The Hon’ble AAR of Karnataka holds that supply of ready built body and the activity of mere mounting the body on chassis supplied by the owner amounts to ‘supply of goods’ and merits classification under HSN 8707, attracting 28% of GST; However, holds that the activity of step by step building of the body on the chassis supplied by the owner using their own inputs and capital goods amounts to ‘supply of service’, in terms of Circular No. 52/26/2018 – GST dated August 9, 2018 and merits classification under SAC 9988, attracting 18% of GST.
M/s Tata Marcopolo Motors Ltd. (“the applicant”) is engaged in the business of building and mounting of body on the chassis of different models of buses. Further, the applicant, procures various inputs on payment of appropriate GST for building and mounting of the body, and claims input tax credit on the same. The applicant receives the chassis of the buses from OEMs / Retail customers (“Sender”) on free of cost basis, under the delivery challan. However, the ownership of the chassis always remains with the sender (Principal).
As there was no clarity regarding the classification of activity of body building as a supply of goods under HSN code 8707 and to avoid litigation, the applicant discharging GST @ 28 %. Even in the earlier VAT regime, the tax was at higher rate on fully built body when supplied by a body builder to the chassis supplier (Sender) as the transaction was a sale of body and the body builder was required to pay full sales tax on the body building activity.
Whether the activity of building and mounting of the body on the chassis by the Applicant will result in supply of goods under HSN 8707 or supply of services under HSN 9988?
Applicant’s interpretation of Law:
The Applicant draws the attention to the Circular bearing No. 52/26/2018 – GST dated August 9, 2018, wherein the applicable GST rate for bus body building activity has been clarified based on the following two situations.
“12.2(a) Bus body builder builds a bus, working on the chassis owned by him and supplies the built-up bus to the customer, and charges the customer for the value of the bus.
12.2(b) Bus body builder builds body on chassis provided by the principal for body building and charges fabrication charges (including certain material that was consumed during the process of job work).”
The first situation being the supply of goods attracts GST @28% and the second situation being the supply of service attracts GST @18%. Hence the Applicant, in terms of the said circular, started following the second situation and started discharging GST @ 18% thereafter with effect from September 2018.
The Applicant further relied on Advance Ruling issued by the Hon’ble Goa Advance Ruling Authority in the case of M/s. Automobile Corporation of Goa Ltd., wherein it is ruled that “the activity of building and mounting of the body on the chassis provided by the principal under FOC challan will result in supply of services under HSC 9988 and hence, should be taxed @ 18% GST”
The Applicant contends that the activity of bus body building, on the chassis provided by the sender by using their own inputs and capital goods, merits classification as Supply of Services under SAC 998882 and also under the job work provisions read with para 3 of Schedule II of CGST Act, which attracts GST @ 18% and not as supply of goods under HSN 8707, which attracts GST @ 28%.
The Hon’ble AAR, Karnataka vide Advance Ruling No. KAR ADRG 12 / 2019 dated June 25, 2019 held that the supply of ready build body and the activity of mere mounting the body on chassis supplied by the owner amounts to the supply of goods and merits classification under HSN 8707, attracting 28% of GST.
Further, the activity step by step building of the body on the chassis supplied by the owner using their own inputs & capital goods amounts to supply of services, in terms of Circular dated August 9, 2018 and merit classification under SAC 9988, attracting 18% of GST.