TMI Blog2022 (12) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... ny lease transaction is deemed as supply of services as per Schedule II, since it involves transfer of right to use the goods for a consideration. In the current case, CIPL, Maharashtra transfers the right to use the equipment for a period of time to third party customers in Maharashtra and other CIPL registrations across India for periodical considerations. In respect of the customers in Maharashtra, the Applicant is considering the transaction as leasing. CIPL, Maharashtra is discharging GST on the invoice amount which is computed on the basis of period of usage of equipment (as per pleadings made by the applicant) - as per the entry in Schedule I of the CGST Act, there can be supply of goods or services between such registrations even in case no consideration is involved. In the current case, Cl PL, Maharashtra can enter into lease transaction with CIPL branches in other States registered under the respective State GST legislation across India say for e.g., Cl PL, Karnataka and such transaction would be taxable under GST as a lease transaction between the two branches which are deemed to be distinct entities for the purpose of GST legislation. What is the value on which G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the pallets, crates and containers (hereinafter referred as equipment ) leased by CHEP India Private Limited (hereinafter referred to as CIPL or the Applicant ) located and registered in Maharashtra to its other GST registrations located across India (say CIPL Karnataka), would be considered as lease transaction and accordingly taxable as supply of services in terms of Section 7 of the CGST Act and MGST Act? 2. If the answer to Question 1 is yes, what is the value on which GST has to be charged i.e. whether it should be lease charges or the value of equipment in terms of Section 15 of the CGST Act and MGST Act read with relevant Rules? 3. What are the documents that should accompany the movement of the goods from CIPL, Maharashtra to CIPL, Karnataka? 4. Whether movement of leased equipment from CIPL, Karnataka to CIPL, Tamil Nadu on the instruction of CIPL, Maharashtra can be said to be mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act and MGST Act, and thereby not liable to GST? 5. With reference to Question 4 above, what are the documents that should accompany the movement of the goods from CIPL, Karnataka to CIPL, T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment to its customers who would be using it for movement of their goods through the supply chain. CIPL, Karnataka would be charging the lease charges to its customers based on the period for which the equipment would be used by the customers. e. Also, there are chances that other units of CIPL, (Say CIPL, Tamil Nadu) may require certain equipment from CIPL Maharashtra which are available with CIPL, Karnataka (under lease from CIPL Maharashtra). In such a case, basis instructions from CIPL, Maharashtra, CIPL, Karnataka would transfer the equipment to CIPL, Tamil Nadu. In such a case, the moment equipment reaches CIPL Tamil Nadu, CIPL, Maharashtra would stop charging CIPL, Karnataka and start charging CIPL, Tamil Nadu towards lease charges (basis number of days of usage). Further, CIPL, Karnataka would charge CIPL, Maharashtra a consideration for facilitation / arrangement of movement of equipment to CIPL, Tamil Nadu basis the instruction. The diagrammatic representation is provided below- 3. In light of the above background, the Applicant would like to seek advance ruling with regard to the following - Question 1 - Whether the pallets, crates and cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business .. (c) the activities specified in Schedule I, made or agreed to be made without a consideration As per Schedule I of the CGST Act, one of the activities to be considered as Supply even if made without consideration, is Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business Section 25 (4) of the CGST mentions that A person who has obtained or is required to obtain more than one registration, whether in one State or more than one State, shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act As per Section 15 of the CGST Act, the value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. As per Rule 28 of the CGST Rules which deals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of Section 7 of the CGST Act?,- 1. As mentioned above, GST is leviable on supply of goods or services. The definition of supply is wide enough to include lease within its ambit. Also, as per point 5(f) of Schedule II, transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is deemed as service under GST 2. The term lease is not defined under the GST law. Accordingly, we would like to draw reference to Indian Accounting Standard (Ind AS) 116 which provides for principles for the recognition, measurement, presentation and disclosure of leases in the books of account. As per the Ind AS, lease is defined as A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration . Also, Tease' is defined in Section 105 of the Transfer of Property Act, 1882 in relation to immovable property as under - A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase transaction between the two branches which are deemed to be distinct entities for the purpose of GST legislation. Question 2 - If the answer to Question 1 is Yes, what is the value on which GST has to be charged i.e. whether it should be lease charges or the value of equipment in terms of Section 15 of the CGST Act and MGST Act read with relevant Rules? 12. CIPL, Maharashtra has entered into agreement with CIPL, Karnataka to provide equipment on lease basis for which the consideration would be charged at an agreed rate (i.e. Lease charges or rental per day) depending on number of days of usage of equipment. Invoice in this regard would be raised by CIPL, Maharashtra periodically on the other CIPL branches for the equipment taken on lease by them. 13. As per Rule 28 of CGST Rules read with Section 15 of the CGST Act mentioned in the legal background above, in case of transaction between distinct person, invoice value can be deemed as transaction value in case the recipient is eligible to take full input tax credit. Similar position has been taken by advance ruling authorities in other cases such as M/s. Specsmakers Opticians Private Limited (2020 (1) TMI 63 - Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be transferred to the service recipient at the inception under the delivery challan without discharging taxes and the tax would be paid based service invoice issued periodically. 19. Also Rule 138 of the CGST Rules, requires the consignor to issue e way bill in case the value of goods exceeds INR 50,000. Accordingly, the Applicant would also be issuing e-way bill along with delivery challan in terms of the said Rules. Question 4 - Whether movement of equipment CIPL, Karnataka to CIPL, Tamil Nadu on the instruction of CIPL, Maharashtra can be said to be mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act, and thereby not liable to GST? 20. As discussed above, levy of GST is on supply and the scope of supply is discussed in Section 7 of the CGST Act. Accordingly, it is necessary to determine whether the movement of equipment between CIPL Offices will qualify as supply under Section 7(1) of the CGST Act. Here, it is relevant to understand the meaning of the modes of transfer which have been enumerated in Section 7(1 )(a) of the: a) Sale is defined in in Section 54 of the Transfer of Property Act, 1882 in the following manner: a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. h) The term disposal has been interpreted by the Hon'ble Supreme Court in the case of Deputy Commissioner of Sales Tax v. Thomas Stephen (1988) 2 SCC 264 to mean transfer of title in goods to any other person and the expression to dispose means to transfer or alienate. 21. Basis the above, the Applicant would like to state that all forms of supply enumerated under Section 7(1)(a) of the CGST Act involves either vesting or divesting of rights or creation of an interest or right in property or a thing. Accordingly, in order to constitute supply, the person transferring the goods would be required to transfer its specified interest/right in property to the recipient of such goods. 22. In the present case, the Equipment is owned by CIPL, Maharashtra and will be leased to CIPL Karnataka in furtherance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbly requests your Honour to please grant a personal hearing in this respect before disposing of the instant application. III. The Applicant craves leave to add, amend, modify, omit, substitute, replace and delete any of the aforesaid submissions on facts or law both at the time of or before the hearing in respect of the instant application. Applicant Submission Dated 26.10.2021:- WRITE-UP ON THE PROPOSED BUSINESS MODEL AND APPLICANT'S INTERPRETATION OF THE QUESTIONS RAISED IN THE ADVANCE RULING APPLICATION A. OVERVIEW OF THE PROPOSED BUSINESS MODEL: A.1. CHEP India Private Limited (CIPL) is primarily engaged in renting of re-usable unit-load equipment for shared use by multiple participants within industrial and retail sector throughout the supply chain, under a business model known as pooling . It must be noted that equipment are only leased out to the customers for use but the ownership rests with CIPL at all times. A.2. A new business model is being proposed by the Company with the following modalities - The ownership of all existing equipment in India shall be consolidated to the Applicant's GSTIN in Maharashtra. As the ownership of equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (whether or not for a specified period) for cash, deferred payment or other valuable consideration is deemed as service under GST. Section 25 of CGST Act states that two registrations of the same Company shall be considered as distinct persons under GST law. Further, as per Schedule I, transactions between such distinct persons shall be treated as a supply even if it is undertaken without consideration. On the basis of the above, it can be said that the transaction between the Applicant and other branches (CIPL Karnataka) shall be treated as a 'supply' and taxable under GST. B.3. Question 2 - If the answer to Question 1 is Yes, what is the value on which GST has to be charged i.e. Whether it should be lease charges or the value of equipment in terms of Section 15 of the CGST Act and MGST Act read with relevant Rules? Under the proposed model, the leasing charges to be recovered by the Applicant to CIPL Karnataka would be at an agreed rate and invoice in this regard would be raised periodically on the basis of the number of days of use. As per Rule 28 of CGST Rules read with Section 15 of the CGST Act the value of supply in case of transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transaction mechanics: (Transaction with respect to leg (e)) - The chronological sequence of the transaction is explained below for ease of understanding - (i) Initially, the equipment shall be leased out by the Applicant to the Company's GSTIN in another State say, CIPL Karnataka. The Applicant shall raise periodic tax invoice for lease charges on CIPL Karnataka along with appropriate GST (Step (b) and (c)). (ii) Let us assume that the ultimate customer in Karnataka has completed the use of the equipment as per its requirement and after use, it has returned the same back to CIPL Karnataka. Now at this stage, the equipment is lying with CIPL Karnataka. Since CIPL Karnataka is still in the possession of the equipment, the Applicant shall continue to raise invoice for recovery of lease charges from CIPL Karnataka. (iii) It may so happen that the Company's registration in another State (say, CIPL Tamil Nadu) requires the equipment which are lying with CIPL Karnataka. In such a scenario the Applicant i.e. CIPL Maharashtra shall enter into a lease arrangement with CIPL Tamil Nadu for the said equipment and instruct CIPL Karnataka to send the goods to CIPL Tami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in terms of Rule 55 of CGST Rules. No tax invoice shall be required for movement. Also, as per Rule 138 of the CGST Rules, the movement may involve issuing e-way bill in case the value of goods exceeds INR 50,000. Applicant Submission Dated 15.06.2022: - 1.1 CHEP India Private Limited (hereinafter referred to as 'CIPL' or 'the Company') is a company registered under the provisions of Companies Act, 1956 and has its principal place of business situated at 3rd Floor, Aver Plaza, Plot - B13, Opposite Citi Mall, New Link Road, Andheri (West), Mumbai - 400 053. It is engaged in the business of leasing of pallets, crates and containers and is registered under the GST law bearing registration number -27AADCC3230A1ZF. 1.2 This is with reference to the personal hearing held on 14 June 2022 with respect to the advance ruling application filed by the Company under Section 97 of Central Goods Services tax Act, 2017 ( CGST Act ), the Company had filed on the GST portal on 17 March 2021 bearing ARN no. AD2703210325636. 1.3 During the personal hearing, a detailed explanation was provided with respect to the proposed business model of the Company, speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion 1 - Whether the pallets, crates and containers (hereinafter referred as equipment ) leased by CHEP India Private Limited (hereinafter referred to as CIPL or the Applicant ) located and registered in Maharashtra to its other GST registrations located across India (say CIPL Karnataka), would be considered as lease transaction and accordingly taxable as supply of services in terms of Section 7 of the CGST Act? The GST is leviable on supply of goods or services. The definition of supply is wide and includes lease within its ambit. Also, as per point 5(f) of Schedule II, transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is deemed as service under GST. The applicant has rightly referred to Ind AS 116 and also referred to Section 105 of the Transfer of Property act, 1882, in this respect. Accordingly, any lease transaction is deemed as supply of services as per Schedule II, since it involves transfer of right to use the goods for a consideration. In the current case, CIPL, Maharashtra transfers the right to use the equipment for a period of time to third party custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with relevant Rules? The applicant in its basic pleadings as contended as under, in its statement of facts: CIPL is contemplating certain changes in its existing business model. The broad business mechanics of the proposed business model would be as follows:- a. CIPL would be consolidating the ownership of all the equipment into the state of Maharashtra. Currently, while majority of the procurements / manufacture happen in Maharashtra, some of the procurements are also done from other states. b. As the ownership of equipment would be with CIPL, Maharashtra, it would be entering into the arrangement with the customer and all the other CIPL units (located in other States) for leasing the equipment to them at the agreed leasing or hiring charges. Since, this business model is yet not operational and how it will become operational is not known, we do not have any actual facts and figures to answer this question. This question becomes more like hypothetical question. However, one fact is clear that applicant would be entering into the arrangement with the customer and all the other Cl PL units (located in other States) for leasing the equipment to them at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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; Further as per sub-section (1) of section 8 of the Integrated Goods and Service Tax Act 2017,- 8(1) Intra-State supply.- 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. Further, a reference can be made to Section 22 of the CGST Act. It reads as under:- 22. (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. From the above sections, it is clear that it is an origin based provision, requiring the registration to be taken in that State. After conjoint reading of the above provisions mentioned above, it appears that if the situs of supply is determined on the basis of movement of goods and delivery of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIPL Karnataka), would be considered as lease transaction and accordingly taxable as supply of services in terms of Section 7 of the CGST Act and MGST Act? Answer:- Yes Question-2:- If the answer to Question 1 is Yes, what is the value on which GST has to be charged i.e. whether it should be lease charges or the value of equipment in terms of Section 15 of the CGST Act and MGST Act read with relevant Rules? Answer :- As per the discussion made above. Question-3:- What are the documents that should accompany the movement of the goods from CIPL, Maharashtra to CIPL, Karnataka? Answer :- Not admitted. Question-4:- Whether movement of leased equipment from CIPL, Karnataka to CIPL, Tamil Nadu on the instruction of CIPL, Maharashtra can be said to be mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act and MGST Act, and thereby not liable to GST? Answer :- Not answered in view of discussion made above. Question-5:- With reference to Question 4 above, what are the documents that should accompany the movement of the goods from CIPL, Karnataka to CIPL, Tamil Nadu? Answer :- Not admitted. - - TaxTMI - TMITax - G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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