Repercussion on Sale & Purchase of Dies under GST

The recent ruling pronounced by the Karnataka Authority for Advance Ruling (‘AAR’) in case of M/s. Dolphine Die Cast (P) Ltd, In the present case, the applicant is in the business of manufacturing and exporting of Aluminium and Zinc die castings. The applicant sought the advance ruling in respect of repercussions under GST on the appended below scenarios.

Scenario 1

The applicant manufactures die based on the specifications provided by the foreign customer and uses die for making Aluminium and Zinc die castings (hereinafter referred to as the “component”).
Further, the manufactured components export to a foreign customer, however, the possession of die remains with the applicant till the completion of export order or useful life of the die.
Then, at the end of the useful life of die, the applicant either exports the dies to the foreign customer or scrap the die at the applicant’s end as per the instruction of the customer.

Scenario 2

The applicant gives an order for procuring the die from a foreign supplier and the manufactured die was retained by a foreign supplier for making components till the completion of order or useful life of die.
Then, at the end of the useful life of die, the applicant either imports the dies or give instruction to foreign supplier for scrapping the dies at their end.

Authority (AAR) Findings

Scenario 1

The authority held that the transaction does not qualify the definition of “export of goods” as defined in Section 2(5) of IGST Act 2017, since the die was not physically sent outside India.
As the die was not sent outside India, the place of supply of die shall be the location of an applicant in accordance with the provision of Section 10(1)(C) of IGST Act 2017. Thus, this transaction will be considered as Intra-State supply because the supplier location and place of supply is in same state.
The repercussion will be, If die scraps at applicant’s end, then, GST shall be payable. If die exports outside India, no GST shall be payable as that will come in the ambit of export of goods definition.

Scenario 2

The transaction does not amounts to import of goods as per section 2(10) of the IGST Act 2017, since die was not physically imported by the applicant.
The repercussion will be, IGST shall be payable on a reverse charge basis where die imports from outside India. No GST shall be applicable, if die scraps foreign supplier’s end.

Comments

The authority rightly concluded in scenario 1 as the transaction does not qualify the export since there was no physical movement of die to outside India.
However, in scenario 2, the ruling is incorrect to the extent of that GST shall be payable under RCM on import of dies. In case of import of goods, GST is payable as per the provision of Section 3 of the Customs Tariff Act, 1975, not IGST Act as specified in the proviso of Section 5(1) of IGST Act 2017.
The RCM would have been applicable where applicant procured the designing services of die from a foreign supplier. The authority should have given the importance to Notification No. 04/2017 – Integrated Tax (Rate) dated June 28, 2017, before reaching on a conclusion that RCM will be applicable on import of goods.