Question
XYZ is the manufacturer of Product ‘A’ which attracts 12% GST. To manufacture this product, they require Blocks, Punches etc. which they get it done from outside. XYZ recovers this amount of developing the blocks and punches from the customer through tax invoice issued for Product ‘A’ but shows it separately as ‘Development charges’ for making blocks and punches. 1) Can XYZ charge the same GST which is applicable for product ‘A’ in respect of development charges recovered or 2) Need to issue a separate service invoice for development charges and charge the applicable GST?
Answer
Your question is related to composite supply. The
idea of composite supply of charging same tax as applicable to principal supply
will apply when consideration is received not separately for supplies made.
In your case you have defined the values of supply on account of development of
blocks/punches and also on account of component. So both will be subjected to
tax separately.
Now in this case there can be 2 positions as follows:
CASE 1. You are charging for the development of blocks/punches and property of
blocks/punches will remain with you.
If this is the case than you will charge GST under the head service - Design and
development Services.
CASE 2. If the blocks/punches developed will become property of buyer the tax
applicable to blocks/punches will be charged and it is supply of goods.
Raise the invoice with bill to ship to condition so that the buyer can claim
credit of GST paid on blocks/punches. (Reply dt.20/12/2018)