Goods and Services Tax – GST – By: – Srikantha RaoT – Dated:- 2-11-2018 – Composite contracts have traditionally posed problems in terms of taxation under service tax and VAT over the years. Very often the matter had to be referred to Courts for resolution of issues. The complications were due to the fact that the two levies referred to above were falling under different tax jurisdictions i.e. one with Union and the other with the States respectively. Resolving this issue was therefore one of the priorities while seeking to introduce GST (Goods & Services Tax). In GST an effort has been made to define composite supply where there is a mix of goods or services or both and to introduce a deeming fiction on classification thereof based on perceived dominant component of the same for taxing the mix. Catering contracts, erection, commissioning and installation contracts and annual maintenance contracts and some supply and installation contracts to name a few, have all come into focus i
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
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. An illustration has also been provided to explain the concept and this goes as follows – Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. One of the reasons why a proper determination of the nature of the contract is so critical is the fact that u/s 8(a) of Central Goods & Services Tax Act 2017 the tax liability in respect of a composite supply comprising of two or more supplies, one of which is a principal supply, is based on the principal supply. This is because the composite supply is treated as a supply of such principal supply. This would mean classification and rates of tax being based on such principal supply. One more reason is to avoid classification of the contract as a
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
cenarios could be far more complex and there could be genuine difficulties in identifying the true nature of certain supplies. This is also compounded by the fact that the concept of natural bundling referred in the definition above has not been elaborated further. One would have to look at circumstances of each case in order to see whether or not various elements of a supply can be seen to be bundled so as to satisfy definition of composite supply. If one were to refer P. Ramanatha Aiyar s Advanced Law Lexicon (Page 3193 4th edition Volume 3 Published by LexisNexis Butterworths Wadhwa) the term naturally signifies according to the nature of things, and applies therefore to the connection which subsists between events according to the original constitution or inherent properties of things. The term bundling on Page 630 of Volume 1 of the said Advanced Law Lexicon has been defined to be practice of providing more than one product or service at once at an inclusive price (such as softwar
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
consumption), where such supply or service is for cash, deferred payment or other valuable consideration. While the schedule specifically talks about the second and fourth entries above as composite supplies, in reality there could be other cases of such supplies where combination of goods or of services or both are involved. What is also relevant is the fact that the concept of works contract u/s 2(119) of CGST Act 2017 has undergone a change in GST as compared to the old law/s as it is now restricted to immovable properties alone. So, while classifying a contract resulting in immovable property would not be much of a problem, scenario could be different where goods are involved and resulting property (if any) is movable. In such cases, one guideline would be the test laid down by the Supreme Court in Bharat Sanchar Nigam Limited Vs UOI (2006 (3) TMI 1 – Supreme Court) where the need to determine substance of the contract or adopting the dominant nature test was highlighted. This woul
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
48 or 49, printed with design, logo etc. supplied by the recipient of goods but made using physical inputs including paper belonging to the printer, predominant supply is that of goods and the supply of printing of the content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore such supplies would constitute supply of goods falling under respective headings of under Chapter 48 or 49 of the Customs Tariff. This nevertheless would require readers to analyse each case to determine the predominant supply element in order to correctly classify the contract. In Circular 34/8/2018 GST dated 1st March 2018, supply of retreaded tyres where the old tyres belong to the supplier has been held to be supply of goods. One of the yardstick which could be considered to determine essential nature has been held to be that of value involved which though need not be the sole indicator. In Circular 32/06/2018 GST dated 12th February 2018, in the context of food
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
omposite supply. Here, if the customer failed to meet its exclusive purchase obligation or its minimum purchase obligation, the applicant had the right to recover the deficit amount from the customer. This was a Ruling based on analysis of the real intention of the supplier on review of contractual terms. After sales services provided in India to end customers In Toshniwal Brothers (SR) Private Limited, (2018 (10) TMI 597 Authority For Advance Rulings Karnataka), the Authority held that pre-sales marketing and promotion services for client located outside India and post sales support and installation services could not be naturally bundled as post sale service is dependent on there being a supply from client located outside India to the end consumer in India. This was therefore held not to be composite contract with the pre-sales promotion and related service being regarded as intermediary services owing to service provider in India acting as agent of foreign principal and engaging in
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
ned on the basis of facts and circumstances of each case. However Circular 52/26/2018 GST dated 9th August 2018 seeks to take a definitive stance on the bus body building activity undertaken by fabricator for principal who sends the chassis, by classifying it as a service and taxing it as such. Similarly, we have two advance rulings which contradict each other. In Re: M/s Paras Motor Industries (2018 (7) TMI 1422 Authority For Advance Rulings Haryana), the Authority held bus body building activity to be supply of bus body and activity of fitting/mounting of bus body on chassis being ancillary activity to the principal activity of supply of bus-body. Hence, in terms of the clarification issued by the CBEC vide circular No.34/8/2018-GST dt. 01.03.2018, the activity was held to be a composite supply, with principal supply being supply of bus-body. In Re: Arpijay Fabricators Pvt. Ltd (2018 (8) TMI 284 Authority For Advance Rulings Madhya Pradesh), the Authority disagreed with the contentio
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
owed the view that body building on chassis supplied by principal under FOC challan would be service and taxed at 18% while body building on own chassis would tantamount to supply of bus and taxed at 28% Supply of battery with UPS Where an Uninterrupted Power Supply is supplied along with battery there could be a case for regarding the same as a composite supply as UPS cannot function without a battery. However, In Re: M/s Switching Avo Electro Power Limited (2018 (8) TMI 1071 Appellate Authority For Advance Rulings West Bengal) the Appellate Authority has held that when the battery is supplied separately with UPS, the same cannot be considered as composite supply or naturally bundled supply. The Appellate Authority was of the view that when a UPS is supplied with built-in batteries so that supply of the battery is inseparable from supply of the UPS, it should be treated as a composite supply and as a composite machine. Whether or not a composite machine can be equated with a composite
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
kandey Katju Published by Thomson Reuters), double meaning cannot be attached to a word or sentence occurring at one and same place to bear both literal and metaphorical senses at the same time. This could mean composite supply not being capable of being equated with composite goods. Supply in the course of works contract execution While the test for determining whether or not a contract could be construed as works contract has been laid down by the Supreme Court in M/s Kone Elevator India Pvt. Ltd Vs State of Tamil Nadu & Others (2014 (5) TMI 265 Supreme Court) and in M/s Larsen & Toubro Limited & Another Vs State of Karnataka & Another (2013 (9) TMI 853 Supreme Court) and this could be followed by readers, there have been few Advance Rulings under GST in the context of classification of supplies under turnkey contracts. In Re: Vihaan Enterprises (Swati Dubey) (2018 (9) TMI 546 Authority For Advance Ruling Madhya Pradesh), agreement for constructing a Pooling Sub-stati
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nd one for service as the implementation schedule also included erection, testing and commissioning of plant. The fact that resulting property was immovable in nature and until date of final acceptance all risk of loss was with supplier and not customer, was also relied upon to arrive at the conclusion. In re: M/s R.B Construction Company (2018 (6) TMI 559 Authority For Advance Rulings Gujarat) contract for supply, laying and testing and commissioning of pipeline was held to be works contract as after laying the pipeline underground, these could not be removed without damaging them. In Re: EMC Ltd (2018 (5) TMI 964 Authority For Advance Ruling West Bengal), the importance of cross fall breach clause in determining nature of contract was established. This clause specifies that breach of one contract will be deemed to be a breach of the other contract, and thereby turn them into a single source responsibility contract. This would mean even if a contract is split into two so as to have on
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
(2018 (6) TMI 111 Authority For Advance Ruling Karnataka), three agreements covering Supply of Materials, Erection & Civil Works respectively awarded to the applicant in response to a single tender notification with the general terms and conditions being commonly applicable to all the three agreements was held to be indivisible and works contract as the applicant was supplying the material and providing the erection of towers service and also civil works service. Consultancy services and reimbursements In re: EGIS India Consulting Engineers (P) Ltd (2018 (8) TMI 283 Authority For Advance Ruling Madhya Pradesh), reimbursements of costs on goods procured on behalf of recipient (viz., laptop, desktop, refrigerator, furniture etc.) for providing project management consultancy services under PMAY scheme to State/Urban Local Bodies from the recipient based on actual cost, was held not to disentitle Applicant to benefit of exemption on the concerned service as such reimbursements at actu
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
e of equipment and provision of computer education services for 5 years in Govt, and Govt. aided high schools of Odisha in the state of Odisha was held to be composite supply of goods and services not naturally but artificially bundled and not contract for training programme for any possible exemption. Renting of immovable property and additional services In the European Union where the lease agreement for letting out immovable property also provided for services of water, heating, security, cleaning of premises, repair of structure and machinery at additional charges with a stipulation that non payment of such charges by tenant/lessee would result in landlord getting the right to terminate the lease, the arrangement was seen to constitute a single supply (Field Fisher Waterhouse LLP Vs Commissioners For Her Majesty s Revenue & Customs (In Case C-392/11) (Judgement of The Court (Sixth Chamber)) ECLI:EU:C:2012:597). The court further held that scenario would not change even where th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =