The Hon’ble HC, Karnataka in the matter of Abbott Healthcare Private Limited v. The Commissioner of State Tax Kerala & Ors. [W.P(C). No. 17012 OF 2019(B) dated January 7, 2020] quashed AAR and AAAR order holding that the placement of medical instruments to hospitals, laboratories etc., for use without any consideration, in the backdrop of an agreement providing for minimum purchase obligation of products like reagents, calibrators, disposables etc., constitutes a “composite supply”.
Abbott Healthcare Private Limited (“the Petitioner”) is engaged inter alia in the sale of pharmaceutical products, diagnostic kits etc. and it is registered under the GST in the State of Kerala. In the instant business model, it places its diagnostic instruments at the premises of unrelated hospitals, laboratories etc., for their use for a specified period without any consideration.
The Petitioner also enters into Reagent Supply and Instrument Use Agreements (“Agreement”) with various hospitals, laboratories etc., whereunder, the arrangement between the parties is for the supply of medical instruments to the hospital/laboratory concerned, for their use, without any consideration for a specified period and for the supply of specified quantities of reagents, calibrators, disposables etc., at the prices specified in the Agreement, through its distributors on payment of applicable GST. As per the Agreement, while the supply of instruments is by the Petitioner, the supply of reagents, calibrators and disposables are effected by its distributor, who purchases the said products from the Petitioner on principal to principal basis. When the distributor supplies the reagents, calibrators and disposables to the hospitals/laboratories concerned, the distributor discharges the applicable GST on the price charged for supply of the said products.
A consignment of instruments was being transported to a laboratory without any consideration, pursuant to the Agreement entered into between the parties, the same was seized by the Assistant State Tax Officer, Kozhikode, on the ground that the goods were not accompanied with a tax invoice but were being transported under a delivery challan.
AAR– The placement of medical instruments to hospitals, laboratories etc., for use without any consideration, in the backdrop of an Agreement providing for minimum purchase obligation of products like reagents, calibrators, disposables etc., constitutes a “composite supply”. The principal supply in the said composite supply was of the transfer of right to use goods for any purpose.
AAAR– Confirmed the order of the AAR.
Whether the provision of specified medical instruments by the Petitioner to unrelated parties like hospitals, labs, for use without any consideration, constitutes a “supply” or whether it constitutes “movement of goods otherwise than by way of supply” as per provisions of the Central Goods and Services Tax Act, 2017 (“CGST Act”)/State Goods and Service Tax Act, 2017 (“SGST Act”)?
The Hon’ble HC, Karnataka in the W.P(C). No. 17012 OF 2019(B) dated January 7, 2020 held as under:
Section 2(30) of the CGST Act
“(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.”
Para 5(f) of Schedule II of the CGST Act
“5. Supply of services
The following shall be treated as supply of services, namely:-
(f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.”
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