Case-1-Prestige Engineering(India) Ltd vs C.C.E on 1 September, 1994 Equivalent citations: 1994 SCC (6) 465, JT 1994 (5) 514 (Pre-GST Regime)

“All that Modipon does is to supply steel pipes. The appellant purchases guide rings and strengthening rings from the market. It fits these rings into those steel pipes by itself or gets them fitted in another unit. Thereafter, adopters are fitted on the sides of the cops and then the plastic sleeves are fitted on the cylinders of the cops. This is not a case where the rings and the adopters and sleeves are supplied by Modipon. It is not suggested that the value of rings, adopters and sleeves is very small vis-a-vis the value of steel pipes. The additions made by the appellant are not minor additions; they are of a substantial nature and of considerable value. Except the pipes, all other items which go into the manufacture of cops are either purchased or procured by the appellant itself and it manufactures the cops out of them. The work done by him cannot be characterised as a job work. If all the requisite rings, adopters and sleeves had also been supplied by Modipon, it could probably have been said that the appellant’s work is in the nature of job work.”

It was further held that

“We must hasten to add that addition or application of minor items by the job worker would not detract from the nature and character of his work. For example, a tailor entrusted with a cloth piece and asked to stitch a shirt, a pant or a suit piece may add his own thread, buttons and lining cloth. Similarly, a factory may be supplied the shoe uppers, soles etc. by the customer and the factory applies its own thread or bonding material and manufactures shoes there from and supplies them back to the customer, charging only for its work; the nature of its work does not cease to be job work. Indeed, this aspect has been stressed in all the decisions of High Courts referred to hereinbefore.”

Case-2- S.B. Reshellers (P.) Ltd [2019] 107 taxmann.com 235 (AAR – MAHARASHTRA)

In this case we find that applicants are receiving old roller, bare shaft, beams from the customer of the applicant under the cover of Rule 55 Challans. The applicant are then fitting the shell manufactured out of their own raw material on the said shaft and then machining the same and further fitting the required accessory thereon and thus bringing into existence a usable sugar mill roller or new sugar mill roller which is no doubt a different commercial commodity as compared to the input involved.

AAR then relied upon the judgement of Hon’ble Apex Court in the matter of Prestige Engineering(India) Ltd vs C.C.E on 1 September, 1994 Equivalent citations: 1994 SCC (6) 465, JT 1994 (5) 514 and held that

From the observations made by the Court we find that additional application of minor items is permissible in job work. Therefore we have to find in the present case the nature of additions made by the applicant. Applicant has categorically stated in the statement containing applicant’s interpretation of law that the activity is clearly a activity of manufacturing a new commodity by using one’s own raw material and skill and labour as well as the material supplied by the customer and the value of the material used/skill and labour applied by them and the value of the shaft/beam supplied by the customer is almost equal.

Case-3-Circular No. 38/12/2018 Dated 26-3-2018 As Amended By Circular No. 88/07/2019-GST

Scope/ambit of job work: Doubts have been raised on the scope of job work and whether any inputs, other than the goods provided by the principal, can be used by the job worker for providing the services of job work. It may be noted that the definition of job work, as contained in clause (68) of section 2 of the CGST Act, entails that the job work is a treatment or process undertaken by a person on goods belonging to another registered person. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. Further, it is clarified that the job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Case-4- Industrial Engineering Corporation [2019] 110 taxmann.com 497 (AAR – KERALA)

Query before AAR- In case consumables like paints, primers and consumable spares like locking ring are arranged by the job work unit, is there any change on the rate of tax under GST law on such job works provided by the job work unit?

(in this case, the consumables which are estimated at less than 9% of the total cost of raw materials are arranged by the job work unit and the said 9% of the estimated cost of consumables is going to be added to the job works charges).

Held- The job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work.

Case-5-Sanghi Brothers (Indore) (P.) Ltd. [2019] 107 taxmann.com 10 (AAR – MADHYA PRADESH).

As per the ratio of the judgment held in case of Prestige Engineering (India) Ltd. v. CCE Collector of 1994 taxmann.com 232 (SC) addition or application of items by job worker would not detract from the nature and character of his work. Here it would be worthwhile to explain process of body building, being undertaken by the body builders.

6.3 Process of Body Building and mounting the same on chassis is as under:—

For fabrication of bus body, the builder first make the pipe structure and mount the same on the chassis. Outer panelling is done with GP sheets and interior panelling with colour coated G.P. Sheets. Flooring with chequered plywood. After primer painting the final coat of paint is applied. In this case body is not made separately but is fabricated on chassis itself. Body requirement differ from party to party.

It can not be treated as process of manufacturing merely because job worker is using its own inputs.

GST Law does not distinguish between raw materials, finished goods and semi finished goods. It talks about “input” and and capital goods. Even semi-finished goods or intermediates are and in turn input by the principal or job worker.

Therefore, merely because job worker is using its own input it is not job work. This is not according to the provisions of GST Law.

From the above process one can reach to the conclusion that Fabrication and other work is done on chassis itself. It is not the case that any readymade body is fitted on chassis given by the owner.

The ownership of chassis always remains with the applicant company who has given chassis for building and mounting of body on job work. Because it fulfils the main important condition of the definition of job work i.e. process undertaken on goods belonging to another registered persons . The whole process of body building and mounting is performed on the goods (Chassis) belonging to the applicant therefore it is purely job work. Once it is established that it is a job work then it is supply of service. Even if it is composite supply of goods and services. The predominant intention of the principal is to get services. Utilizing and consuming tengible and non-tengible goods is incidental to main/principal supply and therefore as per the provision of Sec. 8(a) in case of composite supply tax is being levied at the rate applicable to principal supply . In this case the principal supply is supply of service. Thus, it should be classified as services and tax is @ 18% under CGST Act.

As per the ratio of the judgment held in case of Prestige Engg. (India) Ltd.  v. CCE 1994 taxmann.com 232 (SC), addition of application of items by job worker would not detract from the nature and character of his work.

10. GST law does not distinguish between raw material, finished goods and semi-finished goods. It talks about input and Capital goods. Even, semi-finished goods or intermediates are goods and in turn ‘Input’ by the principal or the job worker.

11. So, the argument of the applicant that they use their own material, hence, they should not be treated as job worker is not tenable under the provision of law.

It was held by AAR that

The Activity of building and mounting of the body on the chassis provided by the principal under FOC challan will result in supply of services under HSN 9988 and hence, should be taxed @ 18% GST.

(Similar Ratio laid down in Automobile Corporation of Goa Ltd. [2018] 98 taxmann.com 317 (AAR – GOA), Rohan Coach Builders, [2019] 107 taxmann.com 4 (AAR – MADHYA PRADESH))

Case-6- Paras Motor Industries (AAR – MADHYA PRADESH) [2018] 95 taxmann.com 218 (AAR – HARYANA)  (Contrary to Rulings in Case-5)

In the instant case, it is only the chassis which is supplied by the customers of the applicant and in fact no treatment or process is undertaken by the applicant on the chassis itself, except fitment/mounting of bus body on the same. At the same time, bus body building involves use of raw materials/inputs etc., for manufacture/fabrication of bus body and the cost of these inputs, etc., do form the part of value which is being charged by the applicant from its customers.

Thus, it emerges that the customer is providing only chassis. All inputs/materials required for fabrication of bus body, has to be used by the applicant from its own account. Under such situation it is the bus-body which is being fabricated and also being mounted on the chassis provided by the customer. Therefore, it is not merely job-work. Rather it is supply of bus body and an activity of fitting/mounting of bus body on chassis is an ancillary activity to the principal activity of supply of bus-body. Hence, in terms of the clarification issued by the CBEC vide circular No. 34/8/2018-GST, dated 3-3-2018, the impugned activity is a composite supply, with principal supply being supply of bus-body.

Thus, the activity of fabrication and fitting and mounting of bus bodies on the chassis supplied by the other party is a composite supply with supply of goods, i.e., bus-bodies, being principal supply and same is covered under HSN code 8707.

Case-7-AAAR Maharashtra in case of JSW Energy Ltd. (GST AAAR Maharashtra) Appeal Number: Order No. MAH/AAAR/SS-RJ/01A/2019-20 Date of Judgement/Order: 13/01/2020

AAAR Maharashtra revised their earlier judgement dated 2nd July 2018 on account of direction by the Bombay High Court but again referred to the concept of pre-dominance of material in case of Job Work

In this regard, the Appellant has furnished the certificate of the Cost Accountant pertaining to F.Y. 2017-18, wherein it has been testified that coal and other inputs constitutes a major cost i.e. more than 95% of the total cost of materials that are required for generation of power, whereas the cost towards water and air does not exceed 0.5% of the cost of inputs. Referring to this certificate issued by the Cost Accountant, the Appellant have further contended that coal constitutes the major cost for manufacture of power, whereas air and water constitute a very negligible cost. Accordingly, as per the principle laid down in the case of Prestige Engineering (India) Limited (supra) additions of minor materials by the Job Worker (such as air and water) would not alter the nature and character of the underlying transaction. It would still be considered as a job work transaction.

67. Now, in view of the above submissions and the certificates issued by the Cost Accountant, it is opined that the Appellant is squarely satisfying the stipulations laid down by the Apex Court in the case of Prestige Engineering (India) Ltd. (supra). Hence, we are inclined to repeal our earlier observations in this regard. Furthermore, it is reasonably concluded that addition of the air and water by the Appellant to the coal proposed to be supplied by JSL will not detract the proposed transaction from being qualified as Job work.

Case-1-Bharat Petroleum Corporation Ltd. [2018] 98 taxmann.com 436 (AAR – KERALA)

Issue-Classification of Activity as “Job Work”

Observation BY AAR-The applicant being principal sends goods such as Re-gasified Liquefied Natural Gas (RLNG), De-mineralized water (DM Water), Hydrogen Rich off Gas and raw water’ to M/s. Prodair Air Products for treatment or process. The industrial gases are produced out of the major materials or inputs supplied by the applicant. The job worker uses some minor, ancillary goods to complete the process. The application of minor items by the job worker would not detract it being a job work. Therefore, the processing undertaken by M/s. Prodair Air Products on the goods belong to the applicant, another registered person qualifies as job work even if it amounts to manufacture.

Held-The activity of the applicant of sending Regasified Liquefied Natural Gas (RLNG), De-Mineralized Water (DM Water), Hydrogen Rich off Gas and Raw water free of cost to M/s. Prodair Air Prodcts Pvt. Ltd. For manufacture of Hydrogen, Nitrogen and Steam manufactured out of its amount to ‘job work’ us defined under Section 2(68) read with Section 143 of the CGST/KSGST Acts.

Case-2- Crown Beers India (P.) Ltd. [2019] 107 taxmann.com 468 (AAAR-MAHARASHTRA)

Issue: Classification of Activity as “Job Work” and whether Job Work of brewing, bottling and supplying Products in relation to beer would be eligible for 5% GST (2.5% CGST +2.5 % SGST) falling within the ambit of “food or food products”

Observation by AAAR on the nature of Transaction- AAR made following observations about the scope of activities of Principal and the Job Worker-

Principal- Although Job Worker is undertaking purchase transaction of raw materials and other ingredients used in manufacture of beers but principal is deciding not only qualities and varieties of the materials, but also the suppliers from whom these materials are to be purchased along with the terms and conditions for the purchase transaction and the cost of purchase of entire raw materials and other inputs is incurred by the Principal. The Job Worker is undertaking these purchase transactions simply as an agent or representative of the Principal as they do not enjoy any autonomy, whatsoever, while performing these transactions.

The Principal bears the cost of insurance in respect of materials, Products and work in process and accordingly is the beneficiary of any insurance claims which may arise and accrue in future. The risks and rewards arising from business of sale of Products under this Agreement belong solely and exclusively to the Principal.

Job Worker- The activities of Job Worker involve carrying out activities of brewing, bottling and packaging on the goods belonging to another registered person. The final manufactured Products i.e. beer also belong to and are owned by the Principal, as the final products are delivered by the Job Worker to the buyers, which are identified by the Principal and entire sale consideration against the same is credited to the designated bank account meant for manufacturing expenses and sale proceeds of the Product i.e Beer. The Agreement between the Job Worker and Principal provide that the costs incurred on purchase of Materials, other expenses set out in Schedule II and the sale revenue generated from the sale of products will always be incurred on account of and inure to the benefit of Principal. It is therefore clearly understood and acknowledged by the parties that any surplus arising or recorded in the Manufacturing and Sales Account will always belong to Principal and would be utilized by Principal at its sole discretion.

Held- All these above clauses clearly establishes that the actual owner of the finished Product is the Appellant and not the PIL as the entire sale process viz.- identification of the actual and potential buyers and recovery of the sale proceeds etc. is controlled and administered by the Appellant, making them accountable for the sale of the Products. All the above discussions and finding leads us to this fact that the PIL is acting merely as the “Job Worker” for the Appellant.

Question before AAAR on the Tax Rate on Job Work- Since beer is classifiable under item 2203 00 00 of the First Schedule to the Customs Tariff Act, 1975, whether Job Work i.e. brewing, bottling and supplying Products in relation to beer  would be liable to 5% GST (2.5% CGST +2.5 % SGST) in accordance with the entry 26(f) bearing Heading 9988 of the Notification 11/2017 dated 28.06.2017.

Held-There is no dispute about classification of Beer under heading 2203 but all the products classifiable under Chapter 1 to 22 do not attract 2.5% CGST under entry no. 26(f) of Notification no. 11/2017-C.T.(Rate) dt. 28.06.2017. Only food and food products of these chapters are eligible for this exemption. There is no definition of food and food products under GST Acts. However, Hon’ble Supreme Court has discussed this issue in detail in the matter of Parle Exports (P.) Ltd. (supra) and decided that non -alcoholic beverages were not eligible to exemption as food products. Everything consumed by human cannot be considered as food or food products for the purpose of exemption from GST. The context, spirit and reason of law need to be examined to extend exemption. Hon’ble Supreme Court in the said judgment had opined that ” it cannot be contended that expensive items like Gold-Spot base, Limca-base or Thums up-base were intended to be given exemption at the cost of public exchequer/’ Similarly, it would have never been the intention of law to exempt expensive item like ‘alcoholic liquor’ under the category of food and food products even though the same is for human consumption. In view of the above two judgments of Hon’ble Apex Court, we conclude that the benefit of exemption under entry no. 26(f) of Notification 11/2017-C.T.(Rate) dt. 28.06.2017 is not available to alcoholic liquor for human consumption.

Case-3-Industrial Engineering Corporation [2019] 110 taxmann.com 497 (AAR – KERALA)

Issue-Whether transaction wherein goods are directly made available to job worker by using process “Bill to the applicant and ship” and dispatched directly from job work unit to the prospective customers using delivery challan and E-way bill of applicant after Job Work are eligible to be categorized as “Job Work”

Facts- Applicant purchases all raw materials such as CR sheets/Tin sheets, paints, closure fittings and locking ring and delivers the same as such to the job work unit. The purchase orders are directly placed to the suppliers and direct delivery made to job worker by using the process “Bill to the applicant and ship” to the job work unit. The job worker executes the work in accordance with the specific terms and conditions of the applicant. The job work unit will execute the manufacturing works including finishing process at their premises under the supervision and expertise of the applicant. The job work unit is having sufficient facility and utilize their machinery also. The finished goods are required to be directly dispatched from job work unit to the prospective customers using the delivery challan and E-way bill of the applicant. The job worker unit is free to dispose the scrap and applicant is not claiming any Cost on such scrap.

Held- The person who does the job work is termed as ‘job worker’. The ownership of the goods does not transfer to the job worker but it rests with the principal. The job worker is required to carry out the process specified by the principal, on the goods. Sending goods for job work is not a supply as such, but it acquires the character of supply only when the inputs sent for job work are neither received back by the principal nor supplied further by the principal from the premises of the job worker within a period of one year of being sent out. The responsibility for sending the goods for job work as well as bringing them back or further supply has been cast on the principal.

The job worker, being a supplier of services, is liable to pay GST if he is registered. He shall issue an invoice ac the time of supply of the services as determined in Terms of section 13 read with section 31 of the CGST/SGST Act, The value of services would be determined in terms of section 15 of the CGST/SGST Act and would include not only the service charges but also the value of any goods or services used by him for supplying the job work services, if recovered from the principal. The waste and scrap generated during the job work maybe supplied by the registered job worker directly from his place of business as per Section 143(5) of CGST/SGST Act.

Case-4- Inox Air Products (P.) Ltd [2018] 94 taxmann.com 144 (AAR-GUJARAT)

Issue-Whether Air above the land supplied free of cost to the Job Worker would be treated as “goods supplied by the Principal”

Observation by AAR- Atmospheric Air, Industrial Water and Electricity is required to manufacture industrial gases viz. Oxygen, Nitrogen and Argon.

Atmospheric Air, which is required for manufacturing industrial gases viz. Oxygen, Nitrogen and Argon, there is no reference in the agreement. The owner of the land is also the owner of the vertical column of air above the land, which position derives from the Latin maxim cuius est solum, eius est usque ad coelum et ad inferos (Translated : For whoever owns the soil, it is theirs up to Heaven and down to Hell). The aforesaid provision clearly stated that the ownership of land includes ownership of the air vertically above the land. In light of the settled principle of law, the ownership of land extends to the ownership of the air vertically above it. Accordingly, the air (above the land which is owned by ESSAR), clearly belongs to ESSAR.

In terms of arrangement between parties, M/s. Essar is required to provide land and all other inputs for the processing of gases by INOXAP. Since owner of land would own ambient air above its land, in effect, M/s. Essar has provided the same to INOXAP in terms of the arrangement (along with electricity, industrial water etc.)

In view of the aforesaid statutory position and commercial arrangement, it is clear that the Atmospheric Air used by the applicant belongs to M/s. Essar. Thus, all the inputs viz. Atmospheric Air, Industrial Water and Electricity belongs to M/s. Essar.

Held-As all the necessary ingredients of the definition of ‘job work’ are fulfilled in this case, the activity of manufacturing of industrial gases viz. Oxygen, Nitrogen and Argon by the applicant amounts to ‘Job Work’ as defined under Section 2(68) of the said Acts.

Case-5- Irene Rubbers [2019] 105 taxmann.com 227 (AAR – KERALA)

Issue-Classification of activity as “Job Work” and Tax Rate on Job Work Services applied on Goods belonging to Chapter 50 to 63 of the Customs Tariff Act, 1975

Observation by AAR- M/s. Irene Rubbers is a job worker engaged in production of Rubber backed and rubber edged coir mats and polypropylene mats of various designs and size as required by the principal on the materials provided by the principal- The materials like coir mats and mattings covered under HSN 5702 and tufted carpets covered under HSN 5703 are supplied by the principal for executing job works along with moulds in the required designs. The rubber compound required for the rubber backing and edging is prepared in a mixing mill. The petitioner cut the materials in desired size and mixing the material with molten rubber compound. Accordingly, the molten rubber compound and coir materials are fused/vulcanized perfectly with the aid of hydraulic press. Thereafter, the edges are cut for finishing and the finished product like rubber backend mat of coir, polypropylene of felt will be delivered to the principal.

Held-

Nature of Activity-Any treatment or process undertaken by a person on the goods belonging to another registered person is a job work as defined in Clause (68) of Section 2 of the CGST/SGST Act. As per the Circular No.38/12/2018 dtd-26-03-2018 issued by CBEC, it is clarified that, in addition to the goods received from the principal, the job worker can use his own goods for providing the services of job work. The services are performed on physical inputs owned by units other than units providing the services. As such, they are characterized as outsourced portions of a manufacturing process or a complete outsourced manufacturing process. Under job work services, the output is not owned by the unit providing this service. Therefore, the value of the services is based on the service charge paid, not the value of the goods manufactured. The job worker, as a supplier of services, is liable to pay GST if he is liable to be registered. He shall issue an invoice at the time of supply of the services. The value of services would include not only the service charges but also the value of any goods or services used by him for supplying the job work services, if recovered from the principal.

Tax Rate-The materials supplied for execution of job work are falling under Chapter 50 to 63 in the First Schedule to the Customs Tariff Act, 1975. The materials like carpets, coir etc, are supplied by the principal for executing job works along with moulds in the required designs. All the raw materials supplied by the principal are covered under Chapter 50 to 63 of the Customs Tariff Act, 1975, Therefore the job work services applied on such goods squarely come under Sl.No.26(i)(b) of Notification 11/2017 CT (Rate) dated 28.06.2017 and taxable @ 5% GST.

Case-1-Bangalore Medical System, [2020] 119 taxmann.com 128 (AAR – KARNATAKA)

Applicant established a medical diagnostic laboratory to carry out diagnostic or investigative services of diseases. Thus, applicant qualifies to be a clinical establishment. the applicant is eligible for input tax credit on the tax paid on the purchases of goods, i.e. equipments, furniture, etc. which are purchased for this project and also on the reagents/consumables which are used for performing the test, subject to the restriction of the same in terms of Section 17(2) of the CGST Act, 2017.

Case-2-Knanaya Multi Purpose Co-operative Credit Society Ltd. [2020] 119 taxmann.com 65 (AAR – KERALA)

On a conjoint reading of the provisions of clauses (c) and (e) of Section 45-I of the Reserve Bank of India Act, 1934 it is evident that the applicant being a Co-operative Society registered with the Central Registrar of Co-operative Societies carrying on the business of financing whether by means of making loans or advances or otherwise, of any activity other than its own qualifies to be a “financial institution” as per the Reserve Bank of India Act, 1934 and consequently also under the CGST Act, 2017. The applicant satisfies both the conditions to be eligible for exercising the option provided under sub-section (4) of Section 17 of the Central/State GST Act, 2017.

Case-3-Ishan Resins & Paints Ltd. [2020] 113 taxmann.com 424 (AAR-WEST BENGAL)

Section 17(5)(a) of the GST Act does not allow input tax credit on inward supply of motor vehicles of a specific category (those meant for transportation of persons having seating capacity not exceeding thirteen persons). The restriction, therefore, does not apply to the goods transport vehicles. Sl. No. 17(iii) of the Rate Notification does not prohibit claiming input tax credit on the goods given on lease.

Case-4- Metro Dairy Ltd. [2019] 109 taxmann.com 455 (AAR-WEST BENGAL)

When the production of taxable goods commenced in December, 2018, the Applicant enjoyed the credit the of entire input tax in terms of rule 43(1)(b) of the GST Rules. Subsequently, the same capital goods are being used for manufacturing exempted goods also. The question, therefore, arises how much of the input tax credit should be attributed to the period when such capital goods were used for manufacturing taxable goods, and how the balance amount of the input tax should be apportioned after production of the exempted goods commences. The Proviso to rule 43(1)(d) of the GST Rules answers the first question, and prescriptions under Rule 43(1)(e), (f) and (g) of the GST Rules answer the second question. Based on such prescriptions, the Applicant is required to compute the admissible amount of the input tax credit on such capital goods in the tax periods over the useful life calculated from the date of invoice and reverse the balance amount.

In the Applicant’s case, the commercial production of taxable goods started in December, 2018. The commercial production of the exempt goods did not begin in 2018-19. The value of D1, therefore, is zero during the tax periods in 2018-19. No amount of the common credit of input tax on input services available during 2018-19 should, therefore, be attributed towards exempt supplies. In other words, subject to the provisions under rule 42(2) of the GST Rules, the entire input tax on input services is an admissible credit during 2018-19.

Case-5-Orix Auto Infrastructure Services Ltd., [2019] 104 taxmann.com 9 (AAR – KERALA)

Whether the applicant Is eligible to take credit of the input tax credit as defined in Sec.2(g) of the GST (Compensation to States) Act, 2017 of the Cess paid on purchase of motor vehicles used in providing services of transportation of passengers or renting of motor vehicles given the fact that as a matter of business polity, the said motor vehicles would be initially used for supply of rental business services and disposed of after three or four years of such use.

Considering the provision envisaged in Rule 43 of GST Rules, applicant Is eligible to ITC of entire amount of Compensation Cess paid on the purchase of vehicles used for rental business. Such ITC claimed shall be reversed every month equally apportioned. over the prescribed period of 60 months to the extent of usage of exempted supply of service. As per Rule 43(c) of GST Rules, applicant is eligible to claim 1TC of Compensation Cess paid at the time of purchases of Motor Vehicles and need to reverse a proportionate amount of ITC every month based on the turnover of rental service business and utilize balance ITC for discharging liability of Compensation Cess arising at the time of sale of such vehicles.

Case-6-Polycab Wires (P.) Ltd. [2019] 104 taxmann.com 36 (AAR – KERALA)

As per Sec. 17(5)(h), input tax credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. In this case after availing input tax credit, the applicant disposed goods as free supply for CSR activities, Hence, the applicant is liable to reverse the input tax credit already availed. Applicant is liable to reverse the input tax credit already availed on goods distributed directly by them to flood affected people under CSR expenses on free basis without collecting any money.

Case-7-Pre-GST Judgement- Essel Propack Ltd. Vs Commissioner of CGST, Bhiwandi (CESTAT Mumbai)

“To pin point the dispute, it is now to be looked into as to if CSR can be considered as input service and be included within the  definition of “activities relating to business” and if in so doing, a company’s image before corporate world is enhanced so as to increase its credit rating as found from the handbook of CSR activities discussed above.”

In Para 11 of the Judgement, CESTAT observed that

The answer is in the affirmative since to win the confidence of the stake holders and shareholders including the people affected by the supply of raw material from their locality say natural resources like mines and minerals etc. the hazardous emission that may result in production activities.

In Para 11.1 CESTAT observed that

Therefore, sustainability is dependent on CSR without which companies cannot operate smoothly for a long period as they are dependent on various stake holders to conduct business in an economically, socially and ethical. Hence in my considered view, CSR which was a mandatory requirement for the public sector undertakings, has been made obligatory also for the private sector and unless the same is to be treated as input service in respect of activities relating to business, production and sustainability of the company itself would be at stake.

CESTAT finally held that

The appeal is allowed and the order passed by the Commissioner (Appeals) demanding duty, interest and penalty against input service availed by the appellant company towards fulfilment of CSR activity is hereby set aside.

CESTAT in the above decision has considered CSR as an input service and within the “activities relating to business”.

Further under the Income Tax Act as well, to clarify non-deductibility of CSR Expenditure, the Finance (No.2) Act, 2014 has inserted an Explanation to section 37 which is reproduced as under:

“Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.”

Therefore, a specific explanation was inserted vide Finance Act, 2014 to clarify the issue. Prior to that both views were prevalent regarding allowability and non-allowability of the expenditure under CSR.

Case-8- KSR & Company [2019] 112 taxmann.com 145 (AAR – ANDHRA PRADESH)

The applicant is providing work contract service for construction of road and the issue is to be clarified whether they are restricted to claim Input Tax Credit in terms of clause (c) or (d) of sub-section 5 of section 17 of CGST Act 2017.

ITC for works contract can be availed by the applicant as he is in the same line of business and entitled to take ITC on the tax invoice raised by his supplies as his output is works contract services. Section 17(5)(d) reads as “Goods or Services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business”.

Even as per the provision of Section 17(5)(d), this authority concurs with the opinion of the applicant that he does not fall under this ineligible category.

Case-9-Manjira Machine Builders (P.) Ltd. [2018] 95 taxmann.com 63 (AAR- TELANGANA)

ITC is allowed on the supplies effected by paying duty at concessional rate of tax. Moreover, the supplies effected at concessional rate of duty are not exempt supplies. Hence, Input tax credit is allowable on the raw materials used for these supplies.

Case-10- VNR Seeds (P.) Ltd-[2018] 95 taxmann.com 89 (AAR – CHHATTISGARH)

As per the above stipulated provisions of section 17(2) of CGGST Act, 2017 any registered recipient can claim ITC to the extent of taxable stock or taxable outward supply shown in their returns. The registered recipient cannot claim ITC on the amount of taxable supply component included in the total amount of exempted supply. The amount of unclaimed ITC shall also be reversed in the electronic ledger of the same month. Thus, it is clear from the above legal provisions that if the applicant supplies seeds (exempted item) in packaged form using such packing materials (taxable item), to its own branches in other States, then no ITC could be claimed on the packaging material used for the said exempted supply of seeds. Whereas, if the applicant supplies only packing material to own branches. In other States, then the ITC involved in purchase of such packing material could be availed as per section 17(2) of CGGST Act, 2017.

Case-11- Bahl Paper Mills Ltd.-[2018] 94 taxmann.com 70 (AAR- UTTARAKHAND)

As per Explanation to the Section 17 of CGST Act, 2017 credit is not available in respect of land, building or any other civil structure……. Therefore, in view of the aforesaid provisions of law, Cenvat Credit of GST paid in relation with building or any other civil structure is not available and since sanitary fittings are integral part of building or any other civil structure, cenvat credit of GST paid on such sanitary fittings is not available. However, credit of GST is available on office fixtures & furniture, AC plant. To further strengthen the view, the authority rely on the CBIC Board Circular No. 943/04/2011-CX dated 29th April 2011 wherein it was clarified that the goods such as furniture and stationery used in an office within the factory are goods used in the factory and are used in relation to the manufacturing business and hence the credit of the same is allowed. Further the Hon’ble CESTAT, Principal Bench, New Delhi in the case of M/s Balkrishna Industries Ltd v. CCE, Jaipur-I vide its Final Order No. A/53217-53218/2015 dated 09.10.2015 reported in 2016 (335) ELT 559 (Tri-Del) has held that the credit on duty paid on air-conditioners installed in the office of factory is admissible. Therefore the credit of input tax charged on the supply of fixtures & furniture and AC plant is admissible under CGST/SGST Act. 2017, provided that the registered person has not claimed depreciation on the tax component of the cost of the capital goods and plant and machinery under the provisions of the Income-tax Act 1961.

Case-12- Narsingh Transport [2019] 104 taxmann.com 86 (AAR – MADHYA PRADESH)

In the light of the facts as discussed in details in previous paras, the activities carried by the Applicant regarding supply of tax paid motor vehicles on monthly ease rent plus Goods & Service Tax as applicable to their customer under a proper agreement properly satisfies the conditions laid down under Section 17(5) (a) (i) (A) before the amendment and under subsection 5(a)(A) after the amendment to make it eligible for availment of input tax credit on motor vehicle for the Tax paid by it while acquiring the said vehicles. We also find it necessary to mention here that the cars, which the applicant intends to lease, or has already leased, should be registered with the transport authority in the capacity of commercial use. In case the vehicle is owned and used by the Applicant for his own use, the facility of ITC shall seize to be available to them.

Case-13-B.M. Industries [2019] 102 taxmann.com 282 (AAR – HARYANA)

Thus, it is evidently clear that there are provisions in the law, where in case of merger, a registered person, by filing Form GST ITC-02, electronically on common portal, can transfer unutilized input tax credit lying in his electronic credit ledger to the transferee. Here it is to be noted that these provisions pertain to transfer of unutilized input tax credit. These provisions are not applicable to unutilized balance lying in electronic cash ledger.

Case-14-Prasar Bharti Broadcasting Corpn. of India [2020] 117 taxmann.com 394 (AAR-HIMACHAL PRADESH)

If the facility provided by a taxpayer for transportation of employees is not obligatory under any law, for the time being in force then no ITC will be available to such a taxpayer. The applicant will however be eligible to claim ITC for the service supplied at 12% GST Rate if the conditions laid down in the second proviso to section 17 (5)b are satisfied.

Case-15- KM Trans Logistics (P.) Ltd. [2019] 110 taxmann.com 331 (AAR- RAJASTHAN)

The applicant has submitted in his submission that he is engaged in providing GTA service for both i.e. supply of taxable goods as well as non-taxable or exempted goods (as defined under Section 2(47) of the GST Act, 2017).

In view of facts stated above, where the goods or services or both used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies as per provisions and procedure prescribed under Section 17(2) of GST Act read with Rule 42 of GST Rules, 2017.

Case-1-Caltech Polymers (P.) Ltd [2018] 98 taxmann.com 355 (AAAR-KERALA)

The crucial aspects to be considered in this case are the elements of “supply” and “consideration”. The appellant company has admitted that they are serving food to the employees for cash, though there is no profit involved in the transaction. In spite of the absence of any profit, the activity of supplying food and charging price for the same from the employees would surely come within the definition of “supply” as provided in Section 7(l)(a) of the GST Act, 2017. Consequently, the appellant would definitely come under the definition of “supplier” as provided in subsection (105) of Section 2 of the GST Act, 2017. Moreover, since the appellant recovers the cost of food items from their employees, there is “consideration” as defined in Section 2(31) of the GST Act, 2017.

Case-2-Jotun India (P.) Ltd., [2019] 110 taxmann.com 184 (AAR – MAHARASHTRA)

Mediclaim insurance policy has been issued by “The Oriental Insurance Company Ltd”. The applicant initially pays entire premium along with taxes and then recovers 50% of the premium rough salary in one instalment in case of staff and in three instalments in case of operators as the case may be. The Applicant is not in the business of providing insurance coverage. Secondly, to provide parental insurance cover, is not a mandatory requirement under any law for the time being in force and therefore, non-providing parental insurance coverage would not affect its business by any means. Therefore, activity of recovery of 50% of the cost of insurance premium cannot be treated as an activity done in the course of business or for the furtherance of business. The activity undertaken by applicant like providing of mediclaim policy for the employees’ parent through insurance company neither satisfies conditions of section 7 to be held as “supply of service” nor it is covered under the term “business” of section 2(17) of CGST ACT 2017.  

Case-3- Tata Motors Ltd. [2020] 119 taxmann.com 106 (AAR – MAHARASHTRA)

5.3 The second question raised by the applicant is whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.

The Authority observed that

5.3.2 In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. The applicant’s contentions that they are eligible for exemption from GST under Sl. No. 15(b) of Notification No. 12/2017-Central Tax (Rate) dated 28-6-2017 in respect of nominal amounts of recoveries made from their employees towards bus transportation service, is not correct. The exemption under the said notification is available only when the supply is taxable in the first place. In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as slated by the applicant in their submissions, is not a supply under GST Act.

5.3.3 To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services. As per clause 1 of the said Schedule-Ill. Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services.

5.3.4 Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we arc of the opinion GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.

Case-4-Posco India Pune Processing Center (P.) Ltd [2019] 102 taxmann.com 21 (AAR – MAHARASHTRA)

50% of the premium amount recovered from the employees cannot be treated as amount received for services rendered, since the entire amount is paid to the insurance company which is providing mediclaim facilities to the employees and their parents. Such recovery of 50% premium amount by the applicant from their employees cannot be supply of service under the GST laws. In fact, what is happening in this case is that since the applicant is recovering 50% of the premium paid on the Mediclaim from their employees, they want to treat the same as rendering of insurance output service to their employees and therefore they are contending that they are entitled to 100 % input tax credit on the insurance premium paid to the insurance company in terms of Section 17(5)(b)(iii) of the GST Act, 2017, mentioned above. They have already submitted that they are primarily engaged in distribution of steel coils and also perform low value added processing function in respect of some of the traded goods based on customer’s requirements. The Applicant has brought nothing on records to show that they are an insurance company and registered with such authorities.

Hence, we find that they are not rendering any service of health insurance to their employees and hence, there is no supply of services in the instant case”.

Case-5- CBIC Press Release 10 July 17 (Gifts & Perquisites)

“Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift.”

The Press Release further provided that

“It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).”

Case-6- Columbia Asia Hospitals (P.) Ltd. [2018] 100 taxmann.com 501 (AAAR-KARNATAKA)

In addition to these core functions, the head office also has a service provider role. In this role, the head office provides those services that business units require, such as ICT systems and training systems. In the case of the appellant’s organisation, the Head Office or the India Management Office is the nodal office which caters to various business processes of all their units located in Karnataka as well as in other States. The IMO handles activities like, accounting, payment of salaries, income tax deductions, provident fund deductions, legal support, strategic directions, technical support and shared knowledge base which benefit all their offices across the country. The IMO is a registered person in Karnataka and is a distinct person in terms of section 25(4) of the CGST Act. The execution of the above mentioned activities by the IMO which is for the benefit of all their other units is in the nature of a service by the IMO. As such there is a supply of service by the IMO to the other distinct units of the Company.

Case-7- Circular No. 80/54 /2018-GST Dated 31^st December 2018

13. Applicability of GST on supply of cranes, rigs, tools & Spares and other machinery when moved from one state to another by a person on his account for there use for supply of service

13.1 As per Circular No. 21/21/2017-GST dated 22.11.2017, it was clarified that no IGST would be applicable on such interstate movements of rigs, tools & spares and all goods on wheels. Doubts have been raised regarding applicability of GST on inter-state movement of machinery like tower cranes, rigs, batching plants, concrete pumps and mixers which are not mounted on wheels, but require regular means of conveyance (used by companies in Infrastructure business).

13.2 Any inter-state movement of goods for provision of service on own account by a service provider, where no transfer of title in such goods or transfer of goods to the distinct person by way of stock transfer is not involved, does not constitute a supply of such goods. Hence, it is clarified that any such movement on own account (not involving distinct person in terms of section 25), where such movement is not intended for further supply of such goods does not constitute a supply and would not be liable to GST.

Also Refer- Supply, scope of – Clarification on Inter-State movement of various modes of conveyance, carrying goods of passengers or for repairs and maintenance- CIRCULAR NO.1/1/2017-IGST, DATED 7-7-2017

Clarification on Inter-State movement of Rigs, Tools and Spares and all goods on wheels (like Cranes)- Circular 1/1/2017- Circular No.21/21/2017-GST [F.NO.354/320/2017-TRU (PT.)], DATED 22-11-2017

Case-8- Tata Coffee Ltd. [2019] 110 taxmann.com 342 (AAR – KARNATAKA)

The timber/wood belonging to the applicant is handed over to the Karnataka Timber Depot (referred hereinafter as “Depot”) for auction or further supply and the Depot is raising invoice against such supply made to third parties. This action of the Depot is in the capacity of an agent of the applicant with rights to transfer the title of the goods to third parties and hence is clearly transferred the same as an agent of the applicant. Hence the supply made by the agent on behalf of the principal amounts to supply and the depot is collecting GST on the same. The Depot is remitting the sale value of the timber to the applicant. Since depot is considered as an agent within the meaning of clause (5) of section 2 of the Central Goods and Services Tax Act, 2017, the transfer of goods from the applicant to the agent is also a supply vide Clause 3 of Schedule I to the CGST Act, 2017. From the above it is clear that the supply of goods by the applicant to the depot for further supply on behalf of the principal would also amount to a supply and  the applicant has to issue a tax invoice and discharge GST on the same.

Case-9- CIRCULAR NO.57/31/2018-GST [CBEC-20/16/4/2018-GST], DATED 4-9-2018 [AS CORRECTED BY CIRCULAR NO. CBEC/20/16/04/2018-GST, DATED 5-11-2018]

Firstly, the supply of services between the principal and the agent and vice versa is outside the ambit of the said entry, and would therefore require “consideration” to consider it as supply and thus, be liable to GST. Secondly, the element identified in the definition of “agent”, i.e., “supply or receipt of goods on behalf of the principal” has been retained in this entry. Thus, the key ingredient for determining relationship under GST would be whether the invoice for the further supply of goods on behalf of the principal is being issued by the agent or not. Where the invoice for further supply is being issued by the agent in his name then, any provision of goods from the principal to the agent would fall within the fold of the said entry. However, it may be noted that in cases where the invoice is issued by the agent to the customer in the name of the principal, such agent shall not fall within the ambit of Schedule I of the CGST Act. Similarly, where the goods being procured by the agent on behalf of the principal are invoiced in the name of the agent then further provision of the said goods by the agent to the principal would be covered by the said entry. In other words, the crucial point is whether or not the agent has the authority to pass or receive the title of the goods on behalf of the principal.

Scenario-1- Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various suppliers who can provide the goods as desired by Mr. A, and asks the supplier (Mr. C) to send the goods and issue the invoice directly to Mr. A. In this scenario, Mr. B is only acting as the procurement agent, and has in no way involved himself in the supply or receipt of the goods. Hence, in accordance with the provisions of this Act, Mr. B is not an agent of Mr. A for supply of goods in terms of Schedule I.

Scenario-2-M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction certain goods. The auctioneer arranges for the auction and identifies the potential bidders. The highest bid is accepted and the goods are sold to the highest bidder by M/s XYZ. The invoice for the supply of the goods is issued by M/s XYZ to the successful bidder. In this scenario, the auctioneer is merely providing the auctioneering services with no role played in the supply of the goods. Even in this scenario, Mr. B is not an agent of M/s XYZ for the supply of goods in terms of Schedule I.

Scenario-3-Mr. A, an artist, appoints M/s B (auctioneer) to auction his painting. M/s B arranges for the auction and identifies the potential bidders. The highest bid is accepted and the painting is sold to the highest bidder. The invoice for the supply of the painting is issued by M/s B on the behalf of Mr. A but in his own name and the painting is delivered to the successful bidder. In this scenario, M/s B is not merely providing auctioneering services, but is also supplying the painting on behalf of Mr. A to the bidder, and has the authority to transfer the title of the painting on behalf of Mr. A. This scenario is covered under Schedule I.

Scenario-4-Mr A sells agricultural produce by utilizing the services of Mr B who is a commission agent as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State. Mr B identifies the buyers and sells the agricultural produce on behalf of Mr. A for which he charges a commission from Mr. A. As per the APMC Act, the commission agent is a person who buys or sells the agricultural produce on behalf of his principal, or facilitates buying and selling of agricultural produce on behalf of his principal and receives, by way of remuneration, a commission or percentage upon the amount involved in such transaction. In cases where the invoice is issued by Mr. B to the buyer, the former is an agent covered under Schedule I. However, in cases where the invoice is issued directly by Mr. A to the buyer, the commission agent (Mr. B) doesn’t fall under the category of agent covered under Schedule I.

Part-1- Secondary Discounts-Discount by Way of Credit Note issued under Sec 34 and Secondary Discounts-Discount by Way of Financial Credit Note

Reference-1-Circular No. 92/11/2019-GST Dated 7^th March 2019 –Secondary Discounts-Discount by Way of Credit Note issued under Sec 34

These are the discounts which are not known at the time of supply or are offered after the supply is already over. For example, M/s A supplies 10000 packets of biscuits to M/s B at Rs. 10/- per packet. Afterwards M/s A re-values it at Rs. 9/- per packet. Subsequently, M/s A issues credit note to M/s B for Rs. 1/- per packet.

It is further clarified that such secondary discounts shall not be excluded while determining the value of supply as such discounts are not known at the time of supply and the conditions laid down in clause (b) of sub-section (3) of section 15 of the said Act are not satisfied.

In other words, value of supply shall not include any discount by way of issuance of credit note(s) as explained above in para 2 (D)(iii) or by any other means, except in cases where the provisions contained in clause (b) of sub-section (3) of section 15 of the said Act are satisfied.

Refernce-2- Circular No. 92/11/2019-GST Dated 7th March 2019 –Secondary Discounts-Discount by Way of Financial Credit Note

There may be cases where post-sales discount granted by the supplier of goods is not permitted to be excluded from the value of supply in the hands of the said supplier not being in accordance with the provisions contained in sub-section (3) of section 15 of CGST Act.

Supplier: It has already been clarified vide Circular No. 92/11/2019-GST dated 7th March, 2019 that the supplier of goods can issue financial / commercial credit notes in such cases but he will not be eligible to reduce his original tax liability.

Dealer: It is clarified that the dealer will not be required to reverse ITC attributable to the tax already paid on such post-sale discount received by him through issuance of financial / commercial credit notes by the supplier of goods in view of the provisions contained in second proviso to sub-rule (1) of rule 37 of the CGST Rules read with Circular No. 105/24/2019-GST second proviso to sub-section (2) of section 16 of the CGST Act as long as the dealer pays the value of the supply as reduced after adjusting the amount of post-sale discount in terms of financial / commercial credit notes received by him from the supplier of goods plus the amount of original tax charged by the supplier.

Refernce-3-Ultratech Cement Ltd. [2018] 95 Taxmann.com 289 (AAR -Maharashtra)

Query: Whether the amount paid to dealer towards “rate difference” post supply can be considered for the purpose of arriving at the ‘transaction value’ in terms of Section 15 of the Central Goods and Services Tax Act (“CGST Act”).

Held: The wordings of Section 15(3)(b)(i) very clearly states that quantum of discount is given after the supply of goods has taken place has to be there in the terms of such agreement i.e. it cannot be open ended not based on any criteria. Thus this discount quantum cannot be arrived at without any basis only at the discretion of the supplier. The supplier has to clearly mention the quantum of discount or percentage of discount which is to be worked out on the basis of certain parameters or certain criteria which may be agreed to between the supplier and the recipient and which are predetermined and mentioned in agreement in respect of supply of the goods.

Thus the bare word ‘discount’ mentioned in such an agreement without there being any parameters or criteria mentioned with it would not fulfil the requirement of Section 15(3)(b)(i) of the CGST Act, as the word ‘discount’ if left open ended or without any qualifications or criteria attached can mean there can be any percentage of discount ranging from bare minimum to even 100% as per discretion of the supplier and certainly such abnormal discounts without any criteria or basis can in no way be considered as fair and at arm’s length business transactions and no taxation statute can be construed to be having open ended discount with legislative intent.

Reference-4-MRF Ltd. [2019] 108 taxmann.com 65 (AAAR – TAMILNADU)

For the reasons stated in the Statement of Facts, the post-purchase discount extended by the supplier is not an allowable deduction under Section 15(3) since the requirements of the said provisions are not satisfied. Hence, GST is payable by the Supplier on the entire price of the goods. Once the entire price is treated as transaction value for the purpose of Section 15, such value should be treated as being paid even for the purpose of section 16(1) Proviso 2. This is for the reason that the term ‘the value of supply’ in Proviso 2 to Section 16 has to be read in harmony with the same term mentioned in Section 15. Therefore the payment made by the company has to be construed as proper payment in compliance with Section 16(2) of the Act though there is an actual lower payment by them to the Supplier of the goods.

Reference-5- Rajkot Nagarik Sahakari Bank Ltd.  [2019] 108 taxmann.com 515  (AAR – GUJARAT)

In the facts and circumstances of the case, whether first 10 free transactions subject to maximum of rupees 5 Lakh allowed to the Demat account holder depositing Refundable interest free deposit would attract GST? It appears from the above that the first 10 free transaction allowed to the demat account holders are in the nature of discount and will not attract GST subject to the fulfilment of the conditions prescribed under Section 15(3) of the CGST & GGST Act.

Part-2-Additional discount given by way of post sale incentive like special sales drive, advertisement campaign, exhibition etc.

Reference-1-Circular No. 105/24/2019-GST Dated 28th June 2019 (Withdrawn)

If the additional discount given by the supplier of goods to the dealer is the post-sale incentive requiring the dealer to do some act like undertaking special sales drive, advertisement campaign, exhibition etc.                      Such transaction would be a separate transaction and the additional discount will be the consideration for undertaking such activity and therefore would be in relation to supply of service by dealer to the supplier of goods.

Dealer: The dealer, being supplier of services, would be required to charge applicable GST on the value of such additional discount.

Supplier: Supplier of goods, being recipient of services, will be eligible to claim input tax credit of the GST so charged by the dealer.

Reference-2-Agenda to 37^th GST Council meeting held on September 20, 2019

Question-Whether the post-sales discount offered by the manufacturer to the dealer shall be treated as a consideration for a separate transaction of supply of services by the dealer to the manufacturer in all the cases?

Answer-A post-sale discount (in form of a credit note) passed on for compensating the dealer to undertake activities (on the directions of the principal supplier) like advertisement campaign, free gifts given along with the principal supply, exchange bonus and the like activities on the directions of the principal supplier, where the dealer may or may not have also contributed, would be treated as a consideration for a ‘separate transaction” in the nature of promotional activities (referred to as ‘business auxiliary services’ in the Service Tax regime) provided by the dealer to the principal supplier. The same would be chargeable to tax separately and the principal supplier would be eligible to avail ITC of the same. Any quantity discount known at the time of supply but which are linked to volume of supplies in specified period arrived at after the supplies have been made, aren’t covered as a consideration for undertaking sales promotion activities and eligible for tax adjustment as provided in Section 15(3)(b) of the CGST Act ,2017. The tax treatment of such a discount would remain the same even if the dealer undertakes a promotional activity to achieve the requisite sales volumes, the same being on his own account and not being on the directions of the principal supplier.

Reference-3-Kwality Mobikes (P.) Ltd [2019] 110 taxmann.com 369 (AAR – KARNATAKA)

4.1 The transaction of the applicant is examined and found that the authorised supplier is issuing a tax invoice on the supply of goods to the applicant and the applicant is taking credit of the input tax charged in the invoice. The applicant when makes more purchases is eligible for the volume discount on purchases and a credit note is issued by the authorised supplier and no adjustment of price is made in respect of the goods already sold nor any adjustment of GST is made in the credit note. The applicant is also not claiming any reduction in input tax credit already claimed by him as it does not affect the price of the goods sold. Hence, the amount received by the applicant is in the form of an incentive provided by the authorised supplier and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same.

4.2 Further, the applicant when sells more than his target is eligible for the incentive which is provided by the authorised supplier in the form of a credit note without affecting the sale price of the goods purchased or sold. Even this is in the form of incentive and no adjustment of price nor tax is done either by the applicant or the authorised supplier. Hence, the amount received by the applicant is in the form of an incentive provided by the authorised supplier and does not affect the sale price of the goods already sold and hence there is no liability to charge GST on the same.

4.3 Further, the applicant is not providing any service to the authorised supplier and is only receiving the incentive. Indirectly, it has an effect on the sale price of the goods purchased by the applicant from the authorised supplier and is actually in the form of discount.

Part-3–Additional discount given to the dealer to offer a special reduced price to the customer to augment the sales

Reference-1-Circular No. 105/24/2019-GST Dated 28th June 2019 (Withdrawn)

If the additional discount is given by the supplier of goods to the dealer to offer a special reduced price by the dealer to the customer to augment the sales volume Such additional discount would represent the consideration flowing from the supplier of goods to the dealer for the supply made by dealer to the customer.

Dealer: This additional discount as consideration, payable by any person (supplier of goods in this case) would be liable to be added to the consideration payable by the customer, for the purpose of arriving value of supply, in the hands of the dealer, under section 15 of the CGST Act.

Customer: The customer, if registered, would be eligible to claim ITC of the tax charged by the dealer only to the extent of the tax paid by the said customer to the dealer in view of second proviso to sub-section (2) of section 16 of the CGST Act.         

Reference-2-Agenda to 37^th GST COUNCIL meeting held on September 20, 2019 – Why the circular was withdrawn

Will the post-sale discount given by the manufacturer to the dealer impact the valuation of the subsequent supply by the dealer to the customer?

In terms of sub-section (1) of section 15 of the CGST Act when the supplier of the goods and the recipient are not related and price is the sole consideration for the supply, the value of the supply of goods shall be the transaction value, which is the price actually paid or payable for the said supply.

2. The post-sale discount offered by the manufacturer to the dealer shall only be relevant for the valuation of supply between the manufacturer and the dealer and will not impact the valuation of the subsequent supply by the dealer(s) to the customer in any manner. However, it is clarified that if the reimbursement or payment for the inducement of the supply (by the dealer to the end customer at a reduced rate) is received from ‘any other person’ (other than the customer) it shall still form a part of the consideration for the value of the supply to the customer in view of the definition of ‘consideration’ in Section 2(31) of the CGST Act, 2017.

Reference-3-Santhosh Distributors, In re [2019] 110 taxmann.com 496 (AAR – KERALA)

Supplier not eligible to reduce its Tax Liability since he is not satisfying conditions as prescribed under Section 15(3)(b) and since output liability not reduced by supplier on it’s invoice, therefore applicant not liable to reduce to Input Tax Credit: The value of taxable supply is governed by the provisions of Section 15 of the CGST/SGST Act. The deduction of discounts from the value of taxable supply is subject to the conditions prescribed in sub-section (3) of Section-15 ibid. In the case of the applicant the supplier of goods/principal company is issuing Commercial Credit Notes for reimbursement of the scheme discount provided by the applicant to the customer as per instructions of the supplier. Since the commercial credit notes issued by the supplier/principal company do not satisfy the conditions prescribed in sub-section (3) of Section 15 of the CGST/SGST Act; the supplier is not eligible to reduce the original tax liability. The applicant will not be required to reverse proportionate input tax credit.

Taxability of Additional Scheme given by the Applicant to its dealers on the instruction of M/S Castrol India and in turn reimbursed to the applicant by M/S Castrol India In the facts of the instant case, the additional discount/reimbursed amount represents the consideration flowing from the supplier of goods/principal company to the applicant for the supply made by the applicant to the customers. The additional discount/reimbursed amount; is therefore liable to be added to the consideration payable by the customer to the applicant for the purpose of arriving at the value of supply of the applicant to the customer as per provisions of Section 15 of the CGST/SGST Act. Further, the customer, if registered, would only be eligible to claim ITC of the tax charged by the applicant only to the extent of the tax paid by the said customer to the applicant in view of second proviso to section 16(2) of the CGST/SGST Act.

Our Comment-(In our opinion the decision reflects the position prior to withdrawal of circular No 105/24/2019-GST Dated 28th June 2019)

Part-4- Free samples and gifts

Reference-1-Circular No. 92/11/2019-GST Dated 7th March 2019

Goods or services or both which are supplied free of cost (without any consideration) shall not be treated as “supply” under GST (except in case of activities mentioned in Schedule I of the said Act). Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as “supply‟ under GST, except where the activity falls within the ambit of Schedule I of the said Act

Eligibility of ITC: Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration. However, where the activity of distribution of gifts or free samples falls within the scope of “supply‟ on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

Part-5- Buy one get one free offer

Reference-1-Circular No. 92/11/2019-GST Dated 7th March 2019

In fact, it is not an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one.

Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of section 8 of the said Act.

It is also clarified that ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.

Refeence-2-Golden Tobcco Ltd. [2019] 106 taxmann.com 409 (AAR – MAHARASHTRA)

From a reading of the above Circular and the facts of the matter i.e. the facts of the promotion scheme proposed by the applicant we find that their scheme of Buy 100 Get 10 free OR “Buy 1000 Get 150 free” is clearly covered by Para B of the said Circular. Hence in such cases it will not be an individual supply of free goods but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one. In the case of Buy 100 Get 10 free it will be 2 individual supplies, each of 100 packs and 10 packs for the price of 100 packs. In such a case taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined as per the provisions of Section 8 of the said Act. Further, ITC shall also be available to the supplier for the inputs, input services and capital goods used in relation to supply of goods or services or both as part of such offers.

Part-6- Discounts including ‘Buy more, save more’ offers

Reference-1- Circular No. 92/11/2019-GST Dated 7th March 2019

Staggered discount to his customers (increase in discount rate with increase in purchase volume). For example- Get 10 % discount for purchases above Rs. 5000/-, 20% discount for purchases above Rs. 10,000/- and 30% discount for purchases above Rs. 20,000/-. Such discounts are shown on the invoice itself.

Some suppliers also offer periodic / year ending discounts to their stockists, etc. For example- Get additional discount of 1% if you purchase 10000 pieces in a year, get additional discount of 2% if you purchase 15000 pieces in a year. Such discounts are established in terms of an agreement entered into at or before the time of supply though not shown on the invoice as the actual quantum of such discounts gets determined after the supply has been effected and generally at the year end. In commercial parlance, such discounts are colloquially referred to as “volume discounts”. Such discounts are passed on by the supplier through credit notes.

It is clarified that discounts offered by the suppliers to customers (including staggered discount under „Buy more, save more‟ scheme and post supply / volume discounts established before or at the time of supply) shall be excluded to determine the value of supply provided they satisfy the parameters laid down in sub-section (3) of section 15 of the said Act, including the reversal of ITC by the recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier

Reference-2- Biostadt India Ltd [2019] 103 taxmann.com 127 (AAR – MAHARASHTRA)

In the present scenario we will try to understand the word ‘gift’ in the common parlance as it is also used in the present day. There are several schemes advertised in the market by business houses which promise to give ‘assured gifts’ to their customers, for e.g. In the city of Mumbai and its suburbs various builders had floated advertisements stating that the first x numbers of buyers of flats in their residential construction projects would be give a car/100gms. Gold coins, etc. Similarly malls in Mumbai also offer assured gifts on purchase above certain amounts by their customers. Hence in the present context the word ‘gift’ has an enlarged scope according to us and has its own colour. In all such cases, as in the present case, the statement that goods, in this case gold coins, will be given to customers who satisfy certain conditions is nothing but assurance of giving away gifts on those conditions being achieved by the customers. Under the GST laws the intention for non-granting/denial of set off is envisaged in situations where there is no tax on output supply. In cases where the goods are procured with levy of input tax and are supplied without tax being paid on such output supplies, the scheme of the GST Act provides no input tax credit, except export.

We now deal with one of the contention of the applicant that they have a contractual arrangement with the customer wherein if the distributor purchases certain amount of company’s product or makes payment in a prescribed manner, then he shall be entitled to a gold coin of specific weight.

This can be inferred as if the distributor of the applicant is providing services of increased sale for which consideration is in the form of a gold coin. As per Section 7 of the CGST Act, disposal, or the case may be, barter, made or agreed to be made for a consideration in the course or furtherance of business is supply liable to tax. We find in the present application, the applicant has not shown proof of payment of output tax. The only conclusion that can be drawn in the present case is that the distribution of gold coins by the applicant is not but gifts and hence the transaction is covered by the provisions of Section 17(5) of the Act.

To sum up ITC on “gifts” will not be available when no GST is being paid on their disposal. Just because the applicant submits that they have satisfied Section 16(1) of the CGST Act, 2017 does not mean that they are entitled to credit since Section 17(5) starts with “Notwithstanding anything contained in sub-section (1) of Section 16 ………..”. The implication is that in the subject case even if it seems, as per the applicant that Section 16(1) is applicable in their case and allows them credit, Section 17(5) shall block such credits.

Case-1- Arivu Educational Consultants (P.) Ltd [2019] 110 taxmann.com 426 (AAR – KARNATAKA)

The applicant is collecting the exact: amount payable to institute or college or universities as exam fee from the students (service recipient) and remits the same amount to the respective institute or college or universities (third party) without any profit element or additions, on the authorization of the student. This payment is separately indicated in the invoice issued to the respective students. The applicant providing this kind of services to the student in addition to the services as training and coaching institute. Hence the applicant satisfies all the conditions of the pure agent as narrated in the Rule 33 of the CGST Rules, 2017. Therefore amount of fee collected by the applicant from the student as exam fee which is remitted to the respective institute or college or universities is excluded from the value of supply.

Case-2-DRS Marine Services (P.) Ltd., [2018] 100 taxmann.com 323 (AAR – MAHARASHTRA)

From the above provisions of Rule 33 and the facts of the proposed transaction explained by the applicant, we find that the applicant will be acting as a pure agent of RMS inasmuch as the entire amount received by them as Crews’ Salary will be disbursed to the Crew and no amounts from the said receipt will be used by the applicant for his own interest. In fact, for performing as a pure agent they will also be receiving compensation separately in the form of fixed fees to be charged as service charges. In view of the above we are of the opinion that the applicant will not be liable to pay GST on Salary amount received from RMS and disbursed to the Crew.

Case-3- E-Square Leisure (P.) Ltd., [2019] 104 taxmann.com 121 (AAR – MAHARASHTRA)

The applicant has installed main electric connection and has different sub connections at each location for reading actual consumption of electricity. Applicant has also installed DG sets for generation of electricity in case of power failure. The water required is also provided through RO system. All these goes to show that these supplies are on their own account and is for effective enjoyment of activities related to the Theatre. Further, we find that the provision of supply is made by the applicant to comply with the mandatory requirements of the local body and the Licensing Authority under Cinema Act and Cinema Rules 3 to operate the Theatre. Further, from the terms of the agreement and the transaction, we do not find any authorization, obtained by the applicant from the recipient of the services, to act as pure agent and to make payment to third parties. In view of the above, we accept the contention of the jurisdictional officer that the applicant has failed to establish themselves as a pure agent as defined under the GST Valuation Rules and therefore the expenditure or cost incurred by the applicant and subsequent reimbursement thereof cannot be excluded from the value of supply.

Case-4- Logic Management Training Institutes (P.) Ltd [2020] 119 taxmann.com 49 (AAR – KERALA)

As per Section 15 of the CGST Act, 2017 the entire consideration received by the applicant from the recipient of services is liable to GST. However, if in respect of the amount collected as examination fees/other fees the conditions prescribed in Rule 33 of the CGST Rules, 2017 are satisfied then such amount can be excluded from the value of taxable supply as expenditure incurred by the applicant as a pure agent of the recipient of services.

Case-5- Premier Vigilance & Security (P.) Ltd [2018] 99 taxmann.com 79 (AAR-WEST BENGAL)

Vehicles were owned by applicant and toll has been charged for providing service by way of access to a road or bridge. Therefore, applicant admittedly was the beneficiary and liable to pay toll, which is compulsorily levied on vehicles. Bank never acknowledged payment of toll charges as their own liability but only acknowledged that toll charges would be reimbursed on actual basis. Expenses so incurred are, therefore, cost of service provided to Banks and reimbursement of such expenses is recovery of a portion of value of supply made to Banks. Toll charges paid are not, therefore, to be excluded from the value of supply under Rule 33. GST, therefore, be payable at applicable rate on entire value of supply, including toll charges paid.

Case-6-Flyer issued by CBEC on “Pure Agent”

“Introduction The GST Act defines an Agent as a person including a factor, broker, commission agent, arhtiaa, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. So, who is a pure agent and why is a pure agent relevant under GST? Broadly speaking, a pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent.

Let’s understand the concept by taking an example. A is an importer and B is a Custom Broker. A approaches B for customs clearance work in respect of an import consignment. The clearance of import consignment and delivery of the consignment to A would also require taking service of a transporter. So A, also authorises B, to incur expenditure on his behalf for procuring the services of a transporter and agrees to reimburse B for the transportation cost at actuals. In the given Illustration, B is providing Customs Brokers service to A, which would be on a principal to principal basis. The ancillary service of transportation is procured by B on behalf of A as a pure agent and expenses incurred by B on transportation should not form port of value of Customs Broker service provided by B to A. This, in sum and substance is the relevance of the pure agent concept in GST.

Case-7- Udayan Cinema (P.) Ltd., [2019] 103 taxmann.com 219  (AAR-WEST BENGAL)

The Contract does not specify CDIVF as the Applicant’s pure agent. It merely refers to bills for some of the services procured will bear the name of the feature film and will be paid on an actual cost basis. The crucial test is whether these services are a charge on the Applicant or CDIVF. If CDIVF is liable to pay the suppliers of these services no matter what the Applicant does, it will be treated as a charge on CDIVF. As CDIVF holds the production rights, even though as security, all procurements of goods and services will be a charge on him unless specifically excluded. That the bills for such services bears the name of the feature film and not raised on the Applicant corroborates to the above conclusion. No deduction is, therefore, available in terms of the contract with CDIVF from the value of the supply of motion picture production service even if payment is made on an actual cost basis.

Case-8- Maansmarine Cargo International LLP [2019] 109 taxmann.com 372 (AAR – MAHARASHTRA)

The reimbursement received by the applicant pertains to establishment costs which would be incurred by them for running their office in India. In any normal business such expenses are borne by the supplier of service and it is but natural that they would include such costs in the value to be received from the recipient of their services. In the subject case the said costs, are termed as reimbursements and are recovered in addition to management fees from their clients and therefore it is nothing but additional consideration charged for the supply in this case. The provisions of Section 15 of the CGST Act, which deals with the transaction value are very clear and as per the said provisions the valuation of supply will include all costs, including the employee cost provided by one distinct entity to the other distinct entities.

Case-9- K. K. Polymers, [2018] 100 taxmann.com 17 (AAR- RAJASTHAN)

Transaction made between DCA and customer for passing on specified bonus given by principal is nothing but an additional discount given for early payment made by the customer to the Principal through DCA. In this case there is only one supply made by the principal to the customer of the goods supplied. The additional discount relates to supply already made by the principal and passing on such bonus to the customers by DCA is in the nature of pure agent. However, any amount retained by the DCA on account of early payment is in the nature of supply made to the principal as business support services on which the DCA has already paid GST.

Mandi Fees is a levy generally on agriculture produces levied under the Agriculture produce Marketing Act. Mandi Fee is payable by the purchaser to the market Committee and not the seller albeit accounted for through him Agricultural Produce Marketing Rules. There has been lot of confusion in both pre-GST Regime and post GST Regime as well whether the same is to be added in the Sales Price/Value of Supply since it is a fees being collected by the seller/supplier.

Relevant Section-Section 15(2)(a) of CGST Act, 2017 provides that

The value of supply shall include—

any taxes, duties, cesses, fees and charges levied under any law for the time 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.

Relevant Judgement by AAR-Parvatiya Plywood (P.) Ltd [2020] 115 taxmann.com 62 (AAR- UTTARAKHAND)

As per the provisions of Section 15(2)(a) of the CGST/SGST Act, 2017, value of supply also includes any fee levied under any law other than CGST/SGST/UTGST Act. Therefore, fee levied under Agricultural Produce Marketing (Development and Regulation) Act, 2011 (Uttarakhand Act No. 9 of 2011) will become the part of the value of supply and will attract GST rate specified for a particular goods under the relevant chapter/Heading/sub-heading irrespective of the fact that whether GST is paid on forward charge basis or reverse charge basis.

The above judgement clearly provided that Mandi Fees would be falling under the provisions of Section 15(2)(a) and therefore would be added to the value of Supply.

Relevant Judgement Pre-GST Regime-CTO Circle-D Jaipur vs M/S Britannia Dairy Pvt Ltd on 28 February, 2014-Rajasthan High Court

• Definition of Sale Price-Before moving on the judgement, relevant definition of “Sale Price” is being reproduced hereinbelow for reference that the provisions of Section 15(2)(a) and Definition of “Sale Price” under the provisions of RVAT Act, 2003 were similar-

Section 2(36)-Sale price-means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods respect of goods or services rendered at the time of or before the delivery thereof, except the tax imposed under the VAT Act.

Therefore, the definition of Sale Price also provides that it should include “Statutory Levy” within its scope.

• Scope of “Statutory Levy” in Section 2(36) of RVAT Act, 2003 to construe sale price have of necessity to be construed as a statutory levy payable by the seller and not by the purchaser

To my mind the word statutory levy in the aforesaid definition of the sale price have of necessity to be construed as a statutory levy payable by the seller and not by the purchaser. Moreso the levy should relate to the sale transaction per se between the seller and purchaser and be part of the consideration passing from the buyer to the seller. To my mind for a statutory levy to be included within sale price as defined in Section 2(36) of the 2003 Act it has to be a charge by the seller on any ground whatsoever and not a charge by a third party from a purchaser for general facilities in the area of sale (here the Mandi Samiti).

• Observation by Rajasthan High Court that Mandi Fees is a tax on Buyer and is merely collected by the Seller

Mandi fee is to be paid by the purchaser under the Rules of 1963 to the Mandi Samiti for the infrastructure created by it for facilitating a transaction i.e. it is a charge independent of the privity of contract between the seller to the purchaser and not a part of the consideration paid to the seller by the buyer. The market fee charged by the Mandi Samiti is not a levy on the seller.

• Reference to Judgement of Constitution Bench of Supreme Court in the case of M/s. George Oakes (Private) Ltd. Vs. State of Madras [AIR 1962 SC 1037] wherein it was said that where tax is on the buyer and seller merely a collecting agency, it would remain outside the scope of selling price. Also relied upon of State of Punjab Vs. M/s. Chhabra Rice Mills (SC) and State of Punjab Vs. M/s Guranditta Mal Shrauti Prakash (SC)

“Further in case of M/s. George Oakes (Private) Ltd. Vs. State of Madras [AIR 1962 SC 1037] a Constitution bench of the Hon’ble Supreme Court has observed that where in law tax is on the buyer and the dealer a mere collecting agency, it would remain outside the sale price.”

The Rajasthan High Court also observed that

Aside of the aforesaid, in my considered opinion the issue agitated in the instant revision petition is wholly covered by the judgments of the Hon’ble Supreme Court in case of State of Punjab Vs. M/s. Chhabra Rice Mills (supra) and State of Punjab Vs. M/s Guranditta Mal Shrauti Prakash (supra) wherein it has been categorically held on principle that where the market fee is payable by the buyer and the seller merely deposits the said fee on behalf of the buyer and reimburses himself, the market fee cannot form part of the sale consideration or sale price.

• Held by the Rajasthan High Court

The market fee charged by the Mandi Samiti is not a levy on the seller and thus cannot constitute statutory levy within the meaning of Section 2(36) of the RVAT Act, 2003 liable to be included in the sale price.

Consequently, I find no substantial question of law as warranted under Section 84 of the RVAT Act, 2003 made out in the present revision petitions. There is no force in the revision petitions particularly in view of the judgment of Hon’ble Supreme Court in cases of State of Punjab Vs. M/s. Chhabra Rice Mills (supra) and State of Punjab Vs. M/s Guranditta Mal Shrauti Prakash (supra) and M/s. George Oakes (Private) Ltd. Vs. State of Madras (supra).

Impact in GST

Therefore, two principles can be culled out in GST Regime from the principle laid down in above decision with reference to the decisions of Apex Court-

• The scope of value of supply should be seen in the context of principle that it would include statutory levy which are on the supplier and collected by the Supplier and not on the recipient but only collected by the supplier. The decision by AAR might need reconsideration
• Mandi Fees should not be part of value of supply in GST.

Case-1- Circular No. 47/21/2018-GST Dated 8th June 2018

Whether moulds and dies owned by Original Equipment Manufacturers (OEM) that are sent free of cost (FOC) to a component manufacturer is leviable to tax and whether OEMs are required to reverse input tax credit in this case?

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).

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 cost of such moulds/dies shall be added to the value of the components. In such cases, the OEM will be required to reverse the credit availed on such moulds/ dies, as the same will not be considered to be provided by OEM to the component manufacturer in the course or furtherance of the former’s business.

Case-2- Tejas Constructions & Infrastructure (P.) Ltd.[2019] 109 taxmann.com 311 (AAR – MAHARASHTRA)

Where applicant (contractor) was awarded works contract by contractee for construction of a factory building and as per agreement cement, etc. required for work will be supplied by contractee and further applicant will be paid GST on entire value of contract and after payment of GST, value of materials supplied by contractee would be deducted and balance amount will be paid.

As per section 15- 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 included in the price actually paid or payable for the goods or services or both shall be included in the value of taxable supply. In such case, tax is payable on entire contract value without deducting value of cement, etc. provided by contractee. Followed-M/s. N.M. Goel & Co. v. STO 1990 taxmann.com 1352 (SC) on 28 October, 1988 Equivalent citations: 1989 AIR 285, 1988 SCR Supl. (3) 657

Case-3- [2019] 110 taxmann.com 189 (AAR – KARNATAKA) Hical Technologies (P.) Ltd., In re

Facts-The applicant a private limited company is engaged in the supply of goods and services and are basically a job worker. They are proposing to undertake a job work activity for WIPL based on the purchase orders. The job work involves assembly, integration and testing of converters. Contract is to supply a manufactured product, for purpose of which, certain physical inputs of ‘critical components’ are provided ‘free of cost’ by WIPL, while non-critical (ancillary) components are to be arranged by applicant and that both these components are to be assembled together using labour of applicant to get the final product.

Held: The value of the goods provided by WIPL would not form the part of the value of the supply and must be excluded while valuing the supply.

Case-4- [2019] 103 taxmann.com 91 (AAAR-KARNATAKA) Nash Industries (I) (P.) Ltd.

Facts-Applicantis a manufacturer of sheet metal pressed components and supplies to industrial customers like Automotive, Banking Hardware, Power Protection, Alternate Energy etc. The tools required to manufacture these components were designed and manufactured by Appellant. Such manufactured tools are billed to the customer and the payment is received for the same but the tools are retained by the Appellant for the manufacture of components.

Observation-. We need to examine whether the price paid by the customers is the sole consideration for the supply made by the Appellant. For this purpose, it is necessary to understand the contractual arrangement between the Appellant and their customers to see whether the scope of the supply mandates that, the Appellant is to incur a cost for the manufacture and use of the tool but the same has been supplied by the customer free of charge.

Held: On going through the above terms and conditions of the contract between the Appellant and DICV, it is evident that the Appellant is required to use DICV Owned Tools concerning the part to be manufactured with the tool. In such a case, the value of the tools, which has already suffered tax and supplied FOC to the Appellant, is not required to be added to the value of the components supplied by the Appellant.

Case-5- [2019] 104 taxmann.com 420 (AAR – CHHATTISGARH) Navodit Agarwal

Facts-The Applicant, Shri Navodit Agrawal is a transporter in few cement companies and is engaged in transporting Cement/Clinkers of Shree Raipur Cement, Baloda Bazaar. Pursuant to the oral agreement between the aforesaid parties, Shree Raipur Cement proposed that while transporting their cement/clinkers, diesel required would be provided by Shree Raipur Cement. Applicant seeks clarification as to whether diesel cost in respect of transportation is to be included or excluded while charging GST on freight amount.

Held: Diesel so provided by the service recipient to the applicant for use in trucks/vehicles of the applicant forms an important and integral component of this business process, without which the process of supply of cement can never get materialized. Thus from the above legal provisions discussed above, it gets amply clear that 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 included in the price actually paid or payable for the goods or services or both is includible in value.

Case-6-GVS Projects (P.) Ltd., [2020] 117 taxmann.com 911 (AAR – ANDHRA PRADESH)

The applicant stated that they are receiving materials such as Power Transformers 100 Sqmm Conductor & Station Transformer from the Contractee and the value of such materials is recovered from their RA bills issued on cost recovery basis by the Contractee. Since APSPDCL and APEPDCL being the Contractees are recovering the cost of the materials that are used/consumed in the services provided to them by the applicant from the R.A. Bills issued, such cost recovered is to be included in the taxable value of the supply.

Case-7-Lear Automotive India (P.) Ltd. [2018] 100 taxmann.com 311 (AAR – MAHARASHTRA)

In the present case, the Applicant and its customers are not related parties. The only question which requires examination is whether price paid by the customers is the sole consideration for the supply of parts made by the Applicant. In this regard, providing of the tool which is in the domain of the receiver of the supply as per the contractual terms cannot said to be non-monetary consideration provided by the receiver of the supply to the provider of the supply since upon paying the tool development charges/ the customers are not incurring any expenses, which the Applicant was liable to incur. Further, the ownership in the tool remains with the customers and the development of tool was always meant to be borne by the customers. Thus, Section 15(2)(b) of the CGST Act 2017 will not be applicable in the facts of the present case and the value of the supply of final goods should be based on transaction value as provided under Section 15(1) of the CGST Act 2017.

Case-8-Pulluri Mining & Logistics (P.) Ltd., [2020] 117 taxmann.com 917 (AAR – ANDHRA PRADESH)

Contention of Applicant

The applicant’s claim is that as per the work order issued by the service recipient, HSD oil is required for heavy equipment & vehicles will be under the scope of the service recipient and issued on free of cost basis from service recipient’s storage tank.

Held

In the instant case, the service recipient i.e., M/s. Sree Jayajyothi Cements Private Limited is providing diesel to the equipments and vehicles used by the applicant for executing the mining contracts at different places stipulated in the work order. Diesel so provided by the service recipient to the applicant for use in the equipments and vehicles of the applicant forms an important and integral component of this business process, without which the process of excavation of limestone at different mines, transportation and delivery of Limestone to Yanakandla Limestone Hopper belonging to the recipient. As per Section 15(2)(b) of CGST Act, the value of supply includes 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 included in the price actually paid or payable for the goods or services or both;

Case-9-Rajasthan Rajya Vidyut Prasaran Nigam Ltd. [2019] 108 taxmann.com 516 (AAR- RAJASTHAN)

In the present case where the deposit work is undertaken by the consumer/intending agency under supervision of the applicant, the cost is directly incurred by the consumer/intending agency, still the applicant is exclusively liable and responsible for modification/alteration of the transmission infrastructure as per Electricity Act, 2003 so as to comply with the grid standards and that’s why the work is mandatorily to be executed under the supervision of applicant. Thus as per the above discussions, since the applicant is liable and responsible for such work, therefore, according to section 15(2)(b) of GST Act, 2017, the cost of such asset/infrastructure incurred by the consumer/intending agency is to be included in the value of supply.

Comment-A Concept which has been a bone of contention and yet to settle down but a process which might help in understanding the issue can be as follows:

1. Analyze the Contract between the two parties for the work to be executed
2. Arrive at the scope of work of the contract and the activities to be carried out by the supplier
3. Arrive at the activities integral for the work to be executed.
4. Ascertain who’s i.e. supplier or recipient, is responsible to carry out which activity out of the above activities as per the contract. If nothing specific has been mentioned in the contract, then it would be deemed that all such activities are to be executed by the supplier himself.
5. Once ascertained, identify whether amount for such activities has been incurred by the person responsible to execute the same and if not then give appropriate treatment as per the provisions of section 15(2)(b).

Case-Chowgule & Co (P.) Ltd. [2019] 107 taxmann.com 294 (AAR – GOA)

Query-1-Whether IGST at 5% of assessable value is applicable on import of iron ore for conversion into pellets and export the resultant product (Iron ore pellets) back to the same supplier in view of the fact that import duty is not applicable in view of the exemption under General Exemption No. 66 (Exemption Notification No. 32/97-Cus dated 01^st April, 1997) for job work.”.

Query-2-If answer to question 1 is yes, whether the applicant as recipient of the imported iron ore will be liable to pay the IGST under applicant GSTIN as the applicant in any case is the consignee of the imported iron ore.

Query-3-If answer to question 2 is yes, whether the applicant can avail the input Tax Credit for the IGST so paid as per section 16 of the CGST Act, 2017.

Query-4-Whether the applicant can claim refund of unutilized input tax credit on export of services as per section 16(3)(a) of IGST Act and 54(3) of CGST Act.

Facts-

The applicant intended to enter into a contract with a non-resident party for rending service of conversion of iron ore into pellets. The non-resident was to arrange for iron ore from abroad and the same was to be imported in India by the applicant using its own GSTIN, though the iron ore shall always remain the property of the non-resident.

The applicant will carry out the job work of conversion of the iron ore into pellets at their plant in Shiroda Goa by adding necessary condiments such as lime stone, Bentonite, coke breeze etc. All these items will be purchased by the applicant locally on their own account. The applicant will export the pellets to the non-resident or to any other non-resident parties as nominated by the non-resident. The applicant will raise the invoice for the conversion charges from the non-resident at the agreed rate in Foreign Exchange. The applicant will be receiving the proceeds for conversion of iron ore fines into iron ore pellets in foreign exchange.

Observation-

Query-1 and Query-2-Theapplicant is liable to pay IGST on iron ore imported into India in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975 on the value as determined under the Customs Act, 1962 at the point when duties of customs are levied on the goods under section 12 of the Customs Act, 1962 read with Section 5(1) of IGST Act, 2017.

Regarding applicability of Exemption Notification no. 32/97-Cost dated 1st April 1997 referred by the applicant which is not issued under the Goa Goods and Service Tax Act 2017 or under the Central Goods and Service Tax Act 2017 or under the Integrated Goods and Service Tax Act 2017, hence this Authority has no jurisdiction.

Query-3-It was observed by AAR that imported goods are used in the furtherance of business, the applicant is eligible to take input tax credit of IGST paid on import of the iron ore.

Query 4-: AAR observed that goods are temporarily imported into India for the process of conversion into pellets and are exported after such process, therefore the exclusion clause provided under Section 13(3) of the IGST Act, 2017 is applicable. Hence the place of supply of service is determined as per Section 13(2) of the IGST Act, 2017 which is the location of the recipient of the service i.e. outside India. Since the place of supply of service is outside India, condition (iii) under Section 2(6) of the IGST Act, 2017 is also fulfilled. Hence the service provided by the applicant falls within the definition of export of service as defined under Section 2(6) of the IGST Act, 2017.

However, Government of India vide Notification No. 1-2016/Customs dated 04th Jan 2016 reduced the rate of export duty on Iron Ore Pellets from 5% to Nil. It is a settled law that NIL rate of tax is also a rate of tax. Since the goods exported are covered under Second Schedule of the Export Tariff appended to the Customs Tariff Act, 1975 the same goods are to be considered as subjected to tax. In view of the above, the exclusion clause provided under Section 54(3)(ii) is applicable in the instant case. Hence, the applicant is not eligible for the refund of unutilized input tax credit.

Held-:

Query 1 & Query 2- The applicant is liable to pay IGST on import of iron ore.

Query 3-The applicant is eligible to avail the input tax credit towards payment of IGST under Section 16 of the IGST Act.

Query 4-The applicant is not eligible for refund of unutilized input tax credit on export of goods or services as per the second proviso to Sub Section 3 of Section 54 of the CGST Act.

Comment:

The case presents a very interesting fact wherein IGST being paid on Iron Ore at the time of Import of Goods but which are property of the principle. The services rendered by the applicant is in the nature of Job Work. Therefore, even though he has not exported goods but provided services, his refund has been held to be ineligible since the goods on which the job work was undertaken were subjected to export duty. Whether applicant is eligible for refund in case of Job Work falling under export of service wherein goods which are sent outside India after Job Work are subjected to export duty. The restriction for claim of refund is pertaining to refund of unutilised input tax credit where the goods exported out of India are subjected to export duty and applicant did not exported goods but was engaged in export of services.