TMI Blog2022 (3) TMI 1367X X X X Extracts X X X X X X X X Extracts X X X X ..... ly providing services to the overseas OEMs/Machinists, but they also actively identify and closely engage with third party vendors on behalf of the overseas OEMs/Machinists. The supply in the instant case consists only of service and there is no supply of goods. Such supply of services appears to be that of an intermediary service - the Applicant is located in India and in the subject case, in respect of patterns and tools, the applicant represents it's overseas OEMs/Machinist as their representative. The applicant actively identifies and closely engages with third party vendors, for manufacture of patterns and tools; by such third party vendors (on behalf of the overseas OEMs/Machinist). Thus, the applicant is effectively connecting the third party vendors in India with the requirements of its overseas OEMs/Machinist. In the subject case the main supply would be supply of tools and patterns to the overseas customers by the third party vendors, which is not actually happening physically since the tools and patterns are moving from the third party vendors directly to the applicant. Such movement of goods to the applicant appears to be on behalf of the overseas vendors becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT FACTS: The submissions made by M/s Precision Camshafts Limited, the Applicant, are as under:- 2.1 The applicant manufactures camshafts and sells the same to domestic as well as overseas customers. The overseas customers may be original equipment manufacturers ( OEM's ) and use the camshafts for manufacturing engines such as Ford, General Motors do Brasil LTDA etc. or maybe machinist such as Musashi who would further supply the same to OEMs ( Machinist ). 2.2 The camshaft controls engine power, emissions and fuel consumption and are critical components of engines. The present advance ruling is being filed by the Applicant, in relation to transactions with the overseas OEMs/ Machinists. 2.3 The OEMs / Machinists place orders for camshafts on PCL, which are sent outside India. Since such supplies qualify as export of goods under GST Laws, therefore, the same qualify to be a zero-rated supply. Applicant at present is availing the benefit of such zero rating by exporting the said camshafts after submitting appropriate Letter of Undertaking and without payment of GST. 2.4 Given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Applicant. In this regard, the following activities are undertaken by the Applicant: Tool designing - Applicant's development and tooling team prepares the required tooling design/drawings / sketches etc. Tool Procurement - The tooling design data along with purchase requisition is forwarded to the purchase department for further procurement process; Purchase team works with the third party approved vendor/s for manufacturing of the tools as per the tooling design; Once the tools are manufactured, the tools are thoroughly inspected to confirm if all tools are as per the specifications. Once these are found to be as per specifications, the Applicant conducts a physical internal validation by manufacturing camshafts and confirms if the camshaft is as per the data / specifications shared by OEMs / Machinists in the request for quotation. After successful internal validation, the Applicant, starts working on manufacturing of the prototype/ pilot lot of camshafts in accordance with the PO released by OEMs/Machinists and ships it to them. Based on the approval obtained from the OEM/Machinist, applicant starts manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put activities (a) Supply of finished goods i.e. camshafts and (b) assistance in designing and development of patterns and tools used for manufacture of camshaft. 2.14 With respect to Assistance in design and development of patterns used for manufacture of camshaft , the applicant is engaged in a composite supply of the following: a. Understanding the designs/drawing of patterns and tools used for manufacture of camshafts. b. Identifying third party who can manufacture the pattern and tools as per the design/drawings. c. Explaining and closely working with third party manufacturer to develop the patterns and tools to manufacture prototype / serial production camshafts. d. Engaging the third party manufacturers for supply of tools. e. Overall assistance to overseas OEMs / machinist in relation to provision of tools to applicant itself. B. APPLICANT'S INTERPRETATION OF LAWAPPLICANT'S SUBMISSION FOR QUESTION: 2.15 With the introduction of the GST laws, Applicant has reassessed the classification of Subject Transaction. In Applicant's view, the Subject Transaction is a composite supply with the principal supply being supply of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed by the Applicant, is driven by the assistance rendered in respect of manufacturing process planning and not the value of material used for manufacture of the tools per se also indicates towards the fact that the principal supply is the assistance involved in designs and drawings and development of prototype on the basis of which the entire efficiency of camshafts depends. Below mentioned data is reproduced on an illustrative basis: Name of the customer Value as per OEMs/Machinists PO (in INR) Value charged by the vendor Musashi Hungary Manufacturing Limited 16,72,692 1,28,325 General Motors do Brasil LTDA 94,75,200 71, 31,040 APPLICANT SUBMISSION DATED 11.08.2021:- 2.22 A perusal of Section 98(2) of CGST Act shows that in case, the proceedings on the same issue are pending or decided in any proceeding of the applicant, under the provisions of the CGST Act, 2017, the application shall be rejected. The applicant has submitted a list of Show Cause Notices issued to them under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. The elements are normally advertised as a package. The different elements are not available separately, The different elements are integral to one overall supply -- if one or more is removed, the nature of the supply would be affected. 3.4 In Composite supply there is a principal supply and an ancillary supply: Principal supply may be determined on the basis of something that is necessary for the essential functionality. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering intra-state/interstate supply. 3.8 In the present case also, Applicant does not supply tool/pattern (goods) to OEMS/Machinist. The pattern/tool will always be in possession with and will be scrapped after life span by Applicant. The pattern/tool is not taken out of India. Hence, it cannot be treated as export. In view of this, Applicant is required to raise tax invoice addressed to the foreign buyer and since it is an intra-state/inter-state supply he has to collect the CGST and SGST/IGST whichever applicable, and discharge the liability, 3.9 In pre-GST era, Show cause notice was issued to M/s Precision Camshafts Ltd. in respect of non-inclusion of development cost in excisable goods, resulting in short levy of tax. Applicant has also shown the said supply as tooling income. Applicant has supplied pattern /tools to inter-state customers and levied CST-(Central Sales Tax) on corresponding tooling income non-GST era. 3.10 Considering the above provisions and scenario, M/s Precision Camshafts Ltd. s activity of design and development of patterns used for manufacturing of camshafts for a customer is composite supply. But, the principal supply is not supply of service, Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st outsource the tasks of designing and procuring the said patterns and tools to the Applicant by way of: (a) Assistance in designing and process planning for the manufacture of the tools; (b) Identifying and appointing third party vendors to manufacture such tools as per the approved specifications and (c) Coordinate with such third party vendors for manufacture of tools as per the approved specifications. 5.5 The tasks to be performed by the applicant as per para 5.4 above (which is as per the applicant's submissions), consists of supply of only services pertaining to designing and development of patterns and tools. No supply of goods is envisaged. The present advance ruling is filed by the Applicant, in relation to transactions with the overseas OEMs/ Machinists pertaining to the assistance in designing and development of patterns and tools which are to be used by the applicant to manufacture camshafts to be supplied to such overseas OEMs/ Machinists. 5.6 As per the process submitted by the applicant, the OEM/ Machinist sends a request for quotation to the Applicant. The marketing team of the applicant prepares the drawing in respect of such patterns and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the GST Laws. 5.9 The term 'intermediary' is defined under Section 2(13) of the IGST Act, 2017 as under- intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account 5.10 The Applicant is located in India and in the subject case, in respect of patterns and tools, the applicant represents it's overseas OEMs/Machinist as their representative. The applicant actively identifies and closely engages with third party vendors, for manufacture of patterns and tools; by such third party vendors (on behalf of the overseas OEMs/Machinist). Thus, the applicant is effectively connecting the third party vendors in India with the requirements of its overseas OEMs/Machinist. 5.11 We now refer to Circular No. 159/1512021-GST dated 20.09.2021 issued by the CBIC. One of the primary requirement, for intermediary services as per the Circular is the existence of three parties in a transaction. In the subject case there are three partie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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