In Re: Abbott Healthcare (P.) Ltd.,
GST
2018 (10) TMI 598 – AUTHORITY FOR ADVANCE RULINGS, KERALA – 2018 (18) G. S. T. L. 109 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULINGS, KERALA – AAR
Dated:- 26-9-2018
AAR No. KER/15/2018
GST
SHRI. B.G. KRISHNAN AND SHRI. B.S. THYAGARAJABABU MEMBER
Authorized Representative: Adv. Darshan Boram,
The applicant has adopted the business model of placing their own medical instruments at the premises of hospitals or laboratories and supplied the pharmaceutical products, reagents, diagnostic kits etc to be used in such equipments by executing an agreement. The applicant sought for advance ruling on the following:
i) Whether the placement of specified medical instruments to unrelated customers like hospitals. labs etc, for their use without any consideration, for a specific period constitute supply?
ii) Whether such movement of goods constitutes otherwise than by way of supply under GST?
The authorized representative of the appl
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fied in the agreement. These products are supplied against tax invoice. If the hospital fails to purchase specified minimum quantity of the products such as reagents, calibrators, disposals etc, the applicant is entitled to recover the same from the hospital, equal to the volume of deficit purchase. As the applicant has faced certain difficulties while transporting the instrument against delivery challan, this clarification was sought for.
The issue is examined in detail. The applicant is providing two components to the respective hospitals or laboratories. One is the medical instrument and the other one is the products like reagents, calibrators, disposals etc to be used in that machine. The terms and conditions of the agreement reveal that it is an indivisible contract for the supply of instrument and the products to be used in the instrument. The customer can avail the service provided by the applicant only if both the instrument and reagent are available simultaneously. Therefore
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ent. This transaction being a composite supply, the applicable tax rate is the tax rate of instrument, which is the principal supply. 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 tax rate is @ 18% GST.
But the applicant established a business model, in such a way to split the supply by independent transactions. One transaction is the supply and installation of instrument owned by the applicant, at the premises of the customer on free of cost, till the tenure of contract. The 2nd transaction is supply of per-defined minimum quantity of consumables like reagents, calibrators, disposals etc on the pre- fixed prices. The applicant has designed such a modus operandi with the ultimate objective to avoid payment of tax at higher rate, which is applicable for composite supply. colourable business model of free sup
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tal reserves the full control and right to use the equipment by applying the products like reagents, calibrators, disposals etc supplied by the applicant. Neither the instrument nor the products like reagents, calibrators, disposals etc provided by the applicant has any independent use or existence. Hence, it is an undisputed fact that, the supply of instrument and the products are conjoined and inter-dependent which constitutes a composite supply. The objective of creating a colourable business frame never alters the characteristics of combination of goods or utilities to provide a specified service. In order to obtain the required service of diagnosis, the hospital / labs require two unique components such as instrument and the products like reagents. calibrators, disposals etc. By the combination of these two components, the desired output is generated and hence these two components are inter-dependent and not separable. As both these components are naturally bundled, the impugned s
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bundled' supply and becomes composite supply.
The supply of instrument and the products to a hospital/ laboratory is for monetary consideration. Being a composite supply, it is the discretion of the parties to fix the point of exchange of consideration. While supplying the instrument, the applicant deferred the consideration and merged it with the price of products like reagents, calibrators, disposals etc. As the applicant has monopoly to control the minimum quantity of procurement of consumables/products, the rent/cost of the equipment for the particular period is merged with the price of products. But there is no visible or explicit demarcation of rent/cost of the equipment and cost of products. This veil can be lifted once specified quantity of Consumable is not procured by the recipient hospital. In such scenario there is clear provision in the agreement to the effect that, if the customer fails to meet its exclusive purchase obligation or its minimum purchase obligation, th
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/ instrument as the transaction of supply of reagents has no legs to stand without being accompanied by the right to use the machine / instrument.
Therefore, the different elements of the transaction as evidenced by the agreement; namely the provision of the right to use the machine / instrument without consideration and the supply of reagents etc for consideration with a Clause that a minimum amount / quantity of such reagents etc shall be procured are integral to an overall supply namely; the right to use the machine instrument; which is the principal supply. Hence as per provisions of Section 8 of the GST Acts;, the entire transaction is liable to GST under Sl No. 17 (iii) – Heading 9973 – Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other consideration.
In view of the observations stated above, the following rulings are issued:
The placement of specified medical instruments to unrelated customers lik
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