Design and Development of Patterns used for Manufacturing of Camshafts is a Supply of Goods: Maharashtra AAAR [Read Order]

The Maharashtra Appellate Authority for Advance Ruling (AAAR) has recently modified the ruling of the Authority for Advance Ruling to hold that the design and development of patterns used for the manufacture of camshafts is a supply of goods.

The modification was a result of the appeal filed by the appellant, M/s Precision Camshafts Limited. The Maharashtra Authority of Advance Ruling (AAR) had earlier held that the design and development of patterns used for manufacturing camshafts is a supply of service, in consideration of the original application of the appellant.

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 machinists 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, but the design and development of patterns used for the manufacture of the same.

It was ruled in the original application by the Coram of Sri Rajiv Magoo, Member Central Tax and T. R. Ramnani, Member State 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”.

The appeal was heard by the AAAR Bench of Dr. D.K. Srinivas, Member (Central Tax) and Rajeev Kumar Mital, Member (State Tax) and the applicant was represented by Advocate Ankit Sachdeva.

The supply of manufactured products in the form of patterns/tools were observed as a supply of goods by the appellate authority, contrary to the contention of the appellant that, that activity of designing and development of tools for the overseas OEMs/machinist is a composite supply and principal supply in tool development is of service. Based on the same, the appellant had argued that considering the definition of “composite supply” activity of tool development is supply of service.

Observing that the impugned transaction between appellant and overseas customer is of supply of goods i.e. pattern/tool of specified specifications, the contentions of the applicant were held to be not valid as to ‘impugned transaction is composite supply where the principal supply is supply of services’.

The appellant first manufactures the tool as per the requirements and specification given by the customer. This tool is retained by the appellant and used for the manufacture and supply of camshafts. The appellant raises the tax invoice for this tool in the name of an overseas customer in convertible foreign exchange though the tool is not physically exported to the customer. The ownership of the tools remains with the overseas customers.

In view of the nature of transaction and supply, the ruling was modified that the supply was of goods, and not services, in regard to the design and development of patterns used for the manufacture of camshafts, supplied by the applicant.

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