West Bengal Authority for Advance Ruling (‘AAR’) in the case of M/s Masterly Kolkata Facility Maintenance Private Limited has ruled that although separate invoices have been issued for ‘Gas Charges’ for consumption of gas, supply of gas through pipeline is found to be naturally bundled with facility & property management services and are supplied in conjunction with each other. Therefore, it shall be treated as composite supply with principal supply being facility & management services. Captioned ruling has been analyzed in this update.
A. FACTS OF THE CASE
- The Applicant is engaged in rendering maintenance services to apartment owners of “Emami City”, a residential cum shopping area situated at Jessore Road, Kolkata.
- This complex has been developed with a facility of supply of cooking gas through pipe line from gas banks installed at different places in the project premises.
B. QUESTIONS BEFORE THE AAR
- Whether supply of cooking gas as provided by the applicant should be classified as supply of goods or supply of services?
C. CONTENTION OF THE APPLICANT
- That though the project has been developed with gas bank facility however the apartment owners are at liberty either to get the supply of cooking gas through the applicant or they may procure on their own.
- Applicant procures the gas cylinders from authorized agencies with 5% GST rate billing as applicable on cooking gas and the same rate & classification should apply to applicant as it is also acting as gas distributor only.
- As per the scope of maintenance services, it is clear that maintenance of piped gas connection is also covered since they are part of amenities in the building. However, it has no connection with supply of cooking gas through the said piped gas connection.
- In view of above, supply of cooking gas is not an element of supply which is naturally bundled in the ordinary course of business, with the supply of service of maintenance service which can give the bundle its essential character.
D. RELEVANT LEGAL PROVISIONS REFERRED
- Section 2(30) – “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.
Illustration — Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;
- Section 2(90) – “Principal Supply” means the 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.
- Section 8 of CGST Act 2017 – Tax liability on composite and mixed supplies-
The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) 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.
E. OBSERVATION AND RULING BY THE AAR
- AAR noted that each and every apartment owner, irrespective of the fact whether they will avail the pipeline gas supply or not, is required to pay a fixed amount against “Piped Gas Bank Connection”. Further whether or not any apartment owner avails the piped gas facility, they all are required to bear the common cost of maintenance of pipeline.
- AAR said that in view of this, it is unable to accept the submission made by the applicant that maintenance of piped gas connection has got no connection with supply of cooking gas through the said piped gas connection.
- It therefore follows that in spite of issuance of separate invoices as “Gas Charges Bill” for consumption of gas, supply of gas through pipeline is found to be naturally bundled with facility and property management services and are supplied in conjunction with each other. The instant supply, therefore, shall be treated as ‘Composite Supply’ as defined U/s 2(30) of the GST Act where the principal supply is facility and management services.
AAR finally ruled as under on the stated questions:
i. In the given circumstances, supply of cooking gas as provided by the applicant shall be classified as supply of services.
F. Our comments
In this ruling, AAR has concluded that supply of cooking gas is a composite supply of facility and management services since the maintenance cost of the gas pipelines is being charged to apartment owners. Further a mandatory one-time charge of ‘Piped Gas Bank Connection’ is being charged from all apartment owners.
AAR has not appreciated that if the service was naturally bundled than all the apartment owners should have been using the same while in the given case the procurement of cooking gas was optional for apartment owners. In our view, the captioned supply would not tantamount to be a composite supply and would remain a supply of goods itself.
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(Author can be reached at dinesh.singhal@snr.company or cadineshsinghal@gmail.com).
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