In re HP India Sales Private Limited (GST AAR Maharashtra)
Question :-1. Classification of Electro Ink supplied along with consumables under GST
Answer:- The supply of Electro Ink supplied along with consumable is a mixed supply as defined u/s section 2 (74) of the GST Act and is also a continuous supply of goods as defined u/s 2 (32) of the GST Act.
Question 2. Determination of time and value of supply of Electro Ink with consumables under the indigo press contract
Answer: – The time of supply of Electro Ink supplied along with consumables under the indigo press contract would be the earliest date between the date of invoice or the date of receipt of payment. As regards the value of supply of Electro Ink supplied with consumables under the Indigo Press Contract would be the transactions value as reflected in the invoice issued u/s 31(4) of the GST Act.
Read AAAR Order –Electro Ink supplied with consumables by HP is Mixed Supply: AAAR
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, MAHARASHTRA
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by HP India Sales Private Limited, the applicant, seeking an advance ruling in respect of the following questions:
i. Classification of Electroink supplied along with consumables under GST; and
ii. Determination of time and value of supply of Electrolnk with consumables under the indigo press Contract.
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus –
STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE OUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED.
1. We, HP India Sales Private Limited (hereinafter referred to as “the Applicant” or “We”), being taxable person registered under Section 22 of the Maharashtra State Goods and Services Tax Act, 2017 (referred as “MSGST Act”) read with Rule 24 of the Maharashtra Goods and Services tax Rules, 2017 (referred as “MSGST Rules”), having GSTIN 27AAACC9862F1ZI, are engaged inter alia in providing printing supplies to be used in HP’s Indigo press machines supplied to customers.
2. The HP Indigo digital printing press (hereinafter referred as HP Indigo) is a printing press uniquely designed for ensuring best quality prints in the industry along with wide colour gamut, substrate versatility, speed, productivity and with the ability to vary every printed copy.
3. The HP Indigo machine is based on a unique digital offset colour technology specially designed to cater the printing requirements of large scale print service providers. The HP Indigo printers are significantly different from other office and industrial use printers due to the specialized liquid ink (hereinafter referred as Electroink) being used in its print process.
4. Additionally, ancillaries comprising of oil, binary ink developer, bib, blanket, print imaging plate and other machine products (hereinafter collectively referred as “consumables”) are also consumed in the Indigo press machines in the course of effecting prints.
5. A write up on HP Indigo presses is enclosed as Annexure 1 – Background document on HP Indigo printing devices providing a details of the HP Indigo press technology, its characteristics and consumption.
6. In this regard, the Electroink along with the consumables are direcdy imported by the Applicant from its overseas suppliers at the customs port situated in Mumbai where from the said goods are cleared on payment of applicable customs duties including IGST. The goods are stored at the Applicant’s warehouse in Maharashtra.
7. Further, the Applicant has contracted with a taxable person registered under GST to be its authorized reseller and distributor of such goods to various customers across India.
8. The terms of contract between the Applicant and the authorized reseller stipulates the conditions, prices, discount, mode of receiving orders, billing and payment terms in relation to supply of Electroink with consumables. Importantly, the contract stipulates that the supplies shall be the property of the Applicant till such time the supplies are utilized in the presses by the customer for effecting prints.
9. Further, the Electroink along with the consumables are moved by the Applicant to the authorised reseller locations in the States of Tamil Nadu, Gujarat and Punjab under a delivery challan along with the necessary road permit, where applicable.
10. Pursuant to the same, such goods are transported by the authorized reseller to the respective customer locations as segregated geographically across India.
The arrangement is diagrarnmatically explained below:
12. The Applicant has contracted with authorized resellers for making supplies of Electroink with consumables to be used in HP Indigo presses by the customers of HP Indigo presses on a back to back basis.
13. The agreement between the Applicant and the resellers is enclosed as Annexure 2 – HP Indigo Supplier Reseller Agreement, detailing the contractual obligations and other terms of agreement.
14. The resellers also have entered into agreements with the end customers for onward sales of such printing supplies. Sample agreement between the reseller and the end customer is enclosed as Annexure 3.
15. The billing for such arrangement shall be based on “per click basis” calculated on a monthly basis depending on the series of Indigo press machine pertaining to which the goods are supplied, number of clicks and the type of print performed.
16. To illustrate, assuming a customer uses the printer to take 100 prints in a month and each print costs Rs 10/-, then the customer shall be billed Rs 1,000 for the Electolnk along with the consumables used for the month.
17. Accordingly, when the running statement of accounts are collated for the respective end customers, the Applicant raises a consolidated invoice for the click charges on the reseller. Sample copy of the invoice raised by the Applicant on the reseller is enclosed as Annexure 4.
18. Also the reseller raises an invoice on each of the end customers based on the contractual arrangement between the reseller and the end customer. Sample copy of the invoice raised by the reseller on the end customer is enclosed as Annexure 5.
QUESTION ON WHICH ADVANCE RULING IS SOUGHT
19. In light of the above facts disclosed, the Applicant wishes to seek clarification on the following matters from the Authority for Advance Ruling established in the State of Maharashtra under the MSGST Act:
I. Classification of Electroink supplied along with consumables under GST, and
II. Determination of time and value of supply of Electroink with consumables under the indigo press contract
STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF OUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED.
I. Classification of Electro Ink supplied along with consumables under GST
Supply of Electolnk along with consumables by the Applicant to the Reseller is a composite supply being supply consisting of supply of goods or services which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, where Ink is the principal supply. The ensuing paragraphs lay down the Applicant’s contentions in this regard with relevant provisions from the Act, facts of the case and documentary submissions:
20. With respect to the matter put forth before the Authority for Advance Ruling in determination of the classification of Electolnk supplied along with consumables under GST, the Applicant makes the following submissions:
i. Section 2(30) of the MSGST Act provides that the term “composite supply” means:
“a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply”.
Further, Section 8 of the MSGST Act provides that the nature of a composite supply shall be treated as a supply of the principal supply contained therein.
iii. In this regard, Section 2(90) of the MSGST Act defines principal supply as “the supply of goods or services which nstitutes predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary”
iv. Accordingly, the nature of the predominant element supplied in a composite supply shall be deemed as the nature of the entire value of supply and levying the rate of GST as applicable on the principal supply.
v. Drawing inference from the above legal provisions, a bundled supply of goods shall constitute a composite supply under the GST Act where the same is satisfying the following 4 tests:
– Such supply involves two or more taxable supplies of goods or services or both or any combination thereof;
– The supply of such goods or services is naturally bundled;
– The goods or services are supplied in conjunction with each other in the ordinary course of business; and
– One of such supply is the principal supply.
vi. In this regard, we wish to highlight the following relevant extracts from the HP Indigo Supplier Reseller Agreement (enclosed as Annexure 2) indicating compliance with each of the above conditions laid down for classifying a supply as a composite supply:
– Such supply involves two or more taxable supplies of goods or services or both or any combination thereof,
Point 17 of Section A – Definitions and appendices at page 2,
17. “Supplies” means Imaging Products and Operator Maintenance Parts required for the operation of the Indigo Press(es)”.
Point 6 of Section A – Definitions and appendices at page 2
“6. Imaging Products” mean Electroink®, Photo Imaging plates, binary ink developer (BIDs), printing blankets, recycled agent, imaging agent and imaging oil.
Accordingly, the supplies involved in HP Indigo press arrangement comprises of supply of two or more taxable goods being made thereof. Further, the term used in the definition, “or any combination thereof indicates that any combination of supply of two or more goods as a bundle satisfies the requirement for being classified as a composite supply.
– The supply of such goods is naturally bundled
Point 1 of Section C-SUPPLIES at page 3
“3. The Indigo Presses require consistently superior quality Supplies which include Imaging Products, accessories and Operator Maintenance Parts.
Additionally, the document briefing on the Indigo Press Supply Technology as enclosed herewith as Annexure 1 details the printing cycle at page 2 which provides for the manner in which each product is interlinked with the other and required to ensure best quality prints.
We also wish to submit that in order to qualify as naturally bundled, the goods in the course of normality and as general expectation laid by the customer, should be supplied together.
As is evident from the printing cycle detailed in Annexure 1, Electroink and consumables are required to be consumed as a combination in order to complete the print activity. Shortage or absence of a single product in the required quantity shall not yield the expected output.
We also wish to bring to your attention Point 3 of Section C-SUPPLIES at page 3 of the ”HP Indigo Supplier Reseller Agreement’
“3. Purchase of Supplies by Reseller shall be subject to either the Tier or A-La-Carte programs set forth in Sections G and H below, and their respective terms and conditions. Reseller may elect to purchase Supplies for the different Indigo Press Product Lines under different programs, provided that Reseller shall purchase all of the Supplies required by it for each Indigo Press Product Line under the same Supplies purchase program.”
Point “a” of Section G (1) – TIER PROGRAM FOR PURCHASE OF SUPPLIES BY RESELLER at page 4
a. “Click” means a chargeable unit for a Single Color Separation transferred onto substrate, except in the case of textured effect printing, where it is the action of texturing by applying pressure between the substrate and the mold. A Click unit may vary depending on the press model.
The Indigo press machine requires all the Supplies do be present in the device and collectively consumed. The invoicing for such supplies is also done on a per click basis, referring to the charges for a combined use of the Electroink and all the other consumables supplied. Therefore, the Electolnk along with the consumables are naturally bundled.
–The goods or services are supplied in conjunction with each other in the ordinary course of business
Point 1 of Section B – Appointment at page 3
“1. HP appoints Reseller as an authorized, non-exclusive Reseller for the purchase and resale of Supplies subject to the terms and conditions of this Agreement. HP reserves the right to sell Supplies to all HP end-user customers and resellers.”
Point 3 of Section C-SUPPLIES at page 3
“3. Purchase of Supplies by Reseller shall be subject to either the Tier or A-La-Carte programs set forth in Sections G and H below, and their respective terms and conditions. Reseller may elect to purchase Supplies for the different Indigo Press Product Lines under different programs, provided that Reseller shall purchase all of the Supplies required by it for each Indigo Press Product Line under the same Supplies purchase program.”
Point “a” of Section G (4) – TIER PROGRAM FOR PURCHASE OF SUPPLIES BY RESELLER at page 4
a. “Click” means a chargeable unit for a Single Color Separation transferred onto substrate, except in the case of textured effect printing, where it is the action of texturing by applying pressure between the substrate and the mold. A Click unit may vary depending on the press model.
Therefore, drawing reference from the above extracts of the contract, the Indigo press supplies are conisidered as being supplied in conjunction to each other based on the following facts:
o The Supplies are received by the authorised reseller from the Applicant as a
o bundle and are as-is supplied to the end customer;
o Further, the bundled supply of goods is made at the same point of time and is
o not split over different time periods;
o The billing for such supplies by the Applicant to the authorised reseller and by the authorised reseller to the end customer is also done on a consolidated basis for the entire bundled value of goods consumed and not on per category of goods supplied basis.
Further, the test of supplies being made in the ordinary course of business is satisfied depending on the frequency of the transaction in which the goods are supplied as a bundle. In this regard, re-iterating the above facts, the Indigo press machines require all the Supplies mentioned herein to be supplied in order to effectively produce a print. Such supplies are required to be consumed together in order to produce the desired output.
Therefore, the test of such goods being supplied in the conjunction to each other in the ordinary course of business also stands satisfied.
– One of such supply is the principal supply
The principal supply involved in a bundled supply of goods is the element which is most predominant in a composite supply and other supplies forming part of the bundle are only ancillary thereof.
In this regard, the Applicant wishes to submit that the Electroink supplied under the above arrangement is the predominant element contained in the bundled supply of goods made to authorised reseller. This can be inferred by the fact that the intention of the customer is to receive quality prints from the Indigo press which cannot be supplied without the “printing ink” being loaded therein. Additionally, other goods supplied in this regard are mere ancillary products to the Electroink in order to support the printing of the final image onto the paper.
The Applicant also submits that the HP indigo digital offset colour technology guarantees the best quality prints in the industry. Further, the liquid ink supplied in this regard is unique to indigo presses to ensure wide and accurate images matching the media. Accordingly, the printing ink supplied herein is the predominant element to ensure execution of entire supply contract by the Applicant
Additionally, every product supplied herein has a separate lifespan independent of each other. Accordingly, it can be inferred that consumables are necessary only to provide support function to the activity of printing and ensuring image processing is smoother and faster. Also, the mode of billing in relation to such supplies is based on the number of dicks generated during a specific period, which primarily requires printing ink to be loaded into the press machines.
The Applicant also wishes to submit the consumption pattern of Electolnk along with the consumables supplied to authorised reseller for your record as under. The same is also the pattern in which the undermentioned goods are consumed by end customers:
