In re KK Processors (GST AAR Tamil Nadu)
M/s. KK Processors, a company engaged in the business of manufacturing Enameled Copper Wire, sought clarity on various aspects of their proposed business model, particularly in relation to the Goods and Services Tax (GST) regime. The company proposed to adopt a new business model involving the conversion of copper scraps into winding wire, facilitated through a mobile application and hub centers. The Authority for Advance Ruling, Tamil Nadu, delved into the intricacies of their operations to provide comprehensive guidance.
Background
KK Processors outlined their plan to receive copper scraps from local motor mechanics, convert them into winding wire at their factory, and further enamel the wire. They intended to establish hub centers within a 50 km radius to stock processed goods. The key aspect of their model was to replace old scraps with the newly processed winding wire at these hubs. This approach aimed to streamline the process, reduce costs, and offer immediate solutions to customers.
Nature of Transaction
The applicant sought clarification on whether their operations constituted the sale of goods or services. They argued that their process, akin to recharging old batteries, should be considered a service. However, the authority determined that the activity primarily involved the supply of goods. The conversion of copper scraps into enameled winding wire, coupled with the replacement mechanism, indicated a goods-centric operation rather than a service-oriented one.
Composite Supply
The applicant also inquired whether their transaction could be categorized as a composite supply. However, the authority ruled against this classification, as the transaction primarily involved the supply of one product – enameled copper winding wire. Unlike composite supplies, which involve multiple bundled supplies, this transaction was singular in nature.
Reverse Charge Mechanism (RCM)
Regarding the applicability of RCM on the purchase of copper scraps, the authority clarified that, as per current regulations, RCM wasn’t applicable to such transactions. They emphasized changes in RCM provisions over time and highlighted the exemption granted to certain categories of registered persons, including KK Processors, from RCM obligations.
Tax Structure and HSN Code
The ruling provided clarity on the tax structure applicable to the supply of enameled copper winding wire, suggesting the appropriate HSN code for classification. IGST at 18% or CGST at 9% plus SGST at 9% was deemed applicable to such transactions. Additionally, the ruling specified the relevant HSN code – 8544 11 10 of the GST Tariff – for accurate classification.
Conclusion
In conclusion, the Authority for Advance Ruling, Tamil Nadu, addressed KK Processors’ queries comprehensively, providing clarity on the GST applicability of their proposed business model. The ruling affirmed the nature of their operations as the supply of goods and outlined the relevant tax structures and classification codes. This clarification enables KK Processors to navigate the GST landscape confidently, ensuring compliance and informed decision-making in their business endeavors.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
M/s. KK Processors, No.9, SIDCO Women’s Industrial Estate, Karuppur, Salem – 636 012 (hereinafter called as ‘the Applicant’) who are engaged in the business of Enameled Copper Wire, are registered under GST with GSTIN: 33AAVFK6262D1Z6. Now they are proposing to adopt a new business model through Mobile APP. On receipt of Copper Scraps at the Factory, from the local Motor Mechanics, they propose to undertake conversion of such copper scraps into Winding Wire. As this conversion process is bound to take some time, they plan to have Hub Centers at every 50 Km radius, which will hold Stock of finished goods processed already from the Old Scrap. They propose to replace the old scrap received from the customers with the already processed Winding wire, then and there, at a fixed differential price. Under these circumstances, they have preferred an application seeking Advance Ruling on the following questions: –
1) Is it sale of goods or service
2) If it is Service, what is the Tax Structure
3) If it is sale of goods, what is the Tax Structure.
4) Does it come under composite supply.
5) If RCM is applicable on the purchase old Copper Scraps from the Motor Mechanics, then what is the Tax rate.
6) If RCM is applicable, can they take Input Tax Credit on the RCM paid.
7) Clarify the Tax Structure and the related procedures and documents to be followed for the movement of goods from Hub to Factory to Hub.
8) What is the HSN code / SAC code to be followed.
2.1 The Applicant submitted a copy of challan evidencing payment of application fees of Rs,5,000/- each under sub-rule (1) of Rule 104 of CGST Rules 2017 and SGST Rules 2017.
2.2 The authorities of the Centre and State were addressed to report if there are any pending proceedings against the applicant on the issues raised by the applicant in the ARA application and for comments on the issues raised.
3 In their application for Advance Ruling, the Applicant has stated that –
