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.
Principal supply – as per Section 2(90) of CGST Act means supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.
Naturally bundled – Another important factor is that supplies must be naturally bundled. For studying the same we may refer to Education Guide issued by CBEC (now CBIC) in the year 2012 as under –
‘Bundled service’ means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’
Further, Para 9.2.4 of Education Guide mentions
“Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below-
No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business.
Each case has to be individually examined in the backdrop of several factors some of which are outlined above.
Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
For example, supply of stationery pack containing crayons, paints, brushes, drawing book etc. supplied at a single price by the seller together as a package is a mixed supply Primary requisite is to rule out that the supply is a composite supply.
Name of the applicant: Arihant Enterprises Application No. :126 Authority: AAR (Maharastra)
Questions Sought by the applicant: 1) Whether supply of ice-cream by the applicant from its retail outlets would be treated as supply of “goods” or supply of “service” or a “composite supply” & subject to GST accordingly?
2) Whether the supply, not being a composite supply, would be treated as supply of service in terms of entry 6(b) of schedule 11 attached to the CGST Act, 2017 and leviable to CGST@ 2.5% in terms of Notification No. 11/2017 as amended by Notification no. 46/2017 – Central tax.
3) In case the supply is held to be” composite supply”, whether the taxability of the same should be treated as supply of service in terms of entry 6(b) of the schedule II of the CGST act, 2017 or should be taxable on the basis of nature of principal supply in accordance withn section 8 of the act?
4) In case the supply is held to be a supply of service in terms of entry 6(b) of schedule II to the CGST Act, 2017, would it be mandatory for the applicant to collect and pay CGST 2.5% inspite of the fact that entry 7(i) of Notification No. 11/2017 as amended by Notification No. 46/2017- Central tax is a conditional entry?
|Description (In Brief)||Applicant Inter pretation of Law||Applicant Inter pretation of Case Laws||Facts and Findings – As per concerned officer|
|The applicant is, inter alia, engaged in the business of reselling Ice-creams in whole sale as well as retail sale packages. The applicant purchases the said goods from its sole manufacturer, M/s Kamaths Ourtimes Ice-cream Pvt Ltd. The applicant sells the Ice-cream to their customers “as it is” without any further processing/structural or chemical change. “AS it is” means in its exact form as it is acquired from the franchisor.||1) The applicant submits that, in case sale of retail packed, the only service element is packing the plastic container from the shelf and delivering the same to customer. Here , it would be crucial to note that this is exactly the way goods, including Ice-creams, are sold at a typical banya shop, super market or a departmental store. Clearly, the element of service, if any , is in- significance and thus the activity is merely a transaction of supply of goods to the customers.
|1) Applicant reliance on decision of High court, In case of Govind ram and ors. V/s State of Rajasthan and ors reported as AIR 1982 Raj 265 wherein the High Court has held that:
In cases of sales of food stuffs or eatables made across the counter, they are obviously transaction of sale , even though some service may be rendered in packing the food stuffs, yet it may be so insignificant or incidental that the transaction would essentially be one of sale. Similarly, if food stuffs or drinks are supplied to customers outside the hotel or restaurant , then also the transaction may amount to sale. In case where the owner of the hotel or restaurant or the eating house charges separate amount by way of service charge for the service rendered by him besides the cost of the food- stuffs supplied to the customer, then it would obviously appear that he transaction of sale of foodstuff & service rendered by the hotelier.
|1) They exclusively deal in the ice-cream manufactured by the franchisor and sell the same to their customers as it is without any further processing /alteration/structural /chemical change.
2) In case sales by way of scoops the applicant has submitted that the ice-cream scoops are sold to the customers who wish to consume Ice-creams on a take away basis and their different combination commonly known as “Double Scoop” or “Triple Scoop” are also supplied in large cones or cups
3)In the case of sale of ice cream in tubs of 500 gms and at the MRP, we have no doubt that the same is sale of goods with no service being involved.
4) In case of scoop, the flavour of choice is sold as per the customer preference i.e in cup or cone. No extra money is charged from the customer who are free to consume the ice-creams inside or outside the outlet.
5)Dominant object even in the case of ice cream in scoops is a sale of goods.
1) The Supply of Ice-Cream by the applicant from its retail outlets would be treated as supply of “goods”
Name of the applicant: M/s TATA MARCOPOLO MOTORS LTD.
Order No.: KAR ADRG 12 / 2019 Dated: 25-06-2019
Authority: AAR (Karnataka)
Questions Sought by the applicant:
“Whether the activity of building and mounting of the body on the chassis by the Applicant will result in supply of goods under HSN 8707 or supply of services under HSN 9988”
|Description (In Brief)||Applicant Interpretation of Law||Applicant Interpretation of Case Laws||Facts and Findings – As per concerned officer|
|1) The Applicant, for building and mounting of the body, procures various inputs such as steel sheets, square tubes, seats, glasses, wiring harness, fittings inside body, paints, FRP (Fibre-reinforced plastic), Air conditioner, Automobile parts on payment of appropriate GST and claims input tax credit on the same. They undertake the body building activity and fabrication works using aforesaid inputs and their own machines, manpower and other facilities.
2) The Applicant, further quoting the provisions of “Composite Supply” given under Section 2(30) of the CGST Act, submits that in their case, the principal supply would be of building the body and the activity of mounting the body would be incidental to it and thereby the whole transaction would be treated as Supply of goods (i.e. body). If the activity of mounting the body on chassis is not “naturally bundled” with the activity of building of the body, it can’t fall under the ambit of “Composite Supply”.
3) The Applicant, further quoting the meaning of “Mixed Supply” in terms of Section 2(74) of the CGST Act 2017, submits that if the activity of building the body and mounting the body is considered as “Mixed Supply”, then the supply attracts the higher rate of GST i.e. supply of body (goods) attracting 28% of GST.
|1) The Applicant, further, draws the attention to the Circular bearing No. 52/26/2018 – GST dated 09-08-2018, where in the applicable GST rate for bus body building activity has been clarified based on the following two situations.
“12.2(a) Bus body builder builds a bus, working on the chassis owned by him and supplies the built-up bus to the customer, and charges the customer for the value of the bus.
12.2(b) Bus body builder builds body on chassis provided by the principal for body building and charges fabrication charges (including certain material that was consumed during the process of job work).”
2) The first situation being the supply of goods attracts GST @28% and the second situation being the supply of service attracts GST @18%.
3) Hence the Applicant, in terms of the said circular, started following the second situation and started discharging GST @ 18% thereafter with effect from September 2018.
|1) The Applicant further has drawn attention to the Advance Ruling issued by the Goa Advance Ruling Authority in the case of Automobile Corporation of Goa Ltd., wherein it is ruled that “the activity of building and mounting of the body on the chassis provided by the principal under FOC challan will result in supply of services under HSC 9988 and hence, should be taxed @ 18% GST”||1) Therefore in the instant case two situations arise. In the first scenario the body is built without the physical presence of the chassis. The dimensions of the chassis and the required design of the body are known and the body is fabricated accordingly. Such ready built body is thereafter mounted on the chassis as and when provided by the owner. In the second scenario the chassis is provided by the owner and the applicant carries out the building and mounting of the body on the chassis in different steps as enumerated by the applicant. In both the situations the applicant use their own inputs and capital goods.
2) The first situation, being the supply of goods, attracts GST @28% and the second situation, being the supply of service, attracts GST @18%.
Name of the applicant: Sarj Educational Centre.
Order No.: 42/WBAAR/2018-19 dated 26/02/2019
Authority: AAR (West Bengal)
“Questions Sought by the applicant:
“Whether his service to the students for lodging along with food is a composite supply within the meaning of section 2(30) of the GST Act, and whether supply of such service is eligible for exemption under Sl. No. 14 of Notification No. 12/2017–CT (Rate) dated 28/06/2017 (hereinafter the Exemption Notification).”
|Description (In Brief)||Applicant Interpretation of Law||Facts and Findings – As per concerned officer|
|1) The Applicant, according to the Written Submission made at the time of Hearing, has entered into an MOU with St. Michael‟s School under the management of Sunshine Educational Society, for providing boarding facility exclusively to the students of the said school. The boarding facility shall include lodging, housekeeping, laundry, medical assistance and food. The consideration is a consolidated charge on the individual boarder for the combination of the services.
2) Revenue states that it appears that the services provided by the applicant will fall under Composite Supply as defined under Section 2(30) of the GST Act. However, the actual agreement between the applicant and the recipient requires to be verified. Revenue also points out that exemption under Sl. No. 14 of the Exemption Notification does not cover the service of providing food supplied by the applicant.
|1) The Applicant refers to Circular No. 32/06/2018 dated 12/02/2018 of CBIC. It has clarified that accommodation service to students in a hostel having declared tariff below one thousand rupee per day is exempt under Sl. No. 14 of the Exemption Notification.
Further amended by Notification No. 20/2019-CT (Rate) dated 30/09/2019 amending the original notification no. 11/2017-CT (Rate), where accommodation in a hostel having value of supply below one thousand rupee/day.
2) In his Written Submission the Applicant further refers to Sl. No. 66 of the Exemption Notification, and argues that his services to the boarders should also be considered exempt under that entry of the said notification.
|1) Sl. No. 66 of the Exemption Notification is applicable to the services provided by or to an educational institution, as defined under clause 2(y) of the said notification. The Applicant is not an educational institution within the meaning of the above clause. Although the services are provided in terms of an MOU with St Michael‟s School, the Applicant charges the consideration on the individual students. Being liable to pay the consideration, such students are, therefore recipients of the Applicant‟s services and not the educational institution. Sl. No. 66 of the Exemption Notification is, therefore, not applicable
2) The Applicant provides services to both day boarders and boarders requiring lodging facilities.
A flat amount is charged for maintenance, electricity and laundry instead of reimbursement of the actual cost. The consideration is, therefore, a consolidated charge for a combination of all these services.
3) It appears from the consideration charged on the boarders who need lodging facility that such services are offered at a tariff below Rs.1000/- per unit per day. The lodging facility offered is, therefore, exempt under Sl. No. 14 of the Exemption Notification. The food served upon these recipients is taxable at 5% rate under Sl. No. 7(i) of notification no. 11/2017-CT (Rate) 28/06/2017 (hereinafter the Rate Notification), as amended from time to time. Housekeeping, including maintenance, is classifiable under SAC 9987 and taxable at 18% rate under Sl No. 25(ii) of the Rate Notification. Laundry service is classifiable under SAC 9997 and taxable at 18% rate under Sl. No. 35 of the Rate Notification.
4) The bundle of services offered to the recipients, therefore, consists of both taxable and nontaxable supplies. It is also evident that although the services are offered in a bundle, they are not indivisible, and different considerations are paid for different packages of such services offered to the recipients, depending upon their requirement for lodging facility. For example, laundry service is not offered to the day boarders. These are not, therefore, bundles of taxable supplies that are inseparable and supplied only in conjunction with one another in ordinary course of business. The services the Applicant supplies are not, therefore, composite supply, as defined under Section 2(30) of the GST Act.
5) It is evident from the above discussion that the Applicant is offering several individual services in two different combinations to the recipients, depending upon their need for lodging facility. Each of the recipients, however, is charged a consolidated amount for the combination of services he wants to enjoy. The combination of services is, therefore, offered as a mixed supply within the meaning of Section 2(74). In accordance with Section 8(b) of the GST Act it is stated that, “a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.” As has already been discussed, each of the combinations includes services taxable at 18% rate, which is the highest rate applicable to the services being offered vide Section 8(b) of the GST Act. Being mixed supply, value of the entire combination of services offered is taxable at 18% rate.
The Applicant is offering several individual services in two different combinations to the recipients, depending upon their need for lodging facility. None of the combinations of services being offered is a composite supply, as defined under section 2(30) of the GST Act. They are mixed supplies within the meaning of section 2(74) and taxable in accordance with section 8(b) of the GST Act. Being mixed supply, value of the entire combination of services offered is taxable at the applicable rate.
Name of the applicant: Cable Corporation India Ltd..
Application No.: 63/2018-19
Order No.: 134 Dated 03/11/2018
Authority: AAR (Maharastra)
Description (In Brief): The Applicant has entered into an agreement with the recipient for supply of goods and services. For the purposes of the same, the Applicant has entered into an agreement with separate consideration for each activity and scope identified in the contract. The supply of different services has independently prescribed consideration. The applicant not being a GTA, is a availing exemption from payment of GST on the transportation services provided under the agreement.
Point of Litigation: Exemption provided under Sl. No 18 of the Notification No. 12/2017- Central Tax
|Sl. No.||Chapter, Section||Description Of Services||Rate(per. Cent)||Condition|
|18||Heading 9965||Services by way of transportation of goods
a)by road except the services of- i) a goods transportation agency
ii) a courier agency
iii) by inland waterways
Now “GTA” has been defined in the explaination to Sl. No. 9 and 11 of Notification No. 11/2017 dated 28th June 2017 as follow:
“Goods Transport Agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
As per Sl. No. 18 of the above notification any person providing services by way of transportation of goods is exempt other than services provided by goods transportation agency and subsequently consignment note has been issued by GTA,
Hence, As per author “Litigation point comes when services are provided by any person by its own mode of transportation and subsequently freight i.e (diesel consumed, service charge) recovered at the time of supply of goods on the invoice from the recipient the same shall be covered under composite supply or not”
As per authors opinion “Supply of goods and Supply of transportation services are naturally bundled, without transportation supply of goods is not possible, Hence the supply is composite supply covered under definition of sec 8 of GST Act and Supply is of principal supply and tax rate shall be charged as notified in GST Tariffs on Principal supply”.
“ Questions Sought by the applicant:
“ Whether the supply of transportation services, rendered by the applicant, will be exempt from the levy of GST in terms Sl. No 18 of the Notification No. 12/2017- Central Tax 28th June 2017“
|Applicant Interpretation of Law||Applicant Interpretation of Case Law||Facts and Findings – As per concerned officer|
|1) Thus, combined reading of the definition of composite supply and principle supply indicates that a composite supply has only one” principal supply “. If a particular contract has more than one principal supplies, the supply under said contract will cease to be composite supply.
2) Further, there is no strait jacket formula to determine as to what constitutes a “composite supply”. The determination as to whether a supply constitutes a “composite supply or separate supplies is very subjective and is required to be determined on the basis of the facts and circumstances of each case.
|1) The Court in the case of State of Madras v/s Gannon Dunkerley and Company(Madras) Ltd, while extensively discussing the divisibility of contracts observed:
“To avoid misconception, it must be stated the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building contract. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such case, there are really two agreements , though there is a single instruments embodying them, and the power of the state to separate the agreements to sell, from the agreement to do work and render services and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgement”
2) In the light of the above observation, the following points may be noted with respect to the instant scenario:
a) The supply of services under consideration are mutually exclusive and independent and are not intrinsically linked to each other in any manner.
b) The services contract provides for supply of transportation services, installation services and testing services along with separate considerations for each of them which indicates the intention on the parties to treat them independently.
c) Each of the services contemplated constitute an aim in itself for a consumer and no way can one service be considered ancillary for the better enjoyment of any other of the services contemplated
|1) From the facts and documents put up before us by the applicant as well as the jurisdictional officer that, the applicant is not transporting the goods but is hiring the services of a GTA to undertake the transportation of goods by road & its claimimg to be discharging GST Liability under reverse charge mechanism and in such a situation he is a recipient of such services and is not a supplier thereof.
2) Further, from the submission made before us , we clearly find that the first contract referred to above includes ex-works supply of all equipments and material which includes testing and supply of cable package required for successful commissioning.
We find that the second contract consisits of all other activities required to be performed for commssiong of the project which also includes transportation, insurance, etc
3) Composite nature of the contract is clear from the facts that first contract cannot be performed satisfactorily unless the goods have been transported & delivered to the contractees site. The two contract for supply of the goods & allied services are not separately enforceable. The recipient has not contracted for ex-factory supply of material, but for the composite supply,namely Works Contract for Supply, Laying and Terminating cables
4) Thus from detailed facts of the case as put before us, as per the first and second contracts referred above there is no doubt that both these contracts consisting of cross fall breach provisions are in the nature” Composite supply of Works Contract” which is a service & would be taxable @ 18%
Que 1) Whether the supply of transportation services, rendered by the applicant, will be exempt from the levy of GST in terms Sl. No 18 of the Notification No. 12/2017- Central Tax 28th June 2017 “
Answer: Answer in negative