Movement Of Goods Between Branches In Different States Taxable Under 'Lease Rental Service': AAAR

The Maharashtra Appellate Authority of Advance Ruling (AAAR) has ruled that the movement of goods between branches in different states is taxable under 'lease rental service'.

The bench of D.K. Srinivas and Rajeev Kumar Mital has observed that the movement of equipment from CIPL Karnataka to CIPL Tamil Nadu on the instruction of CIPL Maharashtra cannot be said to be a mere movement of goods not amounting to a supply in terms of Section 7 of the CGST Act, 2017 as the transaction would fall under the ambit of supply of services in terms of Section 7 of the CGST Act, 2017.

The appellant, CIPL, has consolidated the ownership of all the equipment into the state of Maharashtra. Currently, the majority of the procurements and manufacturing happen in Maharashtra. Some of the procurements are also done in other states.

As the owner of the equipment would be with CIPL, Maharashtra, it would enter into an arrangement with the customers and with all the other CIPL units (located in other states) for leasing the equipment to them at the agreed leasing or hiring charges.

CIPL, Maharashtra, leases the equipment to its other CIPL units based on their demand requirements. CIPL, Maharashtra, sent the equipment to the other unit of CIPL under the cover of the delivery challan. CIPL, Maharashtra, raises periodic invoices for lease charges (based on the number of days of usage) to CIPL.

The applicant sought an advance ruling on the issue of whether the movement of equipment from CIPL Karnataka to CIPL Tamil Nadu on the instruction of CIPL Maharashtra can be said to be a mere movement of goods not amounting to a supply and not liable to GST.

The AAR held that the sites of the transaction in question are not within the State of Maharashtra, and hence, the Authority does not have jurisdiction over the transaction.

The appellant contended that once the question has been admitted by the authority, it is understood that it is well within the jurisdiction and powers of the authority under Section 97 of the CGST Act to provide a ruling for the question.

The AAAR has observed that the supply of services involved in the transaction under question is being provided by CIPL Karnataka to CIPL Maharashtra in the capacity of bailee of CIPL Maharashtra, for which CIPL Karnataka is charging a facilitation fee along with applicable GST from CIPL Maharashtra as per the inter-unit Memorandum of Understanding entered between the appellant and other state units. The movement of goods from CIPL Karnataka to CIPL Tamil Nadu as per the instruction received from CIPL Maharashtra, the owner of the goods, will again be treated as the supply of lease rental services by CIPL Maharashtra to CIPL Tamil Nadu.

Appellant’s Name: CHEP India Private Limited

Date: 05/06/2023

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