Includability of tool amortization cost in assessable value of goods for levy of GST – Recent developments

In reference to our earlier update dated November 27, 2018 on the referred issue, we would like to apprise you regarding the recent Advance Ruling in the case of Lear Automotive India Private Limited, 2018-VIL-318-AAR on similar issue. The AAR has endorsed our view that tool amortization cost shall not be included in the assessable value of components under Section 15 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’).

In the said AAR, the Applicant relied on the following grounds to substantiate its view that tool amortization cost should not be included in the assessable value:

• It is an industry practice as well as contractual obligation due to which the customers’ (OEMs) provides the tools and such tools are not additional consideration for the supply of components; and
• There was a specific provision under Section 15(2) of the Model GST law to include value of goods supplied on FOC basis by the recipient. However, at the time of enactment of the CGST Act, the legislature consciously removed this provision. This substantiates the legislative intent, not to levy GST on amortized value of tools

The AAR agreed with the aforesaid contentions and relied on Circular No.47/21/2018-GST dated June 8, 2018 (discussed in the trailing mail) to hold that the amortized value of tools is not includible in the assessable value of components. Consequently, no GST is payable on such an amount.

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