Question

We are OEM exporter of a USA based company. To manufacture OEM product we required to develop Tooling of such product. That tooling cost is separately charged to customer and a separate  purchase order also received from said customer.

as physical movement of such tools are not happening is that covered under `Zero Rated Supply` i.e. Export or its liable to pay GST as place of supply is our on works.

One tool life is approximate 2-3 month based on production quantity.

your guidance or suggestion required for such movement.

if you required further input please revert.
 

Answer

In Pre GST regime there was exemption as per Notification No-67/95 dated 16/03/95 relating to captive consumption which are applicable when the goods are manufactured and not cleared from factory.

There is no parallel notification in GST, so if the invoice is raised then tax will be applicable even if there is no movement of goods. Section 31 of CGST Act, 2017 contains provision relating to issue of invoice even without movement of goods and as per Section 12 of CGST Act, 2017 the same will be covered under time of supply.

Now when coming to the definition of Export of goods, the same is defined in Section 2(5) of IGST Act, 2017 as follows.
Export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.

In your case good are not crossing the territory of India. Therefore it will not be considered as export. Accordingly GST will attract and in this case the problem is that your customer will not get any credit of it.

Alternate suggestion
There is only one way out when you are raising invoice for the service of development of tools and the same will be covered under export of service.

Definition of export of service is given under section 2(6) of IGST Act,2017 as follows:

Export of service means the supply of any service when,''

(i) The supplier of service is located in India;

(ii) The recipient of service is located outside India;

(iii) The place of supply of service is outside India;

(iv) The payment for such service has been received by the supplier of service in convertible foreign exchange; and

(v) The supplier of service and the recipient of service are not merely establishments of a distinct person.

The same will be applicable when the customer is not having any right over the property of the tools developed by you. So you are requested to please go through the agreement and if the customer is not having any right over the property of the tools then you may raise invoice of service and the same will be treated as zero rated. (Reply dt.05/01/2019)