Ramesh Davera (ACCOUNTS OFFICER) (83 Points)
23 October 2024A manufacturer make castings and also design tooling/metallic dies for producing wax patterns. This tooling stays with us for future use, but we invoice foreign customers for it as a Non-Returnable Expense (NRE). The cost is recovered in foreign currency.
Since the tooling never leaves India, we don’t charge GST on these invoices. We need clarification on whether this is correct or if there are any GST rules we should be aware of.
Any advice or similar experiences would be helpful. Thanks!
Rama chary Rachakonda
(Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294)
(4708 Points)
Replied 23 October 2024
Since the tooling remains in India, you don't charge GST on these invoices.
In this case, not charging GST seems correct.
However, please consult a GST expert or the GST helpdesk to confirm:
1. The tooling is indeed an export and not a supply within India.
2. You have the necessary documentation, such as a commercial invoice and proof of export.
Ramesh Davera
(ACCOUNTS OFFICER)
(83 Points)
Replied 23 October 2024
thank you so much sir.
The Query in detail
Investment castings process is one of the many castings process used for producing highly complex parts due to its own technical advantage like precision, wide selection of raw material that is ferrous and non-ferrous alloys, surface finish, design flexibility and capability of mass production.
This process involves use of tooling for creation of wax pattern made with the help of dies /tooling into which wax is injected which is first step of process. The tooling/dies also allows repeatability in order to achieve precision for mass production and consistency and efficiency in production.
The tooling design and manufacturing is of proprietary nature which is produced exclusively for a particular item/component requirement of customer hence for each specific item/component a separate tooling is manufactured.
The manufacturing of such tooling involves highly technical knowhow and capacity and capability. It remains in the custody of the manufacturer because it is required for each batch of production whenever any order is received
The manufacturer receives cost of such tooling in foreign exchange and to manufacture and maintain this tooling for the castings parts to be manufactured. This cost of tooling as Non-Returnable Expense (NRE) from customer by charging them once only during development and as agreed. It is also considered as capital expenditure by customer.
NRE of Tooling Cost or Development Cost Includes the following components billed as one to the customer
· Design and Development of Tooling
· Manufacture of Tooling to produce Wax patterns
· Fixtures and Gauges for Wax
· Machining Fixtures
· Gauges and Fixtures for checking castings
Upon receipt of Purchase Order from customer for Tooling or NRE or Design and Development Charges , the Manufacturer generates invoice in INR with GST in case of domestic customers and GST % is considered the same as that of part.
As an example for any particular item/component the GST is 18%, the tooling shall also be invoiced with 18% GST amount and HSN code the same as of the component/item.
In case of Invoice for tooling for overseas customer is generated in foreign currency, without levying any GST amount because there is no physical export and remittance is received in that foreign currency.
This cannot be considered as a service which will UN necessary attract TDS for the overseas customer
Query:
The tooling always remains in the custody of supplier. Since physical movement of this tooling does not take place, what is tax implications in case of invoice generated and received in foreign currency for Export Customer where GST is not levied? What could be GST liability in such case.
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