Case Law Details
In re M/s. Toshniwal Brothers (SR) Private Limited (GST AAAR Karnataka)
In the instant case there is no dispute that the Agency contract in question involves two taxable supplies of services i.e promotion and marketing service and after-sales support service. However in order for the supply to be termed as a ‘composite supply’, what is required is that the supply of the said services should at least be bundled, more specifically be ‘naturally bundled’, and supplied in conjugation with each other. The term ‘naturally bundled’ has not been defined in the GST Act. We note that the concept of composite supply under the GST law is similar to the concept of naturally bundled services that prevailed under the service tax regime, and the same was understood to refer to those transactions involving an element of provision of service and an element of transfer of title in goods in which various elements are so inextricably linked that they essentially form one composite transaction.
The Appellant has contended that the marketing services and the post sales support services (installation and warranty support) are normally undertaken as a bundle of services; that their principals do not have any presence in India and the Appellant is the sole representative in the Indian territory for the contracted products; that installation and warranty support services are ancillary to the predominant service of promotion and marketing and there is a single price for both the services. We have gone through the Agency contract with Brabender, Germany in detail. We find that the Appellant has been engaged to promote and market the products of Brabender, Germany in India. For this purpose, the Appellant will advertise the Brabender products to the prospective customers, demonstrate the use of the products, address the queries of the prospective customers and communicate with the overseas client regarding the comments of the prospective customers. Based on the inputs supplied by the Appellant, the Principal will decided whether to conclude a contract with the customer in India. The decision of the Principal regarding the conclusion of the contract with a customer or its rejection will be informed to the Appellant. In case the Principal agrees to a contract with a customer, the Appellant get a commission which is agreed upon as 12% of the value of the goods sold. While the Agency contract states that the commission is for all the services provided by the Appellant which includes pre-sales, marketing, installation and warranty period services, it has been stated therein that 25% of the commission is attributable to the installation and warranty period services. By the Appellants own admission, the after-sales support installation service are not required in every case of sale since there are equipments which are typically in the nature of plug-and-play. Further, there are equipments which do not require installation but need to be configured remotely and the same is done by the manufacturers themselves. Therefore, the provision of after sales support by way of installation does not arise in each and every case. It is for this reason that the service recipient has earmarked only 25% of the commission payable as being towards the after sales support service since the same does not arise in every sale made to the customer. Therefore the question of being naturally bundled does not arise for the reason that every promotional activity with a prospective customer does not result in a sale. Further, every sale does not necessarily mean that installation support or after sale support is required. Therefore, we are of the view that the after sales support service, although rendered in a composite manner with the promotion and marketing service is not a composite supply. The price for the after sale support service is clearly identifiable and has been so stated in the contract itself. We accordingly uphold the AAR ruling on this question.
Also Read AAR Ruling- After sale support services cannot be treated as composite supply: AAR
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING KARNATAKA
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