scenario b and c listed in the query.

These are personal views of mine and same should not be construed as professional advice / suggestion.

AI Summary

Valuation of supply: free critical components from buyer are additional non-monetary consideration and must be included for GST. Critical parts supplied free of cost by the buyer to a manufacturer constitute additional non-monetary consideration; the manufacturer must determine the taxable value of its supply under applicable GST valuation rules to reflect those components. The same approach applies where the buyer has imported parts in the manufacturer's name and reimbursed import-related charges-those reimbursements and the free-supplied parts are to be treated as part of the consideration for valuation purposes.