QUESTION
A Contractor is about to transfer Capital Assets, Tools and Spares from one of his sites at Maharashtra to another site at Gujarat and wants to understand GST applicability in this case.
ANSWER
The GST chargeability on transactions with related persons GST is chargeable on supply of goods or services or both for consideration and in the course and furtherance of business as discussed in section 7 of the CGST Act, 2017 and it includes transfer.
Further, as per schedule 1 of the Act, transfer of goods or services to distinct persons shall be considered as supply even when it is made without any consideration.
Distinct person in a very general sense means GST registrations under one legal entity (same PAN). Therefore, goods transferred to branches as a token of bonus and appreciation without charging any amount from the branches shall be considered as supply of goods and therefore would be taxable under GST, where branches have obtained different GST registrations.
Hence it will not make any difference whether the same are inputs, capital goods, raw materials, spare parts or other consumables or even services which get transferred from one site to other site, GST will be applicable.
LET'S CONSIDER DEFINITION OF SUPPLY UNDER GST
Section 7 of the CGST Act (Amended by the CGST Amendment Act, 2018 w.e.f. 01st July 2017) is reproduced below
(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, license, 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 consideration; and (Removed w.e.f. 01-07-2017)
(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." (Inserted w.e.f. 01-07-2017).
Prior to this amendment, the activities mentioned in Schedule II of the Act, were de-facto considered as supply in the same way as the activities mentioned in Schedule I of the Act.
The Government has issued below mentioned Circulars for clarifying the matter
Circular No. F.No. 354/119/2017-TRU(Pt) dated 7th July, 2017
Main point of above Circular;
"The issue of inter-state movement of goods like movement of various modes of conveyance, between distinct persons as specified in section 25(4) of the said Act, not involving further supply of such conveyance, including.
- Trains,
- Buses,
- Trucks,
- Tankers,
- Trailers,
- Vessels,
- Containers,
- Aircrafts,
(a) carrying goods or passengers or both; or
(b) for repairs and maintenance, [except in cases where such movement is for further supply of the same conveyance] was discussed in GST Council's meeting held on 11th June, 2017 and the Council recommended that such inter-state movement shall be treated 'neither as a supply of goods or supply of service' and therefore not be leviable to IGST.
PLEASE NOTE: This Circular says that above conveyances unless supplied for further transfer of such conveyances, will not be leviable to IGST. Suppose a bus is transferred from Maharashtra to Gujarat for repair in this case, IGST will be levied on repair and maintenance charges not on the value of Bust.
Circular No. 21/21/2017-GST dated 22/01/2017; Relevant portion of the Circular is
The issue pertaining to inter-state movement of rigs, tools and spares, and all goods on wheels [like cranes] was discussed in GST Council's meeting held on 10th November, 2017 and the Council recommended that the circular 1/1/2017-IGST shall mutatis mutandis apply to inter-state movement of such goods, and except in cases where movement of such goods is for further supply of the same goods, such inter-state movement shall be treated 'neither as a supply of goods or supply of service,' and consequently no IGST would be applicable on such movements.
Section 25(4) of GST Act, 2017
A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act. The registration in GST is Pan based and state specific. Every supplier has to register in each state from where he effects supply. In short, a business entity having its branches in multiple state will have to take separate state wise registration for the branches located in different states.
ANALYSIS OF ABOVE SECTION 25(4)
If we read this provision with activities to be treated as supply even if made without consideration as mentioned in Schedule-I of the GST Act, we find that supply of goods or services or both between related person or distinct person without any consideration, when made in the course or furtherance of business is also supply as contemplated in section 7 of the GST Act. Further we find that this supply is not exempt from tax under the GST Act and hence is a taxable supply.
In this case, undisputedly the supply is between two different taxable territory meaning thereby between two states and as per section 7 (3) the of IGST Act, the supply is in the course of interstate trade or commerce.
And as per section 5 (1) of the IGST Act said interstate supply is taxable under the provisions of the IGST in the hand of the applicant.
PLEASE NOTE THAT
The Circular clarified that the inter-state transfer of rigs, tolls and spares and all goods on wheels [like cranes] shall neither considered as supply of goods not supply of services and GST on such transfer shall not be applicable. The above circular used the words rigs, tools and spares and all goods on wheels [ like cranes]. Therefore, only the goods on wheels such as cranes, dumper, grader etc., are covered. However, goods such as Cranes on tracks, Tower Cranes, etc. are not covered.
In the matter of Sanghvi Movers Ltd., Maharashtra AAR has held that movement of a crane from one registered office to another registered office with the intention to further supply on hire charges to the customers would be a taxable supply. Further, in the same matter of Sanghvi Movers Ltd., Tamil Nadu AAR held that since the applicant is not paying the full amount to their supplier, he shall not be eligible to avail input tax credit on the same.
CONCLUSION
From the above discussion we conclude that;
- Circular No. 21/21/2017-IGST which exempts from tax interstate movement of rigs, tools, spares, and all goods on wheels [ like cranes] where interstate movement of such goods is not for further supply of same goods is not applicable to the facts of present transaction as in the present case interstate movement of goods from Maharashtra to Gujarat is for further supply of goods on hire and hence GST is applicable.
- In case when a tire-mounted crane or crawler crane is moved from one GST registered office of person to another registered office only for upkeeping and maintenance purpose, without any further supply to unrelated customers, whether such movement of crane would be treated as "taxable supply" under the GST law or can it be said that it would not tantamount to "supply" as per clarification issued by the CBEC vide Circular No. 21/21/2017-CGST read with Circular No. 1/1/2017-IGST. In this case the above transaction is neither supply of goods or services, but GST is leviable on Maintenance /repair charges.
DISCLAIMER: The article presented here is only for sharing knowledge and information with the readers. The views are personal, shall not be considered as advice. In case of necessity do consult with tax professional.
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