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Tools supplied by OEM to Component manufacturer for free shall not be added to value of component

August 8, 2019[2019] 108 taxmann.com 107 (AAR - KARNATAKA)
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GST : Cost of tool/s supplied by original equipment manufacturer (OEM) on free of cost (FOC) basis to applicant component manufacturer on returnable basis did not constitute a supply as there was no consideration and in such cases, value of goods provided on FOC basis would not be added to value of supply of components

• The applicant company was involved in the manufacture and sale of plastic moulds, press tools, jigs/fixtures/gauges, injection moulded parts and design services, as per specific orders & requirements of their customers. The injection moulded parts (tools), as per specific order from customer, were manufactured using plastic granules as raw material and using in-house injection moulding machines. The applicant submitted that the tool was either manufactured by them or supplied by the customers free of cost, for production of 'parts', on returnable basis.

• The applicant further submitted that the injection moulds (tools) supplied by the customers at free of cost basis, for the manufacture of parts, on returnable basis were classified under capital goods. The mould (tool) had specific life and could produce only certain volume of total production. Every part produced had incurred a portion of the mould (Tool) cost that appeared as transaction value, if the tool was provided by the applicant. In the instant case the customer was supplying the tool on free of cost basis and hence the applicant was not charging any portion of the cost of the tool to the customer.

• The applicant sought advance ruling for the clarification regarding applicability of tool amortisation cost (transaction value) in GST Regime on capital goods received freely on returnable basis from the recipients (Customer) for parts production and supply. This reference particularly where the principal manufacturer provided moulds, dies, jigs and fixtures or tools to the supplier for use in manufacturing process.

• The CBIC in its Circular No. 47/21/2018-GST dated 8-6-2018 has clarified that Moulds and dies (Tools) owned by OEM that are provided to a component manufacturer on FOC basis do not constitute a supply as there is no consideration and in such cases, the value of goods provided on FOC basis shall not be added to the value of supply of components. However, in case the contractual obligation is cast upon the component manufacturer to provide moulds/dies but the same have been provided by the OEM on FOC basis, then the amortized cost of the moulds/dies is required to be added to the value of the components supplied.

• Thus, Cost of tool/s supplied by original equipment manufacturer (OEM) on free of cost (FOC) basis to applicant is not required to be added to the value of the parts supplied by the applicant and hence the same value is not liable for GST.

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