No GST applicable on cost of tools supplied by OEM Customer on FOC basis : AAAR

No GST applicable on cost of tools supplied by OEM Customer on FOC basis : AAAR

The Karnataka Appellant Authority For Advance Ruling in matter of M/S Nash Industries has set aside the Order of THE AUTHORITY ON ADVANCE RULINGS IN KARNATAKA and has ruled out that no GST will be applicable on cost of tools supplied by OEM Customer on Free of Cost Basis.

The Authority quoted CBIC Circular No 47/21/2018-GST dated 08.06.2018 where it has been clarified that goods owned by OEM that are provided to a component manufacturer on FOC basis do not constitute a supply as there is no consideration and in such cases, the value of goods provided on FOC basis shall not be added to the value of supply of components. However, In case the contractual obligation is cast upon the component manufacturer to provide moulds/dies and the same have been provided by the OEM on FOC basis, then the amortized cost of the moulds/dies is required to be added to the value of the components supplied.

No GST applicable on cost of tools supplied by OEM Customer on FOC basis : AAAR

As per the Authority, "In the present case, the terms and conditions of the contract between the OEM DICV and the Appellant clearly indicate that no contractual obligation to provide mould and dies. The OEM has taken the responsibility to provide the tools. In a case where the tools are developed and manufactured by the Appellant according to the requirements of the customer (DICV), then the total cost of the tools is borne by DICV and the title of the tools transfers to DICV, while the Appellant is allowed to retain the tool in his premises for undertaking the manufacture and supply of the components to DICV. In such a case, the value of the tools, which has already suffered tax and supplied FOC to the Appellant, is not required to be added to the value of the components supplied by the Appellant."

Accordingly the ruling of the AAR was set aside and it was held that the cost of the tools supplied by the OEM customer on FOC basis to the Appellant is not required to be added to the value of the components supplied by the Appellant.