1. Classification of Supply :
The applicant, involved in renting of re-usable unit load equipment for shared use, has sought advance ruling in respect of the following questions:-
Whether the equipment leased by the applicant located and registered in Karnataka to its other GST registration located across India (say CIPL, Kerala) would be considered as lease transaction and accordingly taxable as supply of services in terms of Section 7 of the Central Goods and Services Tax Act, 2017.
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 KGST Act read with relevant Rules?
What are the documents that should accompany the movement of goods from CUPL, Karnataka to CIPL, Kerala?
Whether movement of equipment from CIPL, Kerala to CIPL, Tamil Nadu on the instruction of CIPL, Karnataka can be said to be mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act and KGST Act, and thereby not liable to GST?
With reference to Question 4 above, what are the documents that should accompany the movement of the goods from CIPL, Kerala to CIPL, Tamil Nadu?
Observations & Findings :
The branch of applicant, CIPL, in other States is also under the same entity and has no separate existence under the Companies Act. The assets and liabilities of the Company are held in common and hence the assets of one branch do not have separate existence as per the Companies Act or under the Income Tax Act, 1961. They are part of the same entity. There cannot be a transfer of an asset between two persons under these Acts. Therefore, it is clear that the branch of the same company cannot enter into a lease transaction or rental transaction with another branch of the same company as per the provisions of the Companies Act or Income tax Act, 1961, as they are not transactions between two persons and no revenue could be recognized in this transaction. The assets are held in common and there cannot be distinction between assets of CIPL, Karnataka and CIPL, Kerala as per the Companies Act. Hence CIPL, Kerala is also possessing the goods given to it from CIPL, Karnataka as owner of the goods itself and not as a lease hold asset, as far as all the business laws of the country are concerned.
All the supplies made in the course of business from CIPL, Karnataka to CIPL, Kerala would be covered under the scope of supplies under section 7(1) of the CGST Act as between deemed distinct persons as per Section 25(4) of the CGST Act, 2017.
Since the two entities are deemed to be distinct persons, and the transfer of goods are effected from CIPL, Karnataka to CIPL, Kerala without any transfer of ownership of such goods, the same amounts to supply of service as per entry no. 1(b) of the Schedule II to the CGST Act which states that “any transfer of right in goods or of undivided share in goods without transfer of title thereof, is a supply of services.” Hence only for the purposes of the CGST Act, 2017, the transfer of such goods on lease as per the agreement entered to between CIPL, Karnataka and CIPL, Kerala would amount to lease or renting of the goods for a consideration and hence would be a transaction of supply of services and the nature of such services is “lease”, as it is for a period of time.
It can be noted that the recipient, CIPL, Kerala who is the recipient of the goods is eligible for full input tax credit on the transaction between the applicant and the CIPL, Kerala and hence the value declared in the invoice would be the value of supply of goods or services or both as per the second proviso to Rule 28 and hence would be treated as the value of such supply.
The impugned transaction is a supply of services and hence the applicant has to raise a tax invoice for the transaction as per Section 31(2) of the CGST Act, 2017.
From the combined reading of the Rule 55 and Rule 138 of the CGST Rules, 2017, it is seen that the applicant is not supplying goods, but services which involve the movement of such goods given on lease/ rent and hence they are liable to issue a delivery note as per Rule 55 at the time of removal of such goods for the purposes of renting. Further, they shall also generate an e-way bill for movement of such goods as per Section 138(1) based on the details of such delivery note before the movement of such goods and consignment value of the goods shall be the market value of such goods and not the value of supply of services involved in such transaction.
Though the CIPL, Kerala is in possession of the goods, it is CIPL, Karnataka who is the owner of the goods. The CIPL, Kerala is only a lessee of the goods and they have to give the goods back on the termination of the contract of lease between CIPL, Kerala and CIPL, Karnataka and the movement back of such goods should be accompanied by a delivery note issued by CIPL, Kerala and also an e-way bill generated by CIPL, Kerala in accordance with the provisions contained in Rule 55 and Rule 138 of the CGST Rules.
In case CIPL, Karnataka instructs CIPL, Kerala, on termination of contract between them, to transfer the goods to CIPL, Tamil Nadu, then the new contract between CIPL, Karnataka and CIPL, Tamil Nadu entered. CIPL, Kerala, in such a situation, under the instructions of CIPL, Karnataka, arranges / facilitates to transport the goods to CIPL, Tamilnadu, and thus the applicant acts as an agent of CIPL, Karnataka in the said facilitation and not in independent capacity. Once the CIPL, Karnataka issued instructions to CIPL, Kerala, the contract of lease entered between them in respect of the said goods ends and the goods now held by CIPL, Kerala as the bailee of CIPL, Karnataka. Hence CIPL, Kerala would be acting in two capacities, first as an independent entity under the CGST Act for the leased goods while the lease contract of the specific goods is in force and next as a bailee of CIPL, Karnataka. Once the lease contract is over and the goods are no more under the control of CIPL, Kerala. If the goods are to be transferred immediately after the contract of lease is over, the CIPL, Karnataka should enter into the lease transaction with the CIPL, Tamil Nadu and raise a delivery note and e-way bill with ship from address as “CIPL, Kerala” and Ship to address as “CIPL, Tamil Nadu” for those specific goods which are given on lease or rent and in effect, it would amount to CIPL, Karnataka picking the goods and sending to CIPL, Tamil Nadu.
In such a case, the goods in movement is a consequence of the lease contract between the CIPL, Karnataka and CIPL, Tamil Nadu which is a supply by CIPL, Karnataka. The transaction is nothing but the combination of the transaction of returning back the goods on lease by CIPL, Kerala to CIPL, Karnataka and again sending the same goods on a new lease contract by CIPL, Karnataka to CIPL, Tamil Nadu. It cannot be said that the goods are moving not as a result of supply under section 7 of the CGST Act, 2017. It cannot be termed as a mere movement without any involvement of supply and the said transaction of supply of goods on rental or lease basis by CIPL, Karnataka to CIPL, Tamil Nadu and is liable to tax in the hands of CIPL, Karnataka if the transaction is between CIPL, Karnataka and CIPL, Tamil Nadu. Further the services provided by CIPL, Kerala to CIPL, Karnataka in facilitating the transportation of goods to CIPL, Tamilnadu are exigible to GST.
Alternately, CIPL, Kerala may sub-lease the goods to CIPL, Tamil Nadu and in such a case, the transaction is a supply of goods on lease by CIPL, Kerala and the movement is also occasioned by the lease contract between CIPL, Kerala and CIPL, Tamil Nadu and it would be the revenue of CIPL, Kerala and CIPL, Kerala has to generate the e-way bill and delivery challan for such movement. At the same time the contract of lease between CIPL. Karnataka with CIPL, Kerala is also in force as the main lease. Hence from the applicant’s point of view, his lease contract with CIPL, Kerala is continuing and the goods leased should ultimately come back to the applicant from CIPL, Kerala and CIPL, Kerala is liable to pay lease rentals to CIPL, Karnataka.
The pallets, crates and containers leased by CHEP India Private Limited located and registered in Karnataka to its other GST registration located across India (say CIPL, Kerala) would be considered as lease transaction if the specific goods are sent on lease as per the agreement between the two entities and accordingly taxable as supply of services in terms of the provisions of the Integrated Goods and Services Tax Act, 2017 read with Section 7 of the Central Goods and Services Tax Act, 2017.
The value declared in the invoice issued by the applicant would be the value on which GST has to be charged in terms of Section 15 of the CGST Act and KGST Act read with relevant Rules.
The documents to be carried for the movement of goods from CIPL, Karnataka to CIPL, Kerala would be delivery note and e-way bill for the entire value of the goods transported.
The movement of goods from CIPL, Kerala to CIPL, Tamil Nadu under the instruction of CIPL, Karnataka would be as a result of a separate transaction of supply between CIPL, Karnataka and CIPL, Tamil Nadu if the terms of the contract so state. But it would be a supply of CIPL, Kerala, if it is the agreement between CIPL, Kerala and CIPL, Tamil Nadu which causes the movement of goods from CIPL, Kerala to CIPL, Tamil Nadu. Further the services of CIPL, Kerala to CIPL, Karnataka in facilitating the transportation of goods to CIPL, Tamilnadu are exigible to GST.
[2021 (7) TMI 973 – AAR, Karnataka – M/s Chep India P Ltd.]
2. Value of supply :
This Appellant, an authorized distributor of M/s. Castrol India Ltd. for the supply of Castrol brand Industrial and automotive lubricants.
The appellant preferred an application before the Advance Ruling Authority and sought ruling on the following question of law :
The appellant is paying tax due as per the value of the invoice issued and availing the input tax credit of GST shown in the inward invoice received by them from the Principal Company Castrol or their stockists. The advance ruling sought classification on the following issues :
On the tax liability of the appellant for the transactions mentioned herein and explained as above. The appellant is paying the tax due as per invoice value issue by them and availing the input credit of GST shown in the inward invoices received by them from the Principal Company Castrol or their stockiest.
Whether the discount provided by the Principal Company to their dealers through the appellants as shown in Annexure D attracts any tax under the GST Laws.
Whether the amount shown in the Commercial Credit not issued to the appellant by the Principal Company attracts proportionate reversal of Input Tax Credit.
Is there any tax liability under GST laws on the appellant for the amount received as reimbursement of discount or rebate provided by the Principal Company as per written agreement between the Principal Company and their dealers and also an agreement between the principal and distributors?
The Authority for Advance Ruling Kerala vide order No. KER 60/2019, dated 16/9/2019 issued ruling as follows :-
The applicant/distributor is eligible to avail ITC shown in the inward invoice received by him from the supplier of goods/principal company.
It is established from the statement of the applicant that the prices of the products supplied by the applicant it determined by the supplier/principal company and the applicant has no control on the price of the products. Therefore, it is evident that the additional discount given by the supplier through the applicant, which is reimbursed to the applicant is to offer a special reduced price by the distributor/applicant to the customers and hence the amount represent consideration paid by the supplier of goods/principal company to the distributor/applicant for supply of goods by the distributor/applicant to the customer. Therefore, this additional discount reimbursed by the supplier of goods/principal company to the distributor/applicant is liable to be added to the consideration payable by the customer to the distributor/applicant to arrive at the value of supply under Section 15 of the CGST/SGST Act at the hands of the distributor/applicant.
The supplier of goods/principal company issuing the commercial credit note is not eligible to reduce his original tax liability and hence the recipient/applicant will not be liable to reverse the ITC attributable to the commercial credit notes received by him from the supplier.
The appellant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount/rebate from the principal company.
Aggrieved of the above decision, the appellant has filed the appeal before this Appellate authority.
Observations & Findings :
We find that the amount paid to the Dealer towards “rate difference” and “special discount” as mentioned above, post the activity of supply are not complying with the requirements of Section 15(3)(b)(i) of the CGST/SGST Act therefore cannot be considered and allowed as discount for the purpose of arriving at the ‘transaction value’ in terms of Section 15 of the CGST/SGST Act. The facts which are undisputed here are that the said post sale discounts are not known or at least not quantified at or before the time of supply or not predetermined in the agreement concerned. Hence, the conditions prescribed in Section 15(3)(b) stand not satisfied for the said discounts get excluded from the transaction value.
The additional discount given by M/s. Castrol to the appellant is a consideration to offer the reduced price in order to augment the sales. This additional discount squarely falls under the definition of the term “consideration” as specified under Section 2(31) of the CGST/SGST Act.
Whether the discount provided by the M/s. Castrol to their dealers through the appellant attracts any tax under GST?
Yes, the additional discount reimbursed by M/s. Castrol, is liable to be added to the consideration payable by the customers or dealers to the appellant. The appellant is liable to pay GST at the applicable rate.
Whether the amount shown in the commercial credit note issued to the appellant by M/s. Castrol attracts proportionate reversal of Input Tax Credit?
M/s. Castrol is issuing commercial credit notes, hence are not eligible to reduce their original tax liability. Thereby the appellant will not be liable to reverse the ITC attributable to the commercial credit notes issued to them by M/s. Castrol.
Is there any tax liability under GST laws on the appellant for the amount received as reimbursement of discount or rebate provided by M/s. Castrol as per written agreement between the principal and distributors?
The appellant is liable to pay GST at the applicable rate on the amount received as reimbursement of discount or rebate from M/s. Castrol.
Accordingly, the Above Ruling No. KER/60/2019, dated 16-09-2019 of the Authority of Advance Ruling, Kerala stands upheld.
[2021 (7) TMI 789 – Appellate AAR, Kerala – M/s Santhosh Distributors]