In a recent ruling by the Maharashtra AAAR (Appellate Authority of Advance Ruling), it has been stated that businesses moving goods between branches in different states are required to pay taxes under the category of lease rental service. This decision came about when a case involving CIPL (a fictional company) was brought before the AAAR.
The bench, consisting of D.K. Srinivas and Rajeev Kumar Mital, carefully examined the situation where equipment was being transferred from CIPL Karnataka to CIPL Tamil Nadu, following instructions from CIPL Maharashtra. They concluded that this movement of goods cannot be considered as a simple transfer without any tax implications. Instead, it falls under the category of supply of services, as defined by Section 7 of the CGST Act, 2017.
As the equipment owner, CIPL centralised its ownership in Maharashtra, where the majority of the procurement and manufacturing activities take place. Some procurements, however, occur in other states. Because CIPL Maharashtra owns the equipment, it engages in leasing agreements with customers and other CIPL units in other states. They lease or hire the equipment at agreed-upon rates.
To meet the demand requirements of other CIPL units, CIPL Maharashtra sends the equipment to these units using delivery challans. CIPL Maharashtra then raises periodic invoices to CPIL for the lease charges, calculated based on the number of days of usage.
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The issue brought before the AAAR was whether the movement of equipment from CIPL Karnataka to CIPL Tamil Nadu, instructed by CIPL Maharashtra, could be considered a simple transfer without any tax liability. The Authority ruled that since the transaction does not take place within the state of Maharashtra, it falls outside its jurisdiction.
However, the appellant argued that once the question has been accepted by the authority, it is implied that the authority has the power to provide a ruling on the matter under Section 97 of the CGST Act.
The AAAR carefully considered the situation and determined that the supply of services in question is being provided by CIPL Karnataka to CIPL Maharashtra as a bailee of CIPL Maharashtra. For this service, CIPL Karnataka charges a facilitation fee along with applicable Goods and Services Tax (GST), as per the inter-unit Memorandum of Understanding between CIPL and its state units.
Furthermore, the AAAR stated that when goods are moved from CIPL Karnataka to CIPL Tamil Nadu, following the instructions of CIPL Maharashtra (the owner of the goods), it should be treated as the supply of lease rental services from CIPL Maharashtra to CIPL Tamil Nadu.
So, this ruling clarifies the tax implications for businesses that move goods between branches in different states. It establishes that such movements fall under the category of supply of services and are subject to the applicable taxes. This decision will have an impact on businesses like CIPL, which need to carefully consider the tax implications and adhere to the relevant regulations when transferring goods between their branches.
| Applicant Name | M/S CHEP India Private Limited |
| Order No. | MAH/AAAR/DS-RM/02/2023-24 |
| GSTIN of the Applicant | 27AADCC3230A1ZF |
| Date | 05.06.2023 |
| Present for the Appellant | Sachin Agarwal, Sarvesh Saraogi |
| Maharashtra AAAR | Read Order |