December 2019
When the manufacturer is not obliged to supply tools / moulds in manufacturing parts and they are supplied by the customer free of cost and on a returnable basis, the value of such tools / moulds supplied by the customer not includible in the value of parts to be manufactured by manufacturer-supplier
By PULOMA DALAL, JAYESH GOGRI, MANDAR TELANG, Chartered Accountants
17. [2019] 108 taxmann.com 107 (AAR – Karnataka) Tool-Comp Systems (P) Ltd. Date of order: 16th July, 2019
When the manufacturer is not obliged to supply tools / moulds in manufacturing parts and they are supplied by the customer free of cost and on a returnable basis, the value of such tools / moulds supplied by the customer not includible in the value of parts to be manufactured by manufacturer-supplier
FACTS
The applicant is a manufacturer and seller of goods. For the production of parts, the tools required are either manufactured by the appellant or supplied by the customers free of cost on a returnable basis. The tools supplied by customers on free of cost basis are classified under capital goods. The tool has a specific life and can produce only a certain volume of total production. Since the customer is supplying the tool on free of cost basis, the applicant is not charging any portion of the cost of the tool to the customer.
The applicant filed the present ruling for seeking clarification regarding the applicability of tool amortisation cost (transaction value) in the GST regime on capital goods received free on returnable basis from the recipients (customer OEM) for parts production and supply.
RULING
AAR noted that as per the contract, the customers are required to supply tools to the applicant free of cost and the applicant is not under any obligation to supply the components by using tools / moulds belonging to him. This is exactly in terms of Circular No. 47/21/2018-GST dated 8th June, 2018 and hence it does not constitute supply. However, if the contractual obligation is cast upon the component manufacturer to provide moulds / dies yet it is provided by the client OEM / FOC, then the amortised cost of the moulds / dies is required to be added to the value of the components supplied. Since this was not the case, it was held that the applicant is not required to add the value of tools supplied by its customers to the value of parts supplied by him.
