TMI Blog2019 (10) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... ts (goods) owned by others (Service Accounting Code 9988) and the other relating to supply of non-critical components, with the former being the principal supply. Hence the entire transaction is to be treated as the supply of manufacturing service on the physical inputs (goods) owned by others (Service Accounting Code 9988) and is taxable at the rate applicable to the same at 18%. 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. 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. - KAR ADRG 25/2019 - - - Dated:- 12-9-2019 - SRI. HARISH DHARNIA, AND DR. RAVI PRASAD M.P. MEMBER Represented by Sri K.S. Kamalakar, Cost Accountant ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS SERVICES TAX ACT, 2017 AND UNDER 98(4) OF THE KARNATAKA GOODS SERVICES TAX ACT, 2017 1. M/s Hical Technologies Pvt. Ltd., (called as the Applicant hereinafter), Sy.No.46 47, Electronic City, Phase 2, Hosur Road, Bangalore 560100, having GSTIN number 29AACCH7296L1ZU, have filed an application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant would, in addition, procure remaining components (non-critical items) either locally or by imports which are necessary to complete the job work process. These non-critical items will be procured by the applicant in its own name. f. As per the covenants of purchase order, supply of critical components is the responsibility of WIPL and supply of ancillary / non-critical components is the responsibility of the applicant. The term consideration , the applicant would be eligible for job charges which comprise of labour cost for undertaking job work process and cost of ancillary components added by the applicant during the execution of job work process. g. Post completion of job-work activity, the final product would be dispatched to WIPL under the cover of delivery challan. A tax invoice would be raised for the job work charges. 4. The applicant submitted that the term job worker is defined under Section 2(68) of the CGST Act, and is as under: In this Act, unless the context otherwise requires, - (28) Job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable 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; (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; (d) interest or late fee or penalty for delayed payment of consideration for any supply; and (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. d. From the perusal of the above provision, the applicant states, it is clear that the transaction value shall be deemed to be the value of supply when supply is made between unrelated person and price is the sole consideration. This provision defines the transaction value as the price actually paid or payable for the said supply of goods or services or both. As per section 15(2)(b) of the CGST Act, transaction value shall include the amount that the supplier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts will not be added to the assessable value for payment of GST in the hands of the applicant. 2. Goods supplied by WIPL to the applicant is non-monetary consideration. i. As discussed above, Section 15(1) of the CGST Act provides that the transaction value shall be the assessable value where supply is made between unrelated person and price is the sole consideration. In this case, WIPL and the applicant are not related. Hence it needs to be determined as to the fact of WIPL making goods available to the applicant ceases to be the sole consideration for supply or not. ii. In the instant case, price will not be a sole consideration for supply of the applicant, if the provision of goods by WIPL qualifies as an additional consideration (nonmonetary) for such supply. iii. The meaning of consideration also becomes important; Section 2(31) of the CGST Act defines consideration to include any payment made or to be made whether in money or otherwise, in respect of, in response to or for the inducement of the supply. The definition being inclusive in nature, it becomes imperative to understand normal and natural meaning of the term consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CESTAT NEW DELHI , the issue before the Tribunal was whether the value of free supplies made by the recipient of commercial or industrial construction service required to be disclosed as part of gross consideration received for rendition of taxable construction service. The Principal Bench of Hon ble Delhi Tribunal relying on the decision of Bhayana Builders Pvt Ltd has held that the same is not required to be added in the gross consideration for levy of service tax. ix. Relying on the decision of Bhayana Builder (supra), various Tribunals have taken similar views as issue no longer res-integra. Reference may be drawn to the following judicial precedents by various Tribunals: 1. Ahmedabad Tribunal in Harsh Construction vs. Commissioner of Central Excise and Service Tax, Surat (2016) 42 STR 844 (Tri-Ahmd) = 2014 (7) TMI 826 - CESTAT AHMEDABAD 2. Ahmedabad Tribunal in Toyota Construction Pvt Ltd vs. Commissioner of Central Excise and Service Tax, Daman (2016) 45 STR 470 (Tri-Ahmd) = 2015 (11) TMI 1487 - CESTAT AHMEDABAD 3. Mumbai Tribunal in Jaiswal Builders and Contractors vs. Commissioner of Central Excise, Nagpur (2016) 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) the applicant is contemplating to enter into an agreement with WIPL for assembly, integration and testing of converters on jobwork basis. The present arrangement contemplates two models: (a) Model A - Under this model, all the components required for assembly will be imported and stocked by the Principal and supplied to the applicant on free of cost basis under the cover of jobwork challan. (b) Model B - Under this model, the critical components required for assembly work will be imported and stocked by the Principal and supplied to the applicant on free of cost basis under the cover of jobwork challan. The non-critical components will be purchased and used by the jobworker. (2) The applicant has not produced any drafts of the agreements as they are yet to be finalized. (3) the risk and ownership of the components supplied by the Principal shall always rest with the Principal during the execution of jobwork activity and the final product emerging after job work is Wind Power Converter. 6. Section 2(27) of the CGST Act defines a composite supply as a supply comprising of two or more supplies of goods or servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the KGST Act. 9.3 The Applicant seeks advance ruling in respect of the question mentioned at para 2 supra. The following questions emerge on examination of the transactions 8b contentions of the applicant. i. whether the work done by the applicant is a job work or a composite supply of service and goods? ii. What is the value of such supply? 9.4 We draw attention to Section 2(68) of the CGST Act 2017, in relation to the first question, which defines jobwork and the same is as under: (68) job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression job worker shall be construed accordingly , In terms of the aforesaid definition any treatment or process done on goods belonging to another person is job work and in the instant case the applicant is not just doing something on the critical components. The contract is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supply done by the applicant is one composite supply consisting of two supplies i.e one relating to the manufacturing service on the physical inputs (goods) owned by others (Service Accounting Code 9988) and the other relating to supply of non-critical components, with the former being the principal supply. Hence the entire transaction is to be treated as the supply of manufacturing service on the physical inputs (goods) owned by others (Service Accounting Code 9988) and is taxable at the rate applicable to the same at 18%. 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. (e) But in case, the prospective contract is of a supply of finished goods, for a value inclusive of the components supplied by WIPL, then the supply would be a composite supply of finished components, with testing and other services being non-principal ancillary supplies. This is not considered as the applicant stated that there would not be any risk on the critical components on him. 10. In view of the foregoing, we pass the following RULING As per the submissions made regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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