In re Hindustan Pencils Private Limited. (GST AAR Gujarat)
Hindustan Pencils Private Limited, a manufacturer of stationery products, sought a ruling on the GST implications of including a “Scraping Tool” in their “Apsara Oil Pastels” pack. The company argued that the tool, classified under a different HSN and tax rate than the oil pastels, should not be considered a separate supply as it was provided free of cost. Alternatively, they contended that it should be treated as a composite supply with the oil pastels, taxed at the oil pastels’ rate. The AAR examined whether the inclusion of the free tool constituted an independent supply under Section 7 of the CGST Act, 2017, and determined the applicable classification and tax rate for the combined product. Hindustan pencils supplied the oil pastels which are classified under HSN 9609 9030 and attracts 12% GST, and the free scraping tool which is classified under HSN 3926 9080 and attracts 18% GST.
The AAR analyzed the provisions of the CGST Act related to supply, composite supply, and mixed supply. It concluded that the inclusion of the scraping tool constituted a separate supply, despite being provided free of cost, as it was part of a package sold for a single consideration. The AAR referenced a CBIC circular clarifying that “buy one get one free” offers are considered multiple supplies for a single price, not a free supply. The AAR then assessed whether the combined product was a composite or mixed supply. It determined that the scraping tool and oil pastels were not naturally bundled, nor was the tool ancillary to the oil pastels. The tool was deemed an accessory, not an integral part of the oil pastels’ function. Therefore, the AAR ruled that the combined product was a mixed supply, taxable at the higher rate applicable to the scraping tool (18%). The ruling clarified that the “Apsara Oil Pastels with free Scraping Tool” is classifiable under HSN 3926 and is leviable to GST @ 18%.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, GUJARAT
