Case Law Details
In re Butterfly Gandhimathi Appliances Limited (GST AAR Tamil Nadu)
This article explores a case study regarding the interpretation of Goods and Services Tax (GST) in India, specifically concerning the activity of sending finished goods for combination packing (combi-packing) by another registered vendor. The case involves Butterfly Gandhimathi Appliances Limited (BGAL), a manufacturer of domestic appliances, seeking clarification on whether this activity constitutes a taxable supply or job work under GST.
Background:
BGAL manufactures various appliances like pressure cookers, mixers, and grinders. They plan to send finished goods they manufacture to a vendor who will pack them in combination with another GST-paid product procured by the vendor. This combi-pack will then be returned to BGAL for further taxable supply.
Applicant’s Interpretation:
BGAL argues that this activity doesn’t amount to a taxable supply for the following reasons:
- Job Work Definition: They cite Section 2(68) of the CGST Act, 2017, which defines “job work” as any treatment or process undertaken on goods belonging to another registered person. BGAL emphasizes that the section doesn’t differentiate between semi-finished and finished goods.
- GST Rules: They refer to Rule 45 of the CGST Rules, 2017, which allows sending inputs and capital goods for job work.
- No Tax Loss: BGAL asserts that since all goods are received back and taxed upon eventual sale, there’s no revenue loss to the government.
Central Authority’s Response:
The Central authority disagreed with BGAL’s interpretation, stating:
- Transfer of Property: The combination packing process involves a transfer of goods’ property from the vendor to BGAL.
- Vendor’s Contribution: The vendor’s contribution goes beyond labor and involves supplying goods forming a substantial part of the combi-pack’s value.
- Job Work Definition Not Met: Due to the vendor’s significant material contribution, the activity doesn’t qualify as job work under the Act’s definition.
Therefore, the Central authority concluded that sending finished goods to the vendor for combi-packing and subsequent return is a taxable supply.
Applicant’s Withdrawal:
BGAL, after being granted opportunities to be heard, chose to withdraw their application for an advance ruling. They submitted a letter stating that the subject job work transaction was no longer required.
Ruling:
The authority, considering the applicant’s withdrawal request, disposed of the application as withdrawn without delving into the merits or details of the case.
Key Takeaways:
This case highlights the complexities involved in interpreting GST provisions, particularly concerning job work and associated activities. While the authority provided their interpretation, the applicant’s withdrawal leaves the specific question regarding the taxability of combi-packing in this scenario unanswered. Businesses engaged in similar activities are advised to consult with GST professionals for specific guidance based on their unique circumstances.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TAMIL NADU
1. M/s Butterfly Gandhimathi Appliances Limited, 113, Butterfly, Vandalur-Kelambakkm Road, Pudupakkam, Tamil Nadu, Kanchipuram 603103 (hereinafter referred to as The Applicant), a GST Registrant, is under the Administrative control of Centre and is engaged in the manufacture of various Domestic Appliances such as pressure cookers, LPG stoves, Mixers, Grinders etc.
2.1 The Applicant submitted a copy of Electronic Cash Ledger 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 Applicant has submitted that –
➣ They supply different products with different HSN codes and taxes and few of these goods are in combination forming part of multiple combi-packs and such combi-packs arc supplied on payment of appropriate GST.
➣ Few products are manufactured by them and few others arc procured from domestic sources, which arc combined to form one combi-pack.
➣ They plan to send one product manufactured by them to a vendor, who will pack in a carton packing along with a GST paid another product procured by the vendor as a combi-pack and receive the same as final finished goods for further taxable supply.
➣ They would follow the job procedure prescribed under Rules 45 86 46 of CGST Rules and also file the details of job work in Form GST ITC 04, as required; Also undertake to defray the full tax with interest on goods sent for job work, if in case the goods sent arc not received back within the stipulated time.
➣ No waste or scrap is expected to be generated at the job worker premises in connection with the present job work.
➣ The ruling is now sought on the point whether the activity of sending finished goods for the job work of further packing in combi-packs and return for eventual taxable supply tantamount to a taxable supply.
3.1 On interpretation of law, the Applicant stated that
➣ In terms of Section 2(68) of the CGST Act, 2017., ‘job work’ means any treatment or process undertaken by a person on goods belonging to another registered person and the expression ‘job worker’ shall be construed accordingly.
➣ Section 143 of the CGST Act, 2017., does not seek to make any distinction between semi-finished goods and finished goods sent for job work as it refers only to ‘Goods belonging to another registered person’. Rule 45 of the CGST Rules 2017 allows sending inputs and capital goods for job work.
➣ The principal unit(the Applicant) and the vendor(job worker) are registered entities under GST and are located in the state of Tamil Nadu.
1.2 Based on the above, the Applicant interpreted that since there is no tax loss to the Government, since all the goods are eventually received back and intended to be supplied on payment of applicable GST when finally sold, the activity of sending finished goods for the job work of further packing in combi-packs and return for eventual taxable supply does not tantamount to a taxable supply.
4.1. The Centre authority, vide letter dated 11.11.2022, has stated that
➣ The process of combination packing involves transfer of property of goods from the vendors to the Applicant.
➣ The vendor’s contribution is not limited to labour and skill done with the help of his own tools, gadgets and machinery but also involves supply of goods by the vendor which constitutes substantial portion of the value of supply in the form of combination pack.
➣ Hence the process undertaken at the hands of the vendor is therefore, not job work as defined under Section 2(68) of CGST Act, 2017.
➣ Therefore, the activity of sending finished goods to the vendor and subsequent packing of the same in combi-packs and return to the Applicant for subsequent taxable supply from the Applicant tantamount to a taxable supply.
➣ There are no pending proceedings in their jurisdiction on the issue raised by the applicant in the application filed by them.
4.2 The concerned State authority has not submitted any remarks and hence it is construed that arc no proceedings already decided or arc there any pending proceedings with respect to the Applicant.
5.1 The Applicant, after consent, was given an opportunity to be heard in person on 10.10.2023. However none appeared for the hearing. Another opportunity to be heard in person was given on 01.11.2023. Shri S Viswanathan, Advocate, who is the Authorized Representative of the Applicant appeared before the Authority and submitted that the Applicant wishes to withdraw the Advance Ruling application. The Authority requested the AR to submit a letter in this regard signed by the authorised signatory of the Applicant. The AR agreed to submit the same at the earliest.
5.2. The AR, vide email dated 03.11.2023, submitted a letter dated 02.11.2023 from the Applicant, signed by the authorised signatory, wherein it was stated that they wish to withdraw the advance ruling sought for vide their application ARA No. 48/2022 dated 14.09.2022, as the subject transaction of job work is no longer required by them.
DISCUSSION AND FINDINGS:
6. After due consideration, we take on record, the letter dated 02.11.2023 of the Applicant, wherein they have stated that they have decided to withdraw the application ARA No. 48/2022 dated 16.10.2022 which was filed by them, as the subject transaction of job work is no longer required by them. As the Applicant has requested for withdrawal of their Advance Ruling Application, their request is considered and the application is allowed to be treated as withdrawn without going into the merits or detailed facts of the case.
In view of the above, we rule as under:
RULING
The ARA Application Sl.No.48/2022/ARA dated 14.09.2022 filed by the Applicant seeking Advance Ruling is disposed. as withdrawn as per the request of the Applicant.
Author Bio
