After 21 months of GST Law being in force, the assessees and their tax consultants are realising that GST requires the revisit of every tax planning / practice which was valid in VAT/ST era,
This fact has been very well brought out in the recent judgement of Hon’ble Appellate Authority for the Advance Ruling (GST), Kerala in the Judgement of Abbott Healthcare Pvt Ltd. reported in 2019(23) GSTL 49. Facts of the case and law evolved there from, are as under:
a) Appellant-assessee places its own medical equipments at indentified hospitals/laboratories, by entering into agreement, without receiving any consideration. These users of the instrument only possess a no-transferable right to use the said equipment without having any ownership. Assessee transfers such equipment from its Ahmedabad Warehouse to Kerala on the basis of Delivery Challan. Medical Equipment falling under HSN 9027 are taxable @ 18%.
b) Hospitals/Laboratories where said equipments are installed are bound to procure specified quantities of reagents, calibrators, disposals etc. for using the said equipment, from the assessee till the tenure of agreement. These are taxable @ 5% under HSN 30.
RULING BY THE AUHTORITY FOR ADVANCE RULING(AAR):
AAR on the application submitted by the assessee held:
i) Transaction of supplying the equipment and supplying the products like reagents, calibrators, disposals etc. are naturally bundled and hence a composite supply, where supply of equipment / instrument is a principal supply
ii) Receipt of individual consideration for each component in a contract has no significance.Whatever the consideration derived out of such agreement is the supply receipt exigible to tax.This being a composite supply, applicable rate of tax is 18% on reagent, calibrators, disposals etc. supplied by assessee to these hospitals/laboratories.
iii) AAR held this business model as colorable model designed to keep out of composite supply and to avoid the payment of tax higher rate, which is applicable to composite supply.
RULING BY THE HON’BLE APPELLATE AUTHORITY FOR ADVANCE RULING:
Aggrieved by the said advance ruling, the appellant preferred appeal and submitted that the said ruling is incorrect on facts as well as in law. Appellant submitted, inter-alia, that the supply of equipment is without consideration and there is not supply. That the same business practice was prevailing in the pre-GST regime also and there is no change in the business model /practice since then.
Hon’ble Authority upheld the original order of AAR as legally correct and proper and ruled that placement of specified medical instruments to unrelated customers like hospital, labs etc. for their use without any consideration, against an agreement, containing minimum purchase obligation of products i.e. reagent, calibrators, disposal etc. for a specified period constitute composite supply, principal supply being the transfer of right to use any goods for any purpose liable to GST under Serial No. 17(iii)- Heading 9973 of notification No. 11/2017-Central Tax(R) dated 28/06/2017 and the appeal of assessee was finally disallowed.