Tax Inovice Question No.61

QUESTION

ABC Ltd is Manufacturer of Pollution treatement plant which it intends to sell to various factory which generate effulent. Before the said plant is purchased by buyer, they want these plant to be tested in site & check the results thereof. Therefore ABC Ltd rents out this plant to one PQR Ltd who is also sole selling agent, PQR Ltd then sends the plant to desiring or possible buyers for verifying the results of effulent treatment. For this delivery challan is made alongwith EWAY showing that plant is being sent on returnable basis under OTHERS CATEGORY by PQR Ltd. Once the plant is tested by the possible buyer, they send the plant back to PQR Ltd under delivery challan & EWAY bill. Now PQR Ltd wants to directly send the plant from existing factory to different factory on interstate transfer basis. Whether EWAY bill can be made to show delivery at new factory & despatch from Existing factory while making delivery challan by PQR Ltd. Nowhere GST is getting paid as it a case of NON SUPPLY because of no consideration involved. Whether this modus operandi is proper as per GST law, if Not what should be correct procedure?

ANSWER

Facts of the case: ABC Ltd is Manufacturer of Pollution treatment plant which it intends to sell to various factory which generate effluent. Before the said plant is purchased by buyer, they want these plant to be tested in site & check the results thereof. Therefore ABC Ltd rents out this plant to one PQR Ltd who is also sole selling agent, PQR Ltd then sends the plant to desiring or possible buyers for verifying the results of effluent treatment. For this delivery challan is made alongwith EWAY showing that plant is being sent on returnable basis under OTHERS CATEGORY by PQR Ltd. Once the plant is tested by the possible buyer, they send the plant back to PQR Ltd under delivery challan & EWAY bill. Now PQR Ltd wants to directly send the plant from existing factory to different factory on interstate transfer basis. Whether EWAY bill can be made to show delivery at new factory & despatch from Existing factory while making delivery challan by PQR Ltd. Nowhere GST is getting paid as it a case of NON SUPPLY because of no consideration involved. Whether this modus operandi is proper as per GST law, if Not what should be correct procedure?

Question: PQR Ltd. send Machine to X for trial. After the trial is done, X return Machine to PQR, then PQR sends this Machine to Y for trial. (It is assumed that X is not related party). The question is:
1. Whether the Machine can be sent directly from Premises of X to Premises of Y?
2. Whether the use of Machine by X on trial basis free of charge can be considered a supply and subjected to tax?
3. Whether the Machine used for demo purposes can be supposed as free supply and may require reversal of ITC of the Inputs/Input services used to manufacture demo Machine?

Reply: 1. Yes, the Machine can be send directly from premises of X to premises of Y under cover of challan with EWB. There is no provision in GST law to restrict this movement. The Goods can be moved freely. There are 2 documents specified for the movement of goods - one is invoice and other is challan. Since it is not supply of goods so invoice is not required to be prepared and Machine can be moved on challan.

2. As per Section 7 of CGST Act the consideration is essential component for taking any transaction as Supply. In this case X is not giving any consideration at the time of trial of Machine, therefore it is not supply and not subjected to tax.

3. The machine is used for demo purposes only. Although the demo is free of cost but it is given for the purpose of achieving sale and trial is executed in the course or furtherance of business. This process is part and parcel of execution of sale through which revenue is generated. The Company is giving Machine on trial basis only to the prospective customers with an intention to satisfy the customer. Therefore it cannot be considered as service provided free of cost. Accordingly Section 17 read with Rules 42 and 43 of CGST rules is not applicable. (Reply dt. 10/07/2021)