TaxTMI 
TaxTMI 
2023 (4) TMI 960
X X X X Extracts X X X X
X X X X Extracts X X X X
....raised by M/s Natani Precast LLP (hereinafter referred to as applicant ), an unregistered partnership firm under the provisions of the Central / Rajasthan Goods and Services Tax 2017, incorporated with an intention to manufacture and supply Precast Manholes and Rises to various government and non government entities is fit to pronounce advance ruling as it falls under the ambit of the Section 97(2) (b), (e) & (g) given as under: (a) Classification of any goods or services or both (g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term. A. SUBMISSION OF THE APPLICANT: (in brief) 1. M/s Natani Precast LLP (hereinafter referred to as applicant), has been incorporated with an intention to manufacture and supply Precast Manholes and Rises to various government and non government entities. The said supply of precast Manhole requires following inputs / raw materials / consumables for its manufacturing namely: a. Cement, b. Steel (TMT & Bars) c. Coarse Aggregate d. Fine Aggregate/Sand/Dust ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ever the applicable GST on manufacturing activity done for other is classified as service under HSN Code 9988 and is taxable at 18%. Further in accordance with the provisions of Section 9 read with Section 15 of the CGST / RGST Act 2017, the tax is charged on the transaction value as given under Section 15(1) of the Act, subject to certain inclusions and exclusions as given under Section 15(2)/ (3) of the Act. B Interpretation and understanding of applicant on question rose (in Brief) The applicant submitted his interpretation which is under- 1. That according to the charging provision of the GST law under Section 9 of the CGST Act, there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both except the exclusions mentioned therein at such rates as may be notified. The said section also clearly specifies that tax is calculated on the value determined under Section 15 of The Act. 2. That the tax is applicable either on supply of goods or on supply of services. The term goods and services have been defined under Section 2 of the CGST Act 2017 as under a. Section 2(52): goods means every kind of mov....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bars) are within the scope of recipient and ownership of same will never be transferred to the applicant. Rather they shall be made available to the applicant by the recipient using which the manufacturing activity shall be carried out by the applicant. 8. That other inputs and consumables shall be used and brought by the applicant and it will be within the scope of the applicant. But the base structure shall be manufactured using the inputs belonging to the recipient only. 9. That on perusal of above it appears that applicant has been engaged to the manufacture the precast manhole by undertaking such activity using the basic inputs which shall be within the scope of the recipient. Those goods (Steel and Cement) shall never be billed to the applicant by the recipient. Hence the process of manufacture shall be carried on goods belonging to the recipient. 10. That in this regard, reference to drawn to the clarification in Circular No. 52/26/2018, dated 9-8-2018 for arriving at the understanding about classification of given activity as supply of goods or supply of service, wherein applicable GST on the bus body building activity is clarified as under : 12.1 Applica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the applicant classifies as supply of service under HSN Code 9988 and taxable at 18%. On Valuation 13. That on perusal of Section 15(1) of the CGST / RGST Act 2017 it is clear that value of supply of goods is called transaction value. Further under the same Section 15(1) of the Act, transaction value has been defined as price actually paid or payable for supply of goods or services or both. However said price being the transaction value is subject to two conditions that a. Supplier and the recipient are not related b. Price is the sole consideration for the supply. 14. That in given case, it is an undisputed fact that applicant has been approached by the recipient to supply precast manhole. For said supply of pre-cast manhole which are goods, a competitive price has been sought from the applicant. The applicant is expected to execute the order for supply which, if in case is awarded to it, is required to be executed at a price which shall be pre-agreed. 15. That term 'price' is not defined under the Act. The term is defined in Black's Law Dictionary as. "The amount of money or other consideration asked for or given in exchange for someth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he consideration for each other are called reciprocal promises 18. That on perusal of above, it is evident that consideration flows from a contract. Further when such consideration is in money terms then same is treated as price. Since on perusal of the email received by the applicant for quoting of best rates for supply of precast manholes, the said rate which shall be quoted and agreed between the parties shall tantamount to price as mentioned in Section 15(1) of the CGST Act 2017. 19. That hence the rate to be quoted by the applicant and as agreed by the recipient has all the necessary characteristics of price as mentioned under Section 15(1) of the Act. 20. That it is also explained that applicant as supplier and recipient are not related parties as mentioned under Explanation to Section 15 of the CGST / SGST Act 2017. 21. That in fact, the price as mentioned above, is the sole consideration for the applicant to execute the supply of precast manhole. The definition of term consideration as given under Section 2(31) of the Act. It clearly lays down that any payment made in respect of, in response to or for inducement of supply is treated as consideration. In given ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....recipient only. Hence such material cannot tantamount to consideration at all for the supplier. 27. That hence, the rate which shall be charged by the applicant from recipient shall be price of supply of precast manholes and it will also be sole consideration. Thus same shall tantamount to value as mentioned under Section 15(1) of the Act and will be treated as transaction value for the purpose of levy of tax. 28. That, further for the purpose of levy of tax, the transaction value has to be subsequently adjusted on account of instances as mentioned under Section 15(2) of the CGST / SGST Act 2017. 29. That provisions of Section 15(2) of the Act are read as under (2) The value of supply shall include - (a) any taxes, duties, cesses, fees and charges levied under any law for the lime being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not include....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applicant i.e. supplier but was within the scope of recipient only.. 32. That the applicant was asked to supply precast manhole without incurring any cost for procurement of steel and cement (free of cost material). Thus steel and cement's procurement responsibility was not within the scope of the applicant. Had that been the case, it was not required by the recipient to share with the applicant scope matrix with the applicant for quoting of rates. 33. That the commercial understanding between the parties cannot be challenged by adding artificially the value which was not agreed between the parties. The contract or the commercial understanding between the parties needs to be read in total and the law needs to be applied on the basis of such commercial understanding. 34. That in fact it has been held in many judgments that the agreement and the conduct of the parties demonstrate the real state of affairs. Precedents which support the same are enumerated as under a) Union of India v. Mahindra and Mahindra [1995 (76) E.L.T. 481 (S.C.)] Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real state of aff....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clear from the observations made by this Court that the true relationship of the parties in such a case has to from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the said relationship." 36. That thus when parties have agreed that supplier is required to supply precast manhole without including steel and cement within their scope, the said contractual understanding cannot be questioned unless the otherwise is proved as contrary. 37. That further, on similar issue, on taxability of free supplies which are not within the scope of the applicant, the Hon'ble Supreme Court in the case of Commissioner v. Bhayana Builders (P) Ltd. - 2018 (10) G.S.T.L. 118 (S.C.) has held that: The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service reci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch are provided to a component manufacturer (the two not being related persons or distinct persons) on FOC basis does not constitute a supply as there is no consideration involved. Further, since the moulds and dies are provided on FOC basis by the OEM to tire component manufacturer in the course or furtherance of his business, there is no requirement for reversal of input tax credit availed on such moulds and dies by the OEM. 1.2 It is further clarified that while calculating the value of the supply made by the component manufacturer, the value of moulds and dies provided by the OEM to the component manufacturer on FOC basis shall not be added to the value of such supply because the cost of moulds/dies was not to be incurred by the component manufacturer and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b) of the Central Goods and Services Tax Act, 2017 (CGST Act for short). 1.3 However, if the contract between OEM and component manufacturer was for supply of components made by using the moulds/dies belonging to the component manufacturer, but the same have been supplied by the OEM to the component manufacturer on FOC basis, the amortised co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ateria and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the GGST Act. 1) We have carefully examined the statement of facts, supporting documents/photograhps filed by the Applicant along with application, oral and written submissions made at the time of hearing and the comments of the Central Tax Authority. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts. We would like to discuss the submission made by applicant and will take up the above question for discussion one by one. 2) The applicant M/s Natani Precast, 22 Bajrang Colony Jhotwara Jaipur-302012,Rajasthan) have intention to manufacture and supply Precast Manholes and Rises to various government and non government entities. The main inputs of precast Manhole are 1) Cement, 2) Steel (TMT & Bars), 3) Coarse Aggregate, 4) Fine Aggregate / Sand / Dust. 3) The applicant submitted that the manufacturing process of said precast Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nes Service as follows: "services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. [Explanation. - For the removal of doubts, it is hereby clarified that the expression services includes facilitating or arranging transactions in securities;] 5.4) In light of above definitions we observe that it is imperative for any act to be service that should not be goods. It would be worthwhile to mention that applicant himself stated that he has intention to manufacture and supply Precast Manholes and Rises. Even the manufacturing process submitted by the applicant itself shows that the applicant is engaged in manufacturing of goods ie Precast Manholes and Rises. The Precast Manholes and Rises are movable property; hence we conclude that supply of Precast Manholes and Rises is supply of goods and not a supply of services on the basis of aforesaid findings. 5.5) now, we would like to discuss that whether the stated supply to be made by app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oods not services. 5.7) We also hold that the applicant reference in respect of clarification in Circular No. 52/26/2018, dated 9-8-2018 for arriving at the understanding about classification of given activity as supply of goods or supply of service, wherein applicable GST, is not applicable in this case. The referred circular denoting the bus body building on chassis fitted with engines and chassis fitted with engines is supplied by recipient. That act is modification and treatment on a good wherein in the instant case of applicant new goods are manufactured from raw materials and not the work done on the goods belongs to recipient. We also observe that reference ofSI.no. 26 of Notification No 11/2017-CT (Rate) dated 28.06.2017 is relevant here. As BOQ. dated 22.02.2022 and SCOPE MATRIX FOR SUPPLY OF PRECAST MANHOLE & RISERS, Applicant will not be providing any manufacturing service to recipient. Applicant intended to manufacture and supply goods as per specification of applicant and to maintain that specific standards of goods cement and iron are to be supplied by recipient. 6) Now we would like to examine next both questions which are mingled to each other (i) Whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Government: Thus from the above definitions and fore going discussions, it's crystal clear to us that Applicant is to manufacture and supply Precast Manholes and Rises as per specific order from recipient but cement and iron is to be supplied by recipient on free of cost whereas if recipient will not supply these main ingredients than it will be bear by applicant itself. We observe that Free of cost supply of main ingredients from recipient is nothing but mutual understanding between both parties which do not debar them from the essence of supply of goods and consideration received under GST. 6.2 The contention of applicant that consideration flows from a contract and when such consideration is in money terms then same is treated as price ;The said rate which shall be quoted and agreed between the parties shall tantamount to price as mentioned in Section 15(1) of the CGST Act 2017; That in fact, the price as mentioned above, is the sole consideration for the applicant to execute the supply of precast manhole, is not correct as details below- As per Section 15(1) the price is not the sole consideration for the supply of goods as main inputs cement and steel supp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... further we finds that in this quoted case circular also held that , if the contract between OEM and component manufacturer was for supply of components made by using the moulds/dies belonging to the component manufacturer, but the same have been supplied by the OEM to the component manufacturer on FOC basis, the amortised cost of such moulds/dies shall be, added to the value of the components. In the case of applicant the goods supplied by the supplier wholly used for manufacturing of resultant goods ie Manholes and Risers. Hence, we found the aforesaid circular is not giving any force in favour of applicant. 6.4) The applicant quoted the many judgements that the agreement and the conduct of the parties demonstrate the real state of affairs. However we observe that when elaborated GST Act is available and we have to keep us under the boundaries of this Act, we should not go with other Acts to evolve new interpretation when subject matter is well defined in GST Act. Section 15 is well defined the situation in case of valuation of goods. 7) We have gone through the judicial pronouncements of various judicial authority referred by applicant. We have also gone through the decisi....