AAAR Maharashtra – Taxability and Valuation of Transactions between Branches

• The Appellant is located in Maharashtra and leasing equipments it to its other branches/ units across different States. Under this model, the Appellant would be sending equipment under lease arrangement to its other unit situated in Karnataka (‘Unit A’) under the cover of the delivery challan. Further, the Appellant would raise invoices for lease charges on Unit A. Unit A, in turn would lease the equipment to its customers and charge them accordingly
• In certain situations, another unit of the Appellant situated in Tamil Nadu (‘Unit B’) may require certain equipment that is leased to Unit A. In such a scenario, Unit A would transfer the equipment to Unit B. Once equipment reaches Unit B, the Appellant would stops charging lease rentals from Unit A and start charging the said amount from Unit B
• For facilitating and arranging the equipment transfer to Unit B, Unit A would charge a fee from the Appellant
• The Appellant sought an Advance Ruling with respect to GST compliances, valuation of supplies and documentation requirements for leasing services provided between its branches
• The Authority of Advance Ruling (‘the AAR’) ruled that the leasing services between the Appellant’s branches would be subject to GST. The value on which GST is charged should be either the value charged by the recipient branch i.e., Unit A to the ultimate customer in another State or the normal value derived from the rates normally charged to customers
• Being aggrieved by the ruling of the AAR, the Appellant filed an appeal before the Appellate Authority of Advance Ruling, Maharashtra (‘the AAAR’)

• What would be the value of supply in respect of transfer of equipment from the Appellant to Unit A and thereafter from Unit A to Unit B under the lease arrangement?
• Whether the movement of equipment from Unit A to Unit B on the instruction of the Appellant can be considered as mere movement of goods and thereby not subject to GST?
• What are the documents required for the movement of goods from the Appellant to its Unit A, and subsequently from Unit A to Unit B?

• Transfer of equipment on lease for a specified timeframe as per the agreement entered between the Appellant and the Units would amount to lease or renting of the goods for a consideration. Hence, this would be considered as a transaction for supply of services
• Transaction value which is the actual price paid by the customer cannot be treated as the value of supply in term of Section 15(1) of Central Goods and Services Tax Act, 2017 (‘the CGST Act’) as the supplies is between the related parties. Further, the recipient Unit A, is eligible for full input tax credit on the transaction between the Appellant and Unit A. Hence, the value declared in the invoice would be treated as the value of services as per the second proviso to Rule 28 of the CGST Rules
• Although Unit A is in the possession of goods on lease, the Appellant is the owner of goods. When the Appellant instructs Unit A to transfer the goods to Unit B, Unit A acts as an agent of the Appellant. The goods are held by Unit A as the bailee of the Appellant. Since movement of goods is in consequence of lease contract between the Appellant and Unit B, it would be considered as a supply of lease services to Unit B under Section 7 of the CGST Act (in hands of the Appellant)
• Services provided by Unit A to the Appellant in facilitating the transportation of goods to Unit B are liable to GST
• The question raised by the Appellant regarding the documents required to be carried with the goods in respect of movement among the units of the Appellant does not fall under the ambit of Section 97(2) of the CGST Act. Therefore, the same cannot be answered by the AAAR.