Question

My client who is steel forging manufacturer has an export order for forgings. In order make the product, necessary `Die` need to be developed and buyer agrees to pay amount towards die development charges. The die, even though becomes the property of buyer, it does not leave India. Following doubts need clarification: a) How to raise an invoice (whether domestic invoice (since the die does not leave India) or export invoice? b) whether IGST need to be paid on these charges when invoice is made? c) Whether this amount is required to be shown as `advance` towards purchase order of final products to be exported? d) How to deal with this transaction under GST?

Answer

You are doing 2 transactions:

1. Development of die
2. Manufacture of component using die

The Place of supply for goods is the location of receiver. So supply of die will be considered export only when it is leaving India. Since it is retained by you so it is not export.

Supply of component is export but to the extent of value of component. So if the cost of the component is Rs 100/- and die cost per component is Rs 10/- then you are doing export of Rs 100/- only.

Further GST paid on die is a cost to you because the customer is not getting credit of it. so die cost per component will be Rs 11.80/-

Alternative suggestion: You can get the PO amended to change the transaction and reduce the cost within the legal framework.

Plan 1: Raise the service invoice for designing and development of the component and issue service invoice for export followed by export of goods.

Plan 2: Take advance for manufacture of component and not raise any invoice for die development instead of this raise value of component with Rs 10/- and issue invoice of Rs 110/-.

In both the above plan the die will remain your property. You have to see whether the customer is ready for it.  (Reply dt.17/10/2018)