Case Details : GST on transactions between two cost centers of the same entity
Case Related To : Ola Electric Technologies Pvt Ltd
Declared By : Tamil Nadu- Advance Ruling on 29th July 2022
What Happened Exactly :
- The applicant company is setting up a factory for manufacture of electric two-wheelers in Tamil Nadu whereas the head office and the additional software development centre is in Bengaluru, Karnataka.
- The applicant has stated that their Company is incorporated in India with its operation and experience centers in various States. Such different premises of the Company are recognized as different Cost Centre.
- The Company shall be selling the vehicle to the end user and will also offer a performance upgrade (which is an optional accessory) which will enhance performance i.e. battery performance & speed range in the vehicle.
- The manufacturing of vehicles will be carried out by Tamil Nadu Cost Centre and the sale thereafter will take place through the distribution centres located across the country, wherein the performance upgrade software shall be sold directly by Karnataka Cost Centre to the end user.
- The applicant has obtained GST Registration for Tamil Nadu Cost Centre and Karnataka Cost Centre.
- While manufacturing is done at the Tamil Nadu cost centre, the applicant will give a right to Karnataka cost center to carry out integration, testing, installation and marketing the software on vehicles manufactured by them.
- Applicant seeks advance ruling as to whether the transaction of transfer of right to do integration testing, install and market software from Tamil Nadu cost center to Karnataka Cost center shall be leviable to GST given that such transaction is being executed between two cost centers of same entity and if yes, whether the activity carried on by the applicant is supply of goods or services.
Court's Decision :
- The transaction involved is the transfer of right to carry out integration, testing, installation and marketing of the software on the vehicles manufactured by the applicant to Karnataka Cost center.
- The supply of goods or services between both related and distinct person when made in the course of furtherance of business is an activity to be treated as supply.
- In the case at hand, the cost centers are located at two different States and are distinct persons with separate GST Registration.
- The supply is also found to be in furtherance of business only in as much as the software when installed is charged a specific cost and it is said to optimize certain features of the product and in furtherance of business.
- The contention of the applicant that the transfer of right to install the software not qualifying as supply does not hold water. Such a transfer is done between two distinct persons, for a consideration for which the first payment is agreed upon and invoice has been raised.
- Thus, the extension of right by the applicant to the distinct persons is in the course of furtherance of business for a pre-determined consideration and therefore such transfer of right is a supply which is leviable to GST.
- The transaction of transfer of right to do integration testing, installation and marketing software from applicant to Karnataka Cost Centre of the company is leviable to GST.
- Since the subject supply is found to be involving only transfer of the said right, the supply involved is the supply of ‘Service’.
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