JHARKHAND AUTHORITY OF ADVANCE RULING

GOODS AND SERVICES TAX

DIVISIONAL OFFICE OF STATE TAX, CIVIL COURT COMPOUND,

NEAR JAIPAL SINGH STADIUM, RANCHI, 834001

Note: Under Section 100 of the JGST Act 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of JGST Act 2017, within a period of 30 days from the date of service of this order.

The applicant M/s Ramkrishna Forgings Limited having GSTN No- 20AABCR3285N2Z9 is a company registered under companies Act, 2013. The Company engaged in manufacturing of forgings, open and closed die forgings of carbon and alloy steel, micro alloy steel and stainless steel forgings, which is an intermediate product used by original equipment manufacturers (OEMS) having its corporate head office at 72, Shakespeare sarani, Kolkata-700017, West Bengal, India and having one of its factory located at Baliguma, Saraikela, Jharkhand-83320.

The applicant company has submitted that:-

I. That for the manufacture of the said forgings, the Applicant manufactures capital goods namely tools, dies and moulds, generally known as 'the tooling kit' based on the drawing and design specifications given by each customer. The charges incurred for the manufacture of this tooling kit is borne by the customers within India and outside India.

II. That for reimbursement of the charges from the customers, the Applicant raises an invoice on the customers and recovers the agreed amount. In case of foreign customers, such charges are recovered in convertible foreign exchange.

III. That after the tooling kit is manufactured; it is exclusively used by the Applicant within their factory for manufacturing sample forges as order by the respective customer. The samples manufactured are sent to the customer for approval. Once the forge is approved by the customer, the tooling kit is further used in the manufacture of the forgings by the Applicant.

IV. That in most of the cases the tooling kit is the property of the customer and the customer has the right to remove the tooling kit from the Applicant's factory for any reason whatsoever. The tooling kit is generally retained by the Applicant for use in further manufacture of forgings.

2. The applicant sought Advance Ruling on the following question/issue.-

1. Whether the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or it may be said that manufacture of tooling kit is only incidental to the ultimate supply of forgings. Hence, the supply is only that of the forgings and not of the tooling kit?

2. Whether the amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST?

3. Whether the amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated?

3. As per Section 97(2) of the Central Goods and Services Tax Act, 2017(herein after referred to as the 'CGST ACT, 2017) and Jharkhand Goods and Services Tax Act, 2017 empowers the Advance Ruling authority to decide the issue, which are as follows:-

(a) classification of any goods or services or both

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

4. From the aforesaid provisions of Advance Ruling it is observed that the Applicant is eligible to seek Advance Ruling under sub-para(a) i.e, determination of the liability to pay tax on any goods or services or both; & whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term of Section 97(2) of the CGST/SGST Act,2017.

5. The Applicant with regard to question has interpreted and submitted that

1) The Manufacture of tooling kit for ultimate manufacture forging does not constitute as a separate supply under GST Law.-

(i) The term 'supply' has been defined in Section 7 of Central Goods & Service Tax Act, 2017 (hereinafter referred to as 'CGST Act'). The term includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of or in furtherance of business. The extract of Section 7 is reproduced herein below-

"7.(1) For the purposes of this Act, the expression "supply" includes,-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.'

(ii) On a careful perusal of the arrangement entered into between the Applicant and their customers, it may be said that the arrangement only purports the supply of forgings by the Applicant to its customers on the basis of the designs approved by their customers. Neither parties intend to transfer the title in tooling kit. Preparation of tooling kit is only incidental and inter-linked to the supply of such forgings.

(iii) It must be noted that the invoice issued by the Applicant on their customers after the manufacture of tooling kit, for recovery of expenses incurred with respect to tooling kit may be considered as milestone payment in the course of supply of the forgings leviable to GST at the rate applicable to forgings.

(iv) Sub-section (2) of Section 15 of CGST Act which defines the value of supply stipulates that the value of supply shall include incidental expenses, including commission land packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.

(v) It may be said that the amount recovered by the Applicant for manufacture of tooling kit is actually the recovery of incidental expenses incurred in the course of supplying the forgings and not recovery for a separate supply of goods.

(vi) Hence, the supply in the instant case is that of forgings only. There is no question of holding that the manufacture of tooling kit is a standalone supply to the customers chargeable to GST.

2. GST TO BE LEVIED SHALL BE DETERMINED ON THE BASIS OF PLACE OF SUPPLY OF THE FORGINGS.

(i) The determination of whether a particular supply is an inter-state supply or an intrastate supply and consequently whether a transaction is leviable to IGST or CGST and SGST depends upon the state in which the supplier/recipient is located and the place of supply.

(ii) It is submitted that since the instant case does not involve a standalone supply of tooling kit but actually involves supply of forgings, the determination of whether the amount recovered after manufacture of tooling kit attracts CGST and SGST or IGST shall depend upon the place of supply of the forgings and the location of the recipient of forgings.

(iii) In the instant case, the forgings are supplied from the factory. Thus, the location of the supplier shall be the State in which the factory is situated, i,e. Jamshedpur. Further, the place of supply of goods other than goods imported into or exported out of India is determined by Section 10 of Integrated Goods & Service Tax Act, 2017. The relevant extract is reproduced herein below,-

"10. Place of supply of goods other than supply of goods imported into, or exported from India. - (1) The Place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,-

(a) Where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient."

[Emphasis supplied]

(iv) It is reiterated that the intention of the agreement is to supply forgings and the manufacture of tooling kit is only incidental to the ultimate supply. Hence, the place of supply for every payment recovered from the customer shall be determined in accordance with the place of supply of the forgings. It must be noted that since in the instant case, the supply of forgings involves the movement of forgings from the factory to the place of the customer, the place of supply shall be determined by Section 10(1)(a) of the IGST Act. Accordingly, the place of supply of forgings shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient, which is generally the place where the customer is located.

(v) It must be noted that as per Section 7(1) of IGST Act, a 'supply' of goods shall be treated as an inter-state supply when the location of the supplier and the place of supply are in two different States, two different Union Territories or in a State and Union Territory. Section 8(1) stipulates that subject to certain exception, in cases where the location of supplier of goods and the place of supply are in the same State, then the supply is to be treated as intra-state supply of services.

(vi) Therefore, it may be concluded that where the forgings are supplied by the Applicant to customers situated outside Jamshedpur, it shall be treated as an inter-sate supply of goods including the tooling kit and thus, IGST shall be levied on the invoice issued for milestone payment after the manufacture of tooling kit. Similarly, if the customer is situated inside Jamshedpur, it shall be treated as an intra-state supply of forgings and thus, CGST and SGST shall be levied on the invoice issued for milestone payment after the manufacture of tooling kit.

3. SINCE THE SUPPLY OF FORGINGS TO FOREIGN CUSTOMERS IS AN EXPORT OF GOODS, PAYMENT RECEIVED AFTER MANUFACTURE OF TOOLING KIT SHALL ASLO BE ZERO RATED.

(i) It must be noted that the phrase 'export of goods' is defined under Section 2(5) of IGST Act. For ease of reference, the definition is reproduced herein below-

(5) "export of goods" with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;

(ii) It is submitted that in case where customers are situated outside India, the forgings are moved out of India, post manufacture. Hence, in case of foreign customers, supply of forgings involves taking goods out of India to a place outside India. Thus, the supply of forgings to foreign customers amounts to export of goods. Further, as per Section 16 of IGST Act, export of goods is to be treated as zero rated supplies and chargeable to nil rate of tax. Therefore, supply of forgings to foreign customers with the incidental value of tooling shall be zero rated.

(iii) It must be noted that the amount received after manufacture of tooling kit is a payment in the course of supply of forgings. The amount so recovered is actually an incidental expense recovered from the customers for supply of forgings. As per Section 15(2) (b), such incidental expense recovered is includible in the value of the main supply of forging. Thus, the said amount may be said to be consideration for the ultimate supply of forgings.

(iv) It may thus be concluded that since the payment recovered from the customers after manufacture of tooling kit is an incidental expense relating to export of forgings, the same is also zero rated and consequently no tax is to be paid on such amount received by the Applicant.

6. Personal Hearing Proceedings:

The Personal hearing of the applicant's Representatives as well as the concerned Jurisdictional Officer was conducted and concluded on 07-01-2019.

7. Findings & Discussions:

We have considered the submissions made by the Applicant in their application for Advance Ruling as well as the submissions made by the company representative during Personal Hearing. We also considered the questions/issues on which Advance Rulings have been sought for by the applicant, relevant facts having bearing on the questions/issues raised, the applicant's understanding/interpretation of law in respect of the issue.

The applicant sought Advance Ruling on the three questions i.e.-

1. Whether the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or it may be said that manufacture of tooling kit is only incidental to the ultimate supply of forgings. Hence, the supply is only that of the forgings and not of the tooling kit?

2. Whether the amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST?

3. Whether the amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated?

In view of the above the issues before us to decide Whether the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or it may be said that manufacture of tooling kit is only incidental to the ultimate supply of forgings, the amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST and the amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated.

7.1 The manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or it may be said that manufacture of tooling kit is only incidental to the ultimate supply of forgings. The view of the applicant, in this regard, is that the arrangement entered into between the Applicant and their customers only purports the supply of forgings by the applicant to their customers on the basis of the design approved by their customers. Neither party intended to transfer the title in tooling kit. Preparation of tooling kit is only incidental and interlinked to the supply of final products i.e. forgings. The applicant also mentioned that the amount recovered by them for manufacture of tooling kit is actually the recovery of incidental expenses incurred in the course of supplying the forgings and not recovery for a separate supply of goods as laid down in Sub-section (2) of the 15 of the CGST Act, which defines the value of supply stipulates that the value of supply shall include,-

" (c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;"

Hence, the supply in the instant case is that of forgings only. There is no question of holding that the manufacture of tooling kit is a standalone supply to the customers chargeable to GST.

On going through the application and other documents submitted by the applicant as well as the view of the applicant, it is observed that the applicant is engaged in manufacture of forgings. For manufacture of forgings the applicant manufacture capital goods namely tools, dies and mould, generally known as the tooling kit based on the drawing and design specifications given by each customer and the charges incurred for the manufacture of this tool kit is borne by the customer. This agreed charge has been recovered from their customer by raising separate invoice which is reflected in the copy of invoice, submitted by the applicant.

The provisions lay down under Section 12 of the CGST Act is as:-

"(1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section.

(2) The time of supply of goods shall be the earlier of the following dates, namely:-

(a) the date of issue of invoice by the supplier or the last date on which he is required, under subsection (1) of section 31, to issue the invoice with respect to the supply; or

(b) the date on which the supplier receives the payment with respect to the supply:

Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount.

Explanation 1.- For the purposes of clauses (a) and (b), "supply" shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment.

Explanation 2.- For the purposes of clause (b), "the date on which the supplier receives the payment" shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier.

..........................

Further, the provisions lay down under Rule 3 of the Point of Taxation Rules, 2011 is as,-

"(a) the time when the invoice for the service provided or agreed to be provided is issued:

Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules,1994, the point of taxation shall be the date of completion of provision of the service.

(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment. Now it is clear that the applicant is liable to pay tax when the invoice issued the liability to pay tax on goods shall arise........."

Further, supply has been defined in Section 7 of CGST Act, which is as under:-

"(1) For the purposes of this Act, the expression "supply" includes,-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II .............."

Schedule II of the Act specifies various transactions which are to be treated as supply of goods or services. Paragraph 1 inter alia specifies following three transactions:-

(a) Any transfer of the title in goods is a supply of goods.

(b) Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.

(c) Any transfer of title in goods under agreement which stipulates that property in goods will pass at a future date upon payment of full consideration as agreed, is a supply of goods.

The legal provisions as stated above, it is clear that the liabilities of tax arise on the date of issue of invoice by the supplier with respect to the supply. In the instant case, the applicant has issued separate invoice to their customers to recover the agreed amount for manufacture of tooling kit, which is treated as a supply of the goods as per Paragraph 1 of Schedule II of the Act. Hence, the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply and chargeable to GST.

7.2 The amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST. The view of the applicant, in this regard, is that the tooling kit is not a standalone supply but actually involves supply of forgings, the determination of whether the amount recovered after manufacture of tooling kit attracts CGST and SGST or IGST shall depend upon the place of supply of the forgings and the location of the recipient of forgings as lay down under Section 10 of the IGST, Act. Which is as under:-

"(1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,-

(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;

(b). ............................

.................................."

They also reiterated that the agreement is to supply forgings and the manufacture of tooling kit is incidental to the ultimate supply. Hence, the place of supply for every payment recovered from the customer shall be determined in accordance with the place of supply of the forgings as per the provisions lay down under Sections 7(1) and 8(1) of the IGST, Act. Which are as under,-

"Section 7. Inter-state supply -(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in,-

(a) two different States;

(b) two different Union territories; or

(c) a State and a Union territory,

shall be treated as a supply of goods in the course of inter-State trade or commerce.

Section 8. Intra-state supply - "(1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply:"

The applicant further reiterated that whether the forgings are supplied by them to customers situated outside Jamshedpur, it shall be treated as an inter-state supply of goods including the tooling kit and thus IGST shall be levied on the invoice issued for milestone payment after the manufacture of tooling kit. Similarly, if the customer situated inside Jamshedpur, it shall be treated as an intra-state supply of forgings, and thus CGST and SGST shall be levied on the invoice issued for milestone payment after the manufacture of tooling kit.

During the discussion of the first question of the applicant it is clearly established that the separate invoice issued to their customers to recover the agreed amount for manufacture of tooling kit, which is treated as a supply of the goods and accordingly liable for CGST and SGST or IGST. Further, the applicant have mentioned that whether the forgings are supplied by them to customers situated outside Jamshedpur, it shall be treated as an inter-state supply of goods and thus IGST shall be levied on the invoice issued for milestone payment. Similarly, if the customer situated inside Jamshedpur, it shall be treated as an intra-state supply of forgings, and thus CGST and SGST shall be levied on the invoice issued for milestone payment. While it is clearly mentioned under Section 7(1) of the IGST, Act that Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in two different States; two different Union territories; or a State and a Union territory, shall be treated as a supply of goods in the course of inter-State trade or commerce and under Section 8(1) of the IGST Act that subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply:"

It is pertinent to mention here that the Jamshedpur has not been given a status of state under First Schedule of Article 1 of the Constitution of India. Jamshedpur falls under the jurisdiction of Jharkhand State. Hence, the goods supplied by the applicant to the customer situated outside the Jharkhand State, is treated as inter-state supply and the goods supplied by the applicant to the customer situated inside the Jharkhand State, is treated as intra-state supply.

Hence, the separate invoice issued by the applicant to their customers to recover the agreed amount for manufacture of tooling kit, is treated as a supply of the goods and accordingly liable for CGST and SGST or IGST

7.3 The amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated. The view if the applicant, in this regard, is that since the supply of forgings to a foreign customer involves movement of forgings to a place outside India, the supply shall be treated as an export of forgings further, since the amount recovered after manufacture of tooling kit is incidental to such export of forgings, the amount so received is actually a consideration for export of goods. Hence, the amount so received shall also be zero rated as the export of forgings attracts zero rated under Section 16 of the IGST, Act, which is as under:-

"(1) "zero rated supply" means any of the following supplies of goods or services or both, namely:-

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

................................."

In this regard it is already established supra that the separate invoice issued to their customers to recover the agreed amount for manufacture of tooling kit, which is treated as a supply of the goods and accordingly liable for CGST and SGST or IGST. Export of goods as defined under Section 2(5) of the IGST, Act i.e.-

"export of goods" with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;"

means taking goods out of India to a place outside India. In the instant case it is undisputed fact that the applicant will supply only export the components i.e. forgings, which will be manufactured from the tooling kit. Hence, the tooling kit in respect of which charges are received will never be sent outside India. It is also well settled that to export means the goods must be loaded and shipped outside the territorial water of India (B K Wadeyarvs Daulatram Rameshwar lal AIR 1961 SC 311).

As discussed above, it is clearly established that the amount recovered from foreign customers after the manufacture of tooling kit cannot be treated as export, hence no question of zero rated arises.

8. In view of the foregoing, we pass the following under Section 98 of the Central Goods and Services Tax Act, 2017 and the Jharkhand Goods and Services Tax Act, 2017:

ADVANCE RULING

1. Whether the manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply or it may be said that manufacture of tooling kit is only incidental to the ultimate supply of forgings. Hence, the supply is only that of the forgings and not of the tooling kit?

Ans. - The manufacture of tooling kit for further manufacture of forgings is to be treated as a separate supply.

2. Whether the amount recovered from Indian customers after the manufacture of tooling kit is excisable to CGST and SGST or IGST?

Ans. - The amount recovered from Indian customers after the manufacture of tooling kit is leviable to CGST and SGST or IGST.

3. Whether the amount recovered from foreign customers after the manufacture of tooling kit can be treated as export and thus, zero rated?

Ans.- The amount recovered from foreign customers after the manufacture of tooling kit cannot be treated as export.