GST is applicable on transfer of title without affecting the delivery of goods – Tamilnadu Advance Ruling Authority

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AAR (Advance Ruling) Case Law Details

Applicant Name :  Automative Components Technology India Private Limited

Appeal Number : Order No. 05/ARA/2020

Date of Judgement/Order : 31/01/2020

Courts : AAR Tamilnadu (96) Advance Rulings (1253)

Question(s) on which Advance Ruling was sought :

1.Whether GST will be applicable on the transfer of title in moulds from applicant to Indian buyer?

2. If yes, whether the Indian buyer would be eligible to take credit of the GST paid to the applicant for said purchase?

Note: The provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.

Facts of the case

M/s. Automative Components Technology India Private Limited , Plot No.3/39 B, Sri Nagar, Thodukkadu(Post), Mannur Kootu Road, Sriperumbudur District, Thiruvallur, Tamil Nadu-602105 (hereinafter referred to as the ‘Applicant’ or ACTI’) is registered under GST vide GSTIN 33AANFP5828N1ZM.

1. The applicant stated that they are engaged in the supply of automotive components such as door locks and strikers (in short ‘parts’) .They supply such parts to a wide range of customers which inter – alia include moulds and tools (in short –moulds’). They propose to enter into the below transaction- They agree to supply certain parts, including the moulds to an Indian company (in short ‘Indian buyer’), located in the State of Tamil Nadu. In this regard, they place an order for manufacturing the said parts and moulds on a Thailand Company (in short ‘Foreign supplier’).

 Accordingly, the foreign supplier manufactures the parts and the same are physically imported into India. However, the moulds developed by the foreign supplier are retained in Thailand and are not physically imported into India.

Thus, there is only a transfer of ownership in the mould from the foreign supplier to Applicant and the foreign supplier retains the physical possession of the moulds.

 The foreign supplier raises an invoice on the Applicant for the parts and moulds separately. Similarly, the Applicant raises separate invoices on the Indian buyer.

The applicant has stated that in the present case as well, only the title in moulds are transferred to the Indian buyer, wherein the moulds physically continue to remain in possession of the foreign supplier. Thus, with regard to the moulds, there are two transactions involved in the present case:

T1: Transfer of title in moulds from the foreign supplier to the Applicant.

T2: Transfer of title in moulds from the Applicant to the Indian buyer.

They also stated that the moulds are never physically imported into India. The moulds will be disposed as waste in Thailand after its usage for manufacturing the requisite parts. In the above background, with regard to T2 the Applicant was of the view that the transfer of title in moulds (without physical import of the same from Thailand) would not make the said transaction liable to GST under Section 5 of the IGST Act read with Section 7(5)(a) of Integrated Goods and Services Tax Act 2017 and thereby not be required to charge IGST on the moulds sold to the Indian buyer.

2. As per the applicant’s interpretation of law, the transaction between them and the Indian buyer for transfer of title of moulds would not be liable to IGST as the same extends beyond territorial jurisdiction as the possession is retained by the foreign supplier .

As the moulds are supplied by the Applicant to the Indian buyer, by way of transfer in title, the Applicant is said to be the ‘Supplier’.

 With regard to place of supply, section 10(1)(c) would get and as there is no movement of goods from Thailand by any of the parties to the transaction and thus the place of supply of goods would be Thailand . Further stated that GST may not take within its fold a transaction wherein the place of supply is outside the territory of India.

In light of the above facts the applicant contended that the transaction would not subject to IGST.

3. Further, the applicant contended that the said transaction does not constitute import of goods as there is no physical movement of goods into India.

4. Further, the applicant submitted that if at all tax is applicable on the transaction then input tax credit of the same should be available to the recipient of Supply as the major objective of introducing GST is to allow seamless flow of credit .

The applicant stated that ITC should be available as per section 16(2)(b) of CGST Act 2017. If the transaction is deemed to be an inter-state supply and if the same is made liable to GST ‘ then it should be deemed that such goods have been received from perspective and the credit should accordingly be made available to him.

Key Observation of Authority for Advance Ruling, Tamilnadu

Tamilnadu Authority for Advance Ruling observed as follows:

1. The applicant is engaged in the supply of automotive components. They have stated that they agree to supply certain parts, including moulds to Indian Company located in the State of TamilNadu, for which they place an order for manufacturing the said parts and moulds on a Thailand Company. The parts manufactured are physically imported, while the moulds developed are retained in Thailand and are not physically imported into India, but the ownership in the mould is transferred from the foreign supplier to the Applicant and from the applicant to the Indian buyer by raising of separate invoices.

In view of the above the applicant raised the following questions:

(I) Whether GST will be applicable on the transfer of title in moulds from applicant to Indian buyer?

(II) If yes, whether the Indian buyer would be eligible to take credit of the GST paid to the applicant for said purchase?

2.  Section 97(2) of the CGST Act / Tamil Nadu GST Act (TNGST) gives the scope of Advance Ruling Authority, i.e., the question on which the Advance Ruling can be sought.

The Act limits the Advance Ruling Authority to decide the issues earmarked for it under Section 97(2) and no other issue can be decided by the Advance Ruling Authority. Of the above questions on which ruling is sought by the applicant, the question at (2) relates to eligibility to credit of tax paid by them at their buyers’ end.

The eligibility to credit of input tax paid by the applicant alone is covered under clause (d) of Section 97(2)  and the eligibility at the buyers’ hand when raised by an applicant do not fall under any of the category specified under Section 97(2) of the Act and therefore not within the ambit of this authority.

The First Question relating to whether GST is applicable on a transaction is within the ambit of this authority and is taken up for consideration.

3. In the case at hand, the applicant is undertaking two transactions-

T1 : Transfer of title in moulds from the foreign supplier to the Applicant

T2: Transfer of title in moulds from the applicant to the Indian buyer.

 The question raised by the applicant is with respect to transaction at T2 above. The applicant on his interpretation of law has stated that on application of Section 10 (1)(c) of IGST Act 2017, the place of supply is Thailand and the supplier is in India, therefore the supply could not get covered under IGST Act as IGST levy can be imposed only to supplies within the territorial jurisdiction of the IGST Act.

4. From the documents and averments of the applicant, the transaction involved requiring the clarification by the applicant is that the title in the moulds got manufactured by the applicant are transferred to the applicant and thereupon to the applicants’ vendor by way of declaration and against invoice indicating the “consideration” for the moulds. The moulds/tools remains with the manufacturer for manufacturing the parts, i.e., the moulds are supplied free of cost to the parts manufacturer and it is stated that the cost of the moulds are not amortised in the parts cost.

5. Having seen the factual position, the relevant statutory provisions examined as under. Supply is defined under Section 7 of the CGST Act 2017 and the same is reproduced below for reference:

Section 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, licence, 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; and

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

(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.;

Schedule II determines the list of activities to be considered as supply of goods/Services and entry Sl.No. 1 is as follows:

1. Transfer

(a) any transfer of the title in goods is a supply of goods;

From the above, it is evident that “transfer of the title in goods” is “supply of goods”. In the case at hand there is transfer in title of moulds for a consideration and the supply is in the course of business therefore, the same constitutes supply of goods and GST is liable to be paid on such supply.

Ruling from Authority for Advance Ruling, Tamilnadu

 In view of the above, authority ruled as under:

1. GST is applicable on the transfer of title in moulds from the applicant to the India buyer.

2. The question is not answered as the same is not in the ambit of this authority as per Section 97(2) of the Act.

ORDER OF AUTHORITY FOR ADVANCE RULING , TAMILNADU

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