CA Manoj Nahata 
1. Whether Head office can charge any price in the invoice, under second proviso to Rule 28 of the CGST Rules, to the branches even if “open market value” is available under Rule 28(a)?
Held: No.
In the case of M/s Specsmakers Opticians Private Limited-AAR Tamil Nadu ,the applicant imports as well as locally procure lenses, frames, sun glasses, contact lenses as well as reading glasses, complete spectacles and are engaged in re-selling them. They also have branches outside the state of Tamil Nadu and the goods imported are also transferred to their branches located outside the State for subsequent supply to ultimate customers. The question raised before the Authority is regarding the “value” to be adopted while supplying goods by the applicant to its branches outside the state.
The applicant stated that they are eligible under second proviso to Rule 28 of the CGST Rules. The second proviso to Rule 28 states that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. Although the open market value for the supply is known, the applicant wants to use the second proviso to Rule-28. It contended that they can skip Rule-28(a) and use the value under second proviso to Rule-28. They also submitted the orders of the West Bengal AAR and the Appellate Authority for Advance Ruling West Bengal in a similar issue in respect of M/s GKB Lens Private Limited.
The Authority stated that the supply between the applicant and the branches is considered as supply between distinct persons in terms of section-25 of the CGST Act. The value to be adopted for such supply is governed by rules prescribed as per Section 15(4) of CGST Act. As per Rule 28(a), it is clear that for supply between distinct persons, the value shall be the ‘open market value’. There exists an ‘open market value’ for supplies being made by the applicant to distinct branches in different states/ Union territories. Thus, there is no necessity to go further down to Rule 28(b) or (c) as they are to be read sequentially and are also applicable only when ‘open market value’ is not available. Rule 28 gives an option to the applicant, to adopt an amount equivalent to 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person as the value at which the supplier supplies to its distinct/ related branch in another state. If the applicant does not use this option for supplies to the recipient who further supplies to their customers as such, he has to supply at ‘open market value’ which is available as per Rule 28(a).There is a further proviso to Rule 28 which states that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services. But the applicant cannot skip Rule-(a) and go directly to the second proviso as this would lead to a situation where the applicant may use a value much higher than the open market value to pass on input tax credit to his branch office outside the state or he may use a much lower value than even his cost price, which will lead to accumulation of input tax credit for the applicant, which is not the intention of a taxation based on value addition. Therefore, the applicant shall adopt the “open market value as per Rule 28(a) as the same is available for the supplies made to the distinct recipient outside the state. Instead of the available open market value, the applicant can also opt to value the same at 90% of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person.
2. Whether a branch is eligible to avail credit of input tax charged by Head office for the supply of cranes, where the payment is made through book adjustments and such cranes are further supplied by branch on hire charges?
Held: No
In case ofM/s Sanghvi Movers Ltd. –AAR Tamil Nadu,the applicant is a branch office of Sanghvi Movers Limited, engaged in the business of providing medium sized heavy duty cranes on rental/lease/hire basis to clients without transferring the right to use the cranes. The branch offices receive enquiries from various customers for supply of cranes on hire charges. The branch then receives final order from customers. The title and ownership of all the different types of cranes along with their components vest with Head office at Maharashtra. So the branches, upon receipt of final order from customers, raise internal work orders on the H.O to provide requisite cranes on hire charges along with appropriate support and assistance to various customers across India. To give effect this mechanism, the H.O has entered into a service arrangement with its branches wherein the H.O has agreed to provide cranes and components to all branches on hire charges upon receipt of final work order. The branches in turn raises invoice on final customers. The H.O raises invoice on the branch and the value considered for levying GST is approximately 95% of the value charged to the customer by the branch.
The applicant has stated that as per section 12(2) of the IGST Act, the place of supply of service of leasing/ hire/ renting of cranes to a registered person shall be the location of such registered person. Accordingly, the H.O discharges IGST on the value of hire charges received from applicant branch. The branch avails the credit of the IGST charged by the H.O. Further, the supply of cranes between the H.O and the branch constitutes “taxable supply” under GST in terms of Circular No.21/21/2017-CGST dated 22.11.2017.The applicant contends that as per the proviso to Rule 37 of the CGST Rules, the condition to make actual payment to supplier within 180 days is not applicable to the applicant as they are making deemed payment by netting off receivable and payable in books of accounts.
The Authority stated that as per section-16(2)(d), where a recipient fail to pay to the supplier the amount towards the value of supply along with tax payable thereon within a period of 180 days, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed in Rule-37. As per proviso to Section 16(2), the applicant will not be eligible for full input tax credit because they are not paying the full amount to their H.O, as the payments are netted off against receivables. The applicant stated that as per proviso to Rule 37, the condition to make actual payment to supplier within 180 days is not applicable to it. However, the proviso clearly states that, the value of supplies “made without consideration” as specified in Schedule I shall be deemed to have been paid as per second proviso to Section 16(2). However, the AAR held that in the applicant’s case, there is a consideration to be paid by the applicant to HO (being, hire charges mentioned in the invoices). Hence, proviso to Rule 37 that is exemption from making full payment will not be applicable to the applicant. Accordingly, the applicant will not be eligible for the full ITC as per the inward supplies received from H.O as they would be required to reverse such ITC if taken as per second proviso Section 16(2) of CGST Act and Rule 37 of CGST Rules.
Comment: The above Advance ruling has opened the Pandora’s Box and made the legal fraternity to think again on this aspect.
3. Whether ITC on motor vehicles purchased for demonstration purpose can be availed as credit on capital goods and set-off against output tax payable under GST?
Held: Yes
In case of M/s Chowgule Industries Private Limited-AAR Goa, the applicant is an authorized dealer for Maruti Suzuki India Ltd. for sale of motor vehicles and spares and for servicing as also for some other commercial vehicle manufacturers. It purchases vehicles against tax invoices which are capitalized in books of accounts. The vehicles are used as demo cars for providing trials to customers to understand the features of vehicle. The question on which ruling is sought is whether the applicant is eligible for input tax credit of the taxes paid on purchase of these demo cars?
The Authority stated that as per Section 16(1) of the CGST Act, every registered person shall be entitled to take input tax credit on every supply of goods or services or both which are used or intended to be used in the course or furtherance of business. The provisions of section 17(5) will not be applicable in the applicant’s case as it does not prescribe the time limit within which further supply is to be effected. The availability of input tax credit shall be subject to the provisions of section 18(6) of the GST Act. In case of supply of capital goods on which ITC has been claimed, the registered person shall pay an amount equal to the ITC on the said capital goods reduced by such percentage of points as may be prescribed or the tax on transaction value of such capital goods determined as value of taxable supply, whichever is higher. In the applicant’s case, the demo vehicle is indispensable tool for promotion of sale by providing trial runs to customers. The capital goods are used in the course or furtherance of business of the applicant. Hence, the applicant is entitled to avail the credit of input taxes paid on the purchase of demo cars.
4. Whether the Ex works plus freight and insurance to be treated as composite supplies? Whether showing and charging freight and insurance portion separately in invoice would attract different rate of GST?
Held: Yes, same rate as of the principal supply.
In the case of M/s. Aditya Birla Nuvo Limited -AAR Gujrat, the applicant submitted that they are charging GST on freight and insurance in the bills raised to their client considering it as a composite supply. But their client M/s Power Grid contends that GST should not be charged on Freight and insurance and chargeability is on basic amount.
The applicant mentioned that under GST, a composite supply would mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. As per the said definition, supply of the product of the applicant is a principal supply and freight and insurance is part of composite supply. Applying the contention of naturally bundled product, it is not possible to sell the product without freight and insurance. If the applicant does not sell the goods, it would never charge freight and insurance.
The Authority referred to section-2(30) of the CGST Act, which defines composite supply. It stated that in section-2(30), it is specifically mentioned in the illustration that Goods packed and transported with insurance, then supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
Further, in C.B.E. & C. Flyer No. 4, dated 1-1-2018, it is clearly mentioned that the nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the 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. In the case of the applicant, the ex works is principal supply and freight and insurance are incidental or ancillary services. Further, if freight and insurance portion are shown and charged separately in invoice, it would not change the fact that the supply is a composite supply and hence there cannot be different type of treatments of tax liability of supply of different goods/services naturally bundled together.
5. Whether GST will be chargeable on notional charges for financial assistance provided by a Government owned subsidiary to other Government owned entities?
Held: No.
In the case of Gujarat State Financial Services Ltd.-AAR Gujrat, the applicant is a wholly owned subsidiary of Government of Gujarat has 100% holding and is registered with RBI as a Non-Banking Finance Company. It has been given the mandate by the State Government to manage the surplus funds of various state owned entities. The State Government has directed all the State Government owned entities to park all their surplus funds with GSFS, the applicant. The funds received by GSFS from the Government entities are provided to the other Gujarat State owned entities as loans, which are in need of funds.
The applicant contended that as per Sl. no 27 of Notification No. 12/2017-Central Tax (Rate) under CGST Act 2017 services by way of extending deposits loan or advances in so far the consideration is represented by way of interest or discount (other than interest involved in credit card services) is exempted. It further stated that there is no specific RBI guideline that a Bank or Non-Banking Financial Institution has to compulsorily charge processing fees to clients on financial assistance provided.
The Authority stated that the applicant makes the supply of loan and for which consideration is only interest. As stated by the applicant there is no other consideration so even if the service is provided to related party the applicant will be eligible for exemption under sub entry (a) of entry 27 of Notification No. 12/2017-Central Tax (Rate) under CGST Act 2017.The said notification neither talks about related – unrelated party nor about notional consideration. Therefore, the question of charging GST on notional consideration does not arise.
6. Whether GST has to be paid under reverse charge mechanism on freight paid on transportation of cotton oil seed cake?
Held: Yes
In the case of M/s Sanjay Kumar Jain- AAR Rajasthan, the applicant is engaged in the business of cotton seed oil cake. The applicant contended that cotton seed oil cake is exempt under GST, so he is not liable to pay GST under reverse charge mechanism on freight paid on transportation of such goods.
The concerned jurisdictional officer stated that the services of GTA are falling under chapter heading 9967 and attracts GST @ 5%. Further, no exemption has been granted on transportation of cotton seed oil cake under Notification No.12/2017 dated 28.06.2017. Therefore, the applicant is liable to pay tax under RCM @ 5%.
The Authority stated that the applicant uses the services of GTA for transportation of cotton seed oil cake. Being, a recipient of service, the applicant is liable to pay tax as per Sr. No.1 (d) of the Notification No.13/2017. The Authority further stated that no specific exemption has been granted on transportation of cotton seed oil cake under Exemption Notification No.12/2017 dated 28.06.2017.
7. Whether Refundable Interest Free Deposit received could be treated as Supply under the provisions of Goods and Services Tax Act, 2017?
Held: Yes
In the case of M/s. Rajkot Nagarik Sahakari Bank Ltd-AAR Gujrat, the applicant is providing various services under the category of Financial and Related Services classifiable under SAC 997112, 997113, 997119, 997139, 997159 & 997161 and is accordingly discharging its liability. Among other services is also providing service for operation of Demat account to various account holder as well as to the persons who intends to operate only their Demat account. In Rajkot Nagarik Free Scheme, account holder is getting some free services only because he is depositing some amount, interest free, as security and the applicant on his transactions in the Demat account. The applicant sought an advance ruling on the applicability of GST on refundable interest free security deposits.
The applicant contended that to attract GST the transactions should be treated as supply as defined under the provisions of Section 7 of Goods and Service Tax Act, 2017 and one of the important criteria is that there should be consideration. Admittedly, the Refundable Interest Free Deposits received is not a consideration for allowing any benefit under the said scheme inasmuch as the said amount is refundable at any time. However, while refunding such amount some amount is deducted being process charge on which RNSB is discharging GST.
The CGST Additional Commissioner (Tech), Rajkot stated that the issue pertains to applicability of tax on interest free deposits received for maintaining Demat accounts without any charge. The matter was settled in Pre-GST era in favor of Revenue. Since, the provisions of applicability of GST have been adopted from erstwhile Service Tax Acts and Rules and as the said services were chargeable to Service Tax under the erstwhile provisions of Service Tax era, GST related provisions being pari- materia, it is aptly applicable on such services/activities.
The Authority stated that to come within the scope of supply, it must come within the scope of consideration. The definition of “Consideration” specifically excludes the deposit from its ambit. However, the notional interest/monetary value of the act of providing refundable interest free deposit will be considered as consideration. It is covered in both the limbs of the definition of consideration.
1. “Any payment made or to be made, whether in money or otherwise”. It is included in the phrase „or otherwise‟.
2. “the monetary value of any act or forbearance” It is included in the phrase, the monetary value of any act‟
Further, it appeared that the Refundable Interest Free Deposit were an additional commercial consideration to cover risk of the Demat account. It appeared that the main purpose of the deposits was not only security but also collection of capital. Thus, the monetary value of the act of providing refundable interest free deposit is the consideration for the services provided by the RNSB and therefore the services provided by RNSB can be treat as supply and chargeable to tax in the hands of the applicant.
8. Whether Architectural and other services given to local authorities not involving any supply of goods are exempt under GST?
Held: Yes, if the supply satisfies the conditions of “Pure services”
In the case of Jayesh Anilkumar Dalal-AAR Gujarat, the applicant has been providing consultancy services in the field of structural, architectural and project management consultancy covered under(SAC 998331) intrastate within Gujarat as well as interstate. The recipients of the services are some departments and authorities. The applicant wants to know whether his services are exempted from CGST and Gujarat GST as per of Notification No. 12/2017 Central Tax (Rate) dated28/06/2017?
The applicant stated that in the context of the language used in the notification, supply of services without involving any supply of goods would be treated as supply of ‘pure services’. The Notification also does not specifically name the services which are eligible for exemption and which are excluded.
The Authority stated that from the Notification No. 12/2017 Central Tax (Rate), it appears that the services are exempted from the CGST and SGST Tax if they are Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. It appears that the services provided by them do not involve any supply of goods and hence the services appear to be falling in the definition of “Pure Services”. However, the definition of pure services requires the verification of facts involved in the execution of contract. Similarly, whether the contract is related to the function covered under the Article 243G and 243W is to be interpreted as to how the Local Authority is going to utilize the services provided under the contract, it is also therefore the question of interpretation of fact that the services provided by the applicant are actually utilized by the Local Authority for the function covered by Article 243G and 243W.
The services provided by the applicant is eligible for the exemption from Goods and Service Tax if they are pure services and are provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity to a Panchayat under article in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243 W of the Constitution.
9. Whether cattle feed in cake form is exempt from GST?
Held: Yes.
In the case of M/s. Sree Adhi Trading Company -AAR West Tamil Nadu, the applicant is engaged in the manufacture of cattle feed in cake form.
The applicant stated that cattle feed is manufactured from the groundnut oil cake along with a list of ingredients. Cattle feed being sold is meant for domestic animals as an essential raise for the maintenance of life and also as feed which is supplied over and above the maintenance requirements for growth or fattening and for production purposes. They have also stated that right from the inception under the sales tax enactment, cattle feed in cake form manufactured by them were eligible for exemption under the TNGST Act 1959, under the TNVAT Act 2006. They submit that since the product manufactured by them could be used only as cattle feed meant for animals there cannot be any liability by way of tax under GST Act.
The Authority stated that as per the Explanation Notes to heading 2305 and 2309 of the Customs Tariff Act, it has been observed that the residue remaining after extraction of oil from groundnuts are to be classified under CTH 2305. It covers products of a kind used in animal feeding, obtained by processing vegetable or animal materials to such an extent that they have lost the essential characteristics of the original material. The product of the applicant is not merely groundnut oil cake/residue but is manufactured by combining groundnut oil cake with several ingredients. By applying the General rules for interpretation of Customs Tariff as applicable to GST Tariff, the product in hand is correctly classifiable under Chapter Heading 2309 of the GST Tariff as ‘Preparation of a kind used in Animal Feeding’- ‘Compounded animal feed,23 09 90 10. The same is exempted in case of intra-state supplies vide sl.no. IO2 of Notification No. 21/2017-Central Tax(Rate) dated 28th June 20I7 as amended and sl.no. 102 of Notification. No.II(2)/CTR/532(d-5)/2017 dated 29th June 20l7 as amended.
10. Whether printing of trade advertisement material for printing where the content is provided by the recipient is a supply of goods or service?
Held: Composite supply, where supply of service is predominant supply.
In the case of Macro Media Digital Imaging (P.) Ltd-AAR West Bengal, the applicant is engaged in the business of printing of trade advertisement material. It prints the content provided by the recipient on the base of polyvinyl chloride cloth, paper etc. The Applicant provides the printing ink and the base material. They seek a ruling on whether such printing is a supply of goods or service?
The applicant stated that ‘service’, as defined under section 2(102) of the GST Act, includes the residual transactions that cannot be treated as supply of goods, money or securities. lt means, leaving aside money and securities, every transaction should first be examined on the yardstick of ‘goods’, as defined under section 2(52) of the GST Act. lf it fails the test, the transaction may qualify as a supply of ‘service’. The essential condition to classify anything as ‘goods’ is that it should be a movable property and Printed trade advertising material, being a movable property, is to be treated as ‘goods’. The Applicant argues that it is transferring the title to the goods as printed advertising material. The transaction, therefore, amounts to the supply of goods. It admits that the supply is a composite supply. The question pertains to what is the predominant element is the supply?
The Authority stated that the CBIC clarifies the treatment of various composite printing contracts. ln all these contracts, the recipient provides the content for printing and the printer supplier the physical inputs. In the applicant’s case, the recipient provides on a digital media the content in the form of image/text/trade. The Applicant loads the content in a digital image printer, prints the image on the PVC material, and supplies the printed material. The goods so supplied have no utility other than displaying the printed content. Service of printing, therefore, is the predominant element of the composite supplies the Applicant is making. Thus, the applicant is making a composite supply, where the service of printing is the principal supply, the goods supplied having no use other than displaying the printed matter, is ancillary to the principal supply of printing.
