TaxTMI 
TaxTMI 
2019 (10) TMI 571
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.... cost supplies by the principal is included in the value of supply by the job worker? 3. The applicant furnishes some facts relevant to the stated activity: a. The applicant states that they are engaged in the supply of goods and services and are basically a job worker. They are proposing to undertake a job work activity for M/s Woodward India Private Limited (referred to as WIPL) based on the purchase orders. The job work involves assembly, integration and testing of converters. b. The applicant submits that WIPL is proposing to execute two types of purchase orders hereinafter referred to as "Type A" purchase order (PO already issued) and "Type B purchase order" (PO will be issued during the course of the year). Under Type A purchase order, all the components required for assembly and integration of converters will be imported and stocked by WIPL at its registered warehouse in Bangalore. These components will then be supplied to the applicant on free of cost basis for undertaking the job work activity under the cover of a job work challan. c. Further, under Type B purchase order, WIPL would import critical components (details of these critical compone....
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....ld not change the character of the transaction from jobwork arrangement. The applicant has placed reliance on the various judicial interpretations on the concept of jobwork as it was existing under the Central Excise Act: 1. Prestige Engineering (India) Ltd. v. CCE, Meerut [1994 (73) ELT 497 (SC)] = 1994 (9) TMI 66 - SUPREME COURT 2. CC & CCE, Bhopal v. Abhinav Chemicals [2012 (284) ELT 589 (Tri.-Del)] = 2013 (4) TMI 473 - CESTAT, NEW DELHI b. The present arrangement qualifies as 'jobwork arrangement' and the next important question for determination for which the applicant is before the authority is what should be the value on which the GST is payable by the applicant - whether or not the jobworker is required to add the value of critical components owned and supplied by the Principal on free of cost basis for levy of GST. c. In order to determine the value of supply of goods or services, for levy of GST, reference needs to be drawn to the provisions of Section 15(1) of the CGST Act which deals with valuation of taxable supply, the extract of which is as under: Section 15. Value of taxable supply - (1) The value of a supply of ....
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....pplied by WIPL on free of cost basis should not be added to the value of supply by the applicant for the reasons enumerated as under: 1. Material provided by WIPL was not liable to be procured by the applicant i. In the instant case, WIPL makes critical components available to the applicant for undertaking job work activity. Under the purchase order, these critical components are liable to be procured by WIPL only and not by the applicant. The applicant was not liable to procure such components. Therefore, it cannot be said that the amount incurred by WIPL for purchasing these critical components was an amount that the applicant was liable to incur in relation to undertaking the jobwork process. ii. Also, at this stage, it is relevant to draw a closer look at who is "liable to pay", as referred under section 15(2)(b) of the CGST Act. Liable to pay is a "contractual term", i.e., to become liable to pay, one has to enter into contract or be a part of contract in some capacity. Furthermore, there should be an express or implied onus on the one to be "liable to pay". In express contract, if one person is specified to pay, then he is liable to pay, and if his ....
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....isor to the promise or by the transferor to the transferee. In the light of the above, for something to qualify as consideration, the same should e dome for and at the desire of the supplier/ promisor. vi. In the present case, WIPL supplies goods to the applicant not at the desire of the applicant nor as a consideration for supply. WIPL supplies the goods to enable the applicant to complete the jobwork process. In case, WIPL does not provide the goods, the applicant will not be able to perform the jobwork activity. Hence, WIPL doesnot supply goods to the applicant as a consideration for jobwork process. vii. Here it is useful to refer to the decision of the Larger Bench of Tribunal in the case of Bhayana Builders Ltd. v. CST, 2013 (32) STR 49 (Tri-LB) = 2013 (9) TMI 294 - CESTAT NEW DELHI (LB). The Tribunal was dealing with the question of inclusion of value of free of cost supplies in the value of works contract for payment of service tax. The tribunal observed that no part of goods given free of cost by the service receiver accrue to or is retained by the service provider. Hence, such free of cost supplies would not constitute a non-monetary consideration flowin....
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....Limited vs. Commissioner of Central Excise and Service Tax, Jaipur- II (2017) 4 GSTL 65 (Tri-Del) = 2017 (4) TMI 704 - CESTAT NEW DELHI 8. Chennai Tribunal in SV Engineering Constructions vs. Commissioner of Central Excise and Service Tax, Guntur (2016) 46 STR 589 (Tri-Chennai) = 2013 (12) TMI 1598 - CESTAT CHENNAI 3. Government intention is not to include such free of cost supplies in the valuation for levy of GST. It is relevant to draw reference to the valuation provision contained under the Draft Model GST Law released in the month of June 2016. Under the Model GST Law, there was a specific provision to include the value of free of cost supplies made by the recipient to the supplier whether directly or indirectly. However, in the subsequent Model GST Laws and the Final GST Act, the above section was amended. From the above, it is evident that with the change in the language of the provision contained under section 15(2)(b) of the CGST Act, the intention of the Government was to bring only those free of cost supplies within the ambit of valuation which are the responsibility of the supplier but incurred by the recipient and not to tax those free of cost supplie....
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.... dated 26th March, 2018, which has clarified various aspects relating to jobwork. The Circular at Para 5 - Scope/ Ambit of Jobwork" has clarified that the jobworker in addition to the goods received from the Principal can use his own goods for providing services of jobwork. Further, at para 9.4, it has been clarified that the value of services would be determined in terms of section 15 of the CGST Act and would include service charges plus the value of goods supplied by the jobworker to the principal. From the above, it emerges that: (a) A jobworker can use non-critical components during the execution of the jobwork activity (b) The value of levy of CGST shall be the service charges plus the value of goods supplied by the jobworker PERSONAL HEARING / PROCEEDINGS HELD ON 21.03.2018. 8. Sri Kamalakar, Cost Accountant and duly authorised representative of the applicant appeared for personal hearing proceedings held on 21.03.2018 & reiterated the facts narrated in their application. Further additional hearing was granted, at the request of the applicant, on 03.04.2018 and the authorized representative of the applicant appeared and submitted copies of certain ....
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....in the form of critical components and without this there cannot be any final supply. There is also another supply of non-critical components which is also involved in the provision of this manufacturing service. But this is not the principal supply as this is naturally bundled with the supply of manufacturing services. Hence the supply of the applicant can be classified as a composite supply of manufacturing services with two supplies - one related to the supply of services of assembly, integration and testing and the other related to the supply of non-critical components, for a single price, with the supply of services being the principal supply. (b) The pronouncements of various Tribunals and judgements are not applicable to the present case, as they were issued under the earlier Service Tax Laws where the supply of goods were not under the purview of the Service Tax Act and was governed by the Value Added Tax Act as works contract. (c) The contract is for the assembly, integration and testing of the Wind Power Converter and the critical components are provided by the WIPL. The same are accreted to the service which is a manufacturing service and this amounts t....