In re Kanahiya Realty Private Limited (GST AAR West Bengal)
(i) Supply of goods at nominal price to retailers against purchase of specified units of hosiery goods pursuant to a promotional scheme would qualify as individual supplies taxable at the rates applicable to each of such goods as per section 9 of the GST Act.
(ii) Credit of the input tax paid on the items being sold at nominal prices would be available to the applicant.
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, WEST BENGAL
1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression „GST Act‟ would mean the CGST Act and the WBGST Act both.
1.2 The applicant intends to manufacture and supply hosiery goods such as Vests, Briefs, etc. The applicant further proposes to implement a scheme with the objective of incentivizing its sale of hosiery goods amongst the retailers whereby it would offer unconnected goods for sale at a discounted price to such retailers who have bought a certain unit of hosiery product from it as would be prescribed in its retail scheme circular. However, the retailers will be at liberty not to purchase the goods offered under the said promotional schemes.
1.3 The applicant submits that under the said retail scheme, various products like gold coins, refrigerators, coolers, split air conditioner, etc. would be offered at reduced! discounted prices to such retailers who purchase specified units of hosiery goods. For example, the retailer would be eligible to buy a split air conditioner for Rs. 50 only against purchase of 1300 boxes of hosiery goods.
1.4 The applicant has made this application under sub-section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:
(1) Whether the supply of goods such as gold coins, refrigerator, mixer grinder, cooler, split air conditioner, etc. at nominal price to retailers against purchase of specified units of hosiery goods pursuant to a promotional scheme would qualify as individual supplies taxable at the rates applicable to each of such goods as per section 9 of the CGST Act or mixed supply taxable at the highest GST rate as per Section 2(74) read with section 8 (b) of the CGST Act, 2017, in light of the fact that the hosiery goods and good being sold at nominal price are sold under separate invoices with separate prices.
(2) Whether credit of the input tax paid on the items being sold at nominal prices (as indicated above) would be available to the applicant.
1.5 The aforesaid question on which the advance ruling is sought for is found to be covered under clause (a) and (d) of sub-section (2) of section 97 of the GST Act.
1.6 The applicant states that the question raised in the Application has neither been decided by nor is pending before any authority under any provision of the GST Act.
1.7 The officer concerned from the Revenue has raised no objection to the admission of the Application.
1.8 The Application is, therefore, admitted.
2. Submission of the applicant
Fact of the case as sumitted by the applicant along with interpretaion of law made by him is reproduced verbatim herein under:
2.1 The hosiery goods would be sold initially on a separate invoice with GST at the applicable rate being recovered from the retailers on the said invoice. Once the eligibility criteria, as defined in the circular released by the applicant would be met, the goods specified in the scheme such as gold coins, refrigerator, mixer grinder, cooler, split air conditioner, etc (herein after referred to as, the said goods) would be offered for sale and the sale would be conducted vide a separate invoice with GST recovered from the retailer on reduced! discounted price at the applicable rate. It is important to note that the retailers have the right to refuse and may choose not to buy the said goods.
2.2 The applicant, prior to the sale of the said goods to the retailers, would purchase the same from the open market against GST invoice and would make the necessary tax payment. The applicant post payment of the applicable GST as indicated in the invoice, also intends and seeks to avail credit of the same as per the provisions under section 16 of the CGST Act and the rules framed thereunder for discharging its output tax liability. However, section 17 (5) of the CGST Act, lists down various supplies on which credit of the input tax paid cannot be availed. More specifically, the apprehension for which advance ruling is being sought arises from a reading of sub-clause (h) of section 17(5) of the CGST Act, which reads as below:
“(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:
(a)..
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
….”
2.3 The applicant apprehends that the GST authorities, on account of the discount which is being proposed to be provided by the applicant on the said goods may qualify the same as gifts and hence deny credit of the same.
2.4 The applicant further apprehends that in the alternative, the tax authorities may also try and classify the supply of the said goods and the hosiery goods as mixed supply in accordance with section 2(74) read with section 8 (b) of the CGST Act, 2017.
2.5 Section 2(74) and 8(b) of the CGST Act reads as below:
“(74) ―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.
Illustration. A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately”
Section 8 (b) of the CGST Act, reads as below:
“8. 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:
* * * * * * * * *
(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.”
2.6 On reading of the aforesaid provisions, it emerges that if two or more supplies qualify as mixed supply then the supply of the two or more goods must be treated as supply of such goods which attracts the highest rate. If applied to the aforesaid facts, then the supply of hosiery goods and the split air conditioner would qualify as supply of split air conditioner which attracts a tax rate of 28%.
2.7 The applicant argues that supply of hosiery goods and the supply of goods under promotional scheme are separate individual supplies and hence do not qualify as „mixed supply‟. The supply of the said goods would be subsequent to the supply of the hosiery goods to the retailers, as the criteria for being eligible to purchase the said goods can only be met post sale of the hosiery goods. Needless to say that supply of hosiery goods and said goods would be for 2 separate prices.
2.8 The applicant submits that under the GST framework, every form of supply is taxable unless specifically exempted. Section 7 of the CGST Act broadly defines supply to mean any form of transaction which is undertaken for a consideration. The applicant further submits that supply under GST can partake the character of a „mixed supply‟ or „composite supply‟. It becomes very necessary to determine the nature of the supply since the taxability thereof is dependent on it.
2.9 The applicant submits that for any supply to qualify as a „mixed supply‟ the parameters stipulated under Section 2(74) of the CGST Act has to be met. As extracted in the aforesaid paragraphs, the following important conditions can be culled out from the definition of „mixed supply‟:
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