Tools supplied by OEM to Component manufacturer for free not to be added to value of component: AAR
[Toolcomp Systems (P.) Ltd., In re [2019] 108 taxmann.com 107 (AAR - Karnataka)]
The applicant is a manufacturer and seller of plastic moulds, jigs, fixtures, gauges, etc. It receives tools from customers free of cost (FOC) for the manufacture of parts which are returned to the customers. It has sought an Advance Ruling to determine whether tools supplied for free shall be
added to the value of component being manufactured and applicability of GST on such tools.
The Authority for Advance Rulings observed that tools owned by original equipment manufacturer (OEM) are provided to component manufacturer on FOC basis and they do not constitute supply as there is no consideration involved and, hence, value of tools shall not be added to the value of components. On examining the purchase order of the applicant, it is not under any obligation to use its own tools for manufacture of components and the same are supplied to them free of cost and on returnable basis. The Authority for Advance Rulings, thus, ruled that the cost of tools supplied by OEM for free is not required to be added to value of components supplied by the applicant and, hence, not liable to GST.
[Toolcomp Systems (P.) Ltd., In re [2019] 108 taxmann.com 107 (AAR - Karnataka)]
The applicant is a manufacturer and seller of plastic moulds, jigs, fixtures, gauges, etc. It receives tools from customers free of cost (FOC) for the manufacture of parts which are returned to the customers. It has sought an Advance Ruling to determine whether tools supplied for free shall be
added to the value of component being manufactured and applicability of GST on such tools.
The Authority for Advance Rulings observed that tools owned by original equipment manufacturer (OEM) are provided to component manufacturer on FOC basis and they do not constitute supply as there is no consideration involved and, hence, value of tools shall not be added to the value of components. On examining the purchase order of the applicant, it is not under any obligation to use its own tools for manufacture of components and the same are supplied to them free of cost and on returnable basis. The Authority for Advance Rulings, thus, ruled that the cost of tools supplied by OEM for free is not required to be added to value of components supplied by the applicant and, hence, not liable to GST.
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