Confusion on cargo handling services under GST

In the coal trading industry, various services are availed by coal traders at ports for the procurement and supply of coal. These services include stevedoring, unloading and loading of coal, security, insurance, renting of premises, and more. The question arises whether the supply of coal with cargo handling services is considered a composite supply. This article delves into the concept of composite supply and analyzes its application in the context of coal trading.

Whether supply of coal with cargo handling services on back to back basis is considered as composite supply?

• After coal is imported, the coal is stockpiled at port itself at the designated place for subsequent sale to customers. Various services are availed by Applicant at the port during process of procurement of coal and for fulfilling obligations towards supply of coal
• The services so utilized by coal traders include the following but not limited to,
  • Stevedoring services
  • Unloading and Loading of coal
  • Security of coal
  • Insurance
  • Renting of the premises
• Appropriate rate of GST is charged by respective service providers on above services so provided
• Above services will be utilized by coal trader at the following stages:
  • Procurement and keeping of coal at the port
  • Services provided to customer at port towards hand ling the coaI on behalf of / for the customer.
• Supply of coal and availment of coal hand link and distribution:- Where the customer not only wishes to purchase coal, but also intend s to avail services of coal handling and distribution during the period of supply of coal.
•  Coal hand ling and distribution charges (per MT) includes a bouquet of services provided to customer towards handling the desired quantity of order placed by customer including but not limited to
  •  Loading, unloading of material at site
  • Storage charges of the quantity ordered
  • Coal safety and security
  • Adequate water sprinkling
  • Commitment charges towards fulfilling supply
  • Custom clearing services
  • Insurance

• A customer is fiable to pay coal handling and distribution charges for the full intended quantity of purchase even if the quantity lifted/ purchased under a purchase order falls short of the impugned purchase order. However, a customer is charged only for the actual quantity of the coal lifted/purchased and the amount is charged as and when a consignment is made.
• As per the terms agreed with customer, on placing the order for desired quantity of coal, separate invoices to be raised by the Applicant on a customer for:
  • Price of supply of coal
  • Coal handling and distribution charges
• The Coal Trader intends to raise invoice on Customer(s) for the following:
  • Supply of coal with 5%› GST in addition
  • Coal handling and distribution services with 18% GST in addition
• The Coal Trader is presently availing input tax credit and will continue to avail the same as follows.
  • 5% IGST on import of coal
  • 18% on various services availed at port

Detailed Explanation

1. Supply is defined u/s 7(1) of the CGST Act, 2017 as

a) All forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.(aa) Activities or transactions by a person (other than an individual) to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration. The explanation clarifies that the person and its members or constituents are considered separate entities and transactions between them are considered supplies.

b) Import of services for a consideration, regardless of whether it is in the course or furtherance of business. c) Activities specified in Schedule I, made or agreed to be made without a consideration.

2. Composite supply is defined u/s 2(30) of the CGST Act, 2017 as:

1. As per 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.

2. Principal supply is one which involves 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 auxiliary to and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.

From the above submission at 1.1, it is clear from the above definition, that trading of coal are treated as supply as well as services also.

• The major point to be covered in our discussion is composite supply, as per above table, predominant element & naturally bundle words are taken to be more seriously to discussed the concept of composite supply. From the above examples of composite supply it clearly shows that supplied to be treated as composite supply when it supplies in conjunction with each other or normally customer expects to get such supplies together such as :-

1. Tooth brush with Tooth Paste

2. Micro Owen with Pan

3. Crockery Cup with Plate

4. Watch with Cell

5. Laptop bag with Laptop

6. Mobile Accessories with Mobile Phone

From the above examples of composite supply, we are getting common thought process of suppliers & consumer regarding bundling of supplies to augment sales, increase market share, attract customers etc., Which are common practice followed by the same industry players also, then it is treated as naturally bundle supplies, where all suppliers uses the same technique and strategy to get competitive advantage in the market.

1. In the business of the coal, where coal gets imported from outside India needs various support services in the form stevedore expenses, loading & unloading services, warehousing service, security services. Without which imported coal is not cleared for home consumption by port authority of India.

2. As per section 14(1) of the customs act, 1962 “Transaction value’ shall be the value determined for the purpose of levy custom duty, However in simple words, all the expenses incurred to the place of import shall be included in assessable value for example :- loading exp.at place of export, Carriage, Freight & Insurance to the place of importation, which is separate services even though it’s part of assessable value & included in transaction value paid or payable for the purpose of basic custom duty.

3. As per Rule 10 of customs valuation act, 1962. All expenses incurred at the port of importation shall not included in the assessable value, However such services are treated as supply under section 7 of goods and services tax act, 2017. and liable for gst at specified rate prescribed under tariff.

4. Expenses incurred at the port of importation shall not part of assessable value but it should be part of transaction value under section 15 of goods and services tax act, 2017.

5. Basically all the provisions of customs act, 1962 shall be applicable to importer, However, we are in the business of trading coal within India. Hence, the valuation provision of customs act, 1962 shall not applicable. Henceforward, all the provision related to transaction value covered under goods and services tax act, 2017 are applicable.

6. We had made back to back sales contract for supply of coal & all other support services used for making coal available to recipient within India, which includes stevedore expenses, warehousing, security, insurance.

7. We reiterated that support services shall be considered as ancillary service which is part of principal service, provided by us. However, as per above discussion on composite supply, there shall two things which should be considered that’s.

1. Predominant element

2. Naturally bundle

8. As per coal industry point of view, in case of imported coal where supply made from outside India shall requires major ancillary services in the form of goods transportation services, loading & unloading services, clearing agent service, cargo handling service. Without which no importation is possible, henceforward supply of anything from outside India shall requires such services compulsory, which should be treated as naturally bundle.

9. We are trader of coal on back to back basis to recipient within India. So, all the supplies in the form goods & services shall subsequently transfer to the recipient. We reiterated that supply of coal to our recipient is not possible without taking services of stevedore, insurance, security, warehouse rent. So, such support service are ancillary services to the predominant supply i.e supply of coal.

10. From the above discussion and examples, it clears that supply of goods i.e. coal with other services are to be treated as composite supply where supply of coal is principal supply for the purpose of sec 8 of goods & services tax act, 2017 & Rate applicable to coal i.e 5% shall be applicable.

Conclusion: Based on the analysis, it can be concluded that the supply of coal with cargo handling services on a back-to-back basis is considered a composite supply. The supply of coal is the principal supply, while the cargo handling services are ancillary or support services. Understanding the concept of composite supply is crucial for determining the applicable GST rate and complying with relevant tax regulations in the coal trading industry.