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No GST on Cost of Tools supplied by Original Equipment Manufacturer on Free of Cost: AAR

Case law: M/s Toolcamp Systems Private Limited vs AAR

Facts of the case:

  • The applicant is involved in the manufacture and sale of plastic moulds, press tools, jigs/fixtures/ gauges, injection moulded parts and design services, as per specific orders & requirements of their customers.
  • The assessee submitted that the tool was either manufactured by them or supplied by the customers free of cost, for production of ‘parts’, on a returnable basis.
  • The assessee further submitted that the injection moulds (tools) supplied by the customers at free of cost basis, for the manufacture of parts, on a returnable basis were classified under capital goods.
  • The customer is supplying the tool on free of cost basis and hence the applicant is not charging any portion of the cost of the tool to the customer.

Issue Involved:

The applicant needs clarification regarding applicability of Tool Amortization cost (Transaction value) in GST regime on Capital Goods received freely on returnable basis from customer.

Provisions and Interpretation of Law:

  • As the applicant submitted that the tool is provided by free of cost and the applicant is bound to return the same to after completion of the supply, it is not a contract to supply components made by using the tools/moulds belonging but the same have been supplied on FOC basis.
  • CBIC has clarified that “The cost of tools/supplied original equipment manufacturer (OEM) on free of cost (FOC) basis to an applicant is not required to be added to the value of the parts supplied by the applicant and hence the same value is not liable for GST”.
  • This ruling will also apply to other contracts entered by applicant if the terms and conditions contained therein are the same.


The Karnataka Authority of Advance Ruling (AAR) has ruled that, Goods and Services Tax (GST) not applicable on cost of tools supplied by Original Equipment Manufacturer on free of cost basis.

Author: Niranjan Reddy

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