The Maharashtra Authority of Advance Ruling ( AAR ) has held that the design and development of patterns used for manufacturing camshafts is a supply of service.
The applicant manufactures camshafts and sells some to domestic as well as overseas customers. The overseas customers may be original equipment manufacturers (OEM’s) and use the camshafts for manufacturing engines such as Ford, General Motors do Brasil LTDA etc. or maybe machinist such as Musashi who would further supply the same to OEMs (Machinist). The application is not pertaining to the manufacture and sale of the said camshafts.
The applicant submitted that for manufacturing the camshafts, the applicant needs patterns and tools which are required as per the specifications given by the OEMs/ Machinists. The supply of patterns and tools to the applicant is the obligation/responsibility of the overseas OEMs/ Machinists but, in the subject case the said OEMs/ Machinists avail the services of the applicant to make available, the patterns and tools needed for manufacturing the camshafts. For making available, the patterns and tools needed for manufacturing the camshafts, the overseas OEMs / Machinists place an order on the applicant for assistance in designing and developing of patterns and tools to manufacture the camshafts. The OFMs/Machinist outsources the tasks of designing and procuring the said patterns and tools to the Applicant.
The tasks to be performed by the applicant consist of the supply of only services pertaining to designing and developing patterns and tools. No supply of goods is envisaged. The present advance ruling is filed by the applicant is on seeking ruling whether the activity of design and development of patterns used for manufacturing of camshafts, for a customer is a composite supply, the principal ,supply being supply of services.
It is observed by the Tribunal that the main supply would be supply of tools and patterns to the overseas Customers by the third-party vendors, which is not actually happening physically since the tools and patterns are moving from the third party vendors directly to the applicant. Such movement of goods to the applicant appears to be on behalf of the overseas vendors because the ownership of the tools and patterns is with such overseas vendors as submitted by the applicant. Secondly, the ancillary supply would be the supply of designs and drawings of the patterns and tools by the applicant, on behalf of the overseas customers to third party vendors and also the activity of identifying the third-party vendors who can manufacture the pattern and tools as per the design/drawings (requirements) and explaining and closely working and engaging with such third-party manufacturer to develop the patterns and tools. Further, it is very clear from the applicant’s submissions that they are not providing any services on its own account. The designs are provided to the third party vendors on behalf of the overseas customers of the applicant. The service provided by them is to their overseas customers and as per the requirements and directions of its overseas principals. Thus the applicant is satisfying all the conditions of an intermediary and no hesitation in holding that, the applicant is supplying intermediary services as per the relevant provisions of the IGST Act, 2017.
The Coram of Sri Rajiv Magoo, Member Central Tax and Sri T. R. Ramnani, Member State Tax has held that “the activity of design and development of patterns used for manufacturing of camshafts, for a customer is a supply of service in the form of intermediary services”.
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