In Re: M/s. Lindstorm Services India Private Limited
GST
2018 (12) TMI 1275 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (20) G. S. T. L. 671 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 15-9-2018
GST-ARA-43/2018-19/B-115
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act,
2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by Lindstrom Services India Private Limited, the applicant, seeking an advance ruling in respect of the following questions.
1. What is the classification of the activities transactions carried out by the Applicant Company as mentioned in the statement of facts (Annexure-I). In particular,
* Do these activities / t
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supply” for the purpose of section 2 (90) of CGST Act?
(ii) What will the applicable rate of GST?
(iii) Whether the conclusion (i.e. the transaction is a 'composite supply') will remain the same if in addition to the services covered in question no. 2 above Applicant Company also provides additional service of renting of locker as part of the same consideration?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act/ MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen th
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r the workwear to its customers on need basis.
3. At present, the Applicant Company has operations in multiple locations in India i.e. Faridabad, Panchkula (Haryana), Mumbai, Pune (Maharashtra), Hyderabad (Telangana), Vishakhapatnam (Andhra Pradesh), Chennai (Tamil Nadu), Kolkata (West Bengal), Bangalore (Karnataka), Tinsukia (Assam) and Vadodara (Gujarat).
Towards carrying out the aforesaid activities, the Applicant Company enters into agreements with its customers for leasing / renting of workwear and services ancillary to the renting of workwear such as transportation, weekly cleaning and repairs etc. of the workwear and other optional services such as lockers, modification etc.
5. Broad types of activities carried out by the Applicant are as follows:
Sr.No.
Type of activities carried out by the Applicant
Remuneration structure
1.
Renting of workwear
1. Weekly rental is charged for renting of work wear and ancillary Services.
2. Additional fees is charged
For any addition
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f locker, sales of logo(s) and nametag(s) and modification to the workwear etc. as per customer(s) specification. Lindstrom India chargers separate consideration for any additional service provided to the customer.
6. It is noteworthy that renting of workwear are usually long-term i.e. perpetual or for 12 months period and the same may be extended as per the mutual consent of the parties involved. It is also noteworthy that in the event of termination of the agreement between the customer and Lindstrom India, the customer will be liable to purchase all the garments that have been in use and the stock maintained for him.
7. In the below paragraphs we have discussed the business activities of the Applicant Company in detail.
B.1 Renting/leasing of workwear and other ancillary services provided for a single consideration
8. Renting of workwear is the main/ primary business activity undertaken by Lindstrom India. Lindstrom India provides workwear on rent to its customer against weekly
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ar. These equipment's are to be returned back to Lindstrom by the customer on termination of the agreement.
b. Lindstrom India is also providing services of weekly servicing of the workwear to its customer. Servicing of workwear includes washing, inspection, finishing and minor repairs of the workwear. Lindstrom India and its customer agree to workwear to a collection point which is in agreement of both the parties at a schedule time on weekly basis. In case after servicing of the workwear they are found to be not of the quality standards of Lindstrom India, Lindstrom India replaces such workwear
Note No. 1: – For the activities mentioned above in para B.1 Lindstrom India charges a single consideration from its customer on weekly basis.
Note No. 2: – In some other agreements Lindstrom India may also provide additional service of renting of locker as part of the service for a single consideration. Renting of lockers has been discussed in detail in point no. 11(a) of para B.2 bel
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stomer's logo on the workwear, the Applicant Company charges a fixed amount from the client.
C. Replacement/exchange of the workwear: In case the workwear provided to the customer become unfit for use due to normal wear and tear or customer wants to replace the workwear originally rented to him against a new collection of workwear having new improved design, Lindstrom India on the request of the customer replaces/ exchanges such workwear.
Lindstrom India charges redemption price from its customer for replacement of workwear. Price to be charged for such replacement keeping in mind the age of the workwear provided to the customer.
d. Modification of workwear: Lindstrom India offers services of modifications of workwear to its customer such as adding extra pockets to the garments, shortening of sleeves, addition of extra push buttons on the garments etc. alteration and modifications are done as per the specific requirement of customer. Alteration/ modification are chargeable additi
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quick wear.
* Product is lost while in the customer's possession.
* Product returned to the warehouse has undergone modifications requested by the customer, due to which it cannot be returned to its original form.
* Product returned to the warehouse cannot be rented further because of its condition
f. Changing number of garments: Customer may increase or decrease the number originally rented. The agreed number of workwear can be either be increased by placing additional order with the Applicant Company or decreased by returning the excess garments. In case, the service volume leased from the Applicant Company is reduced by more than 30% from the highest volume of the past 6 months, customer will be required to pay compensation to Lindstrom India in accordance with redemption policy.
g. In the above para we have explained/covered different types of business activities entered by the Applicant Company for your reference and/or understanding of the business of the Applicant
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eave to add, alter or amend all or any of the submissions mentioned above and to lead such oral and/ or documentary evidence as may be considered necessary.
Eligibility to file application for Advance ruling
2. In the present case, since the advance ruling is sought by the Applicant Company for the question covered by Section 97 and Section 98 of the CGST Act and MGST Act and also the said question is not pending or deiced elsewhere in the case of Applicant Company, it is submitted that the Applicant Company is eligible to file advance ruling and the instant application is admissible.
Transaction carried out by the Applicant Company in relation to renting of workwear amounts to “transfer of right to use” of goods
3. The expression “transfer of right to use” has been employed in Article 366(29A) of the Constitution of India and also under the erstwhile Value Added Tax legislations and under the provisions of the Finance Act, 1994 (in so far as they are relevant for 'Service Tax' pu
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of the agreement.
7. Based on above legal provisions, the Applicant Company respectful submits that the services of renting of workwear provided by it amounts to 'transfer of right to use of the workwear to respective customers, which activity / transaction is covered under entry 5 (f) of the schedule II of the CGST Act. This submission of the Applicant Company is based inter alia on following factual aspects:
(a) Ownership of the workwear remains with the Applicant Company throughout the contract but effective control and possession is transferred to respective customers,
(b) The Applicant Company has exclusive right to wash and maintain the workwear and maintaining inventory of workwear because the subject workwear are industrial products prepared based on specifications prescribed by each customer and needs to be washed and serviced industrially,
(c) Each workwear is designed and prepared specifically for a customer based on the desired specifications and size and in case of
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t
1.
Goods should be available for delivery
Yes. The workwear is available for delivery to customers
2.
There must be consensus ad idem as to the identity of the goods
Yes. The customer and the Applicant Company are aware of goods (being workwear), which are separately identifiable
3.
The transferee should have a legal right to use goods
Yes. The customers have sole legal right to use the goods
4.
For the period for which the transferee has legal right, it has the to be the exclusion of transferor
Yes. During the period such work wear are supplied by Applicant Company to the customers, such work wear can be exclusively used by the customers and the Applicant Company has no legal right over the workwear.
5.
Owner cannot again transfer the same right to others
Yes. During the term of the agreement the workwear cannot be transferred by Applicant Company to any other person as such workwear are stitched as per fitting of respective employees and therefore cannot be transferr
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own the activities to be treated as supply of goods or supply of services. Entry 1 (b) and Entry 5 (f) of Schedule II of CGST Act deals with transfer of right in goods without transfer of title and transfer of right to use of goods for any purpose for a consideration respectively. In both cases, the transaction shall qualify as supply of services. Relevant portion has been reproduced below:
“Schedule II- Activities to be treated as supply of goods or supply of service
1. Transfer
(b) any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of service
5. Supply of services
(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.”
12. Without prejudice to the aforesaid submissions, it is submitted that even if it is assumed for the sake of argument that the transaction undertaken by the Applicant Company falls short of a
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y identifiable.
15. Therefore, conferment by Applicant Company of rights to the customers to possess, control, use and in other identified ways enjoy workwear will qualify as 'transfer of right to use' of goods under Entry 5 (f) of Schedule II of CGST Act. Thus, in terms of Entry 5 (f), this transaction will also be considered as supply of service under GST laws. Even if the transaction do not qualify as 'transfer of right to use' of goods it is shall qualify as transfer of right in goods without transfer of title, which is also treated as supply of service under GST laws.
“Composite supply” V. “Mixed Supply” under GST laws
16. The taxable event under GST law is the supply of goods and services. Classification of a supply is essential to charge the applicable rate of GST on a particular supply. On a few occasions, certain transactions require supply of a combination of services or combination of goods or combination of both goods and services that maybe taxed at different GST rates
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ne or more supplies would render the entire supply ineffective. The discussion on service which gives the bundle its essential character and whether services cannot be separated follows.
21. The concept of composite supply as envisaged under GST laws is identical to the concept of bundled services existing under the erstwhile service tax regime. The term naturally bundled stems from the erstwhile service tax regime. As per service tax laws, a bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. In order to understand the concept and the principles to determine bundled services, reliance has been placed on Taxation of Services, an Education Guide 2012, dated 20 June 2012 issued by the Central Board of Excise & Customs ('Education Guide'). As per the Education guide, an illustrative list of indicators, not determinative but indicative of bundli
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Company workwear are mainly used from industrial purpose and customer (s) expect that ancillary services provided by the Applicant Company are expected to be provided as a package since such workwear are industrial products and are required to be industrially washed, maintained etc. Lindstrom India is having the required machinery and techniques to carry out such industrial washing etc.
b. Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. Lindstrom India is the market leader in providing such services and these services are provided by Lindstrom as a package to its customers therefore this condition will automatically get fulfilled,
C. The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such th
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of the lawmakers.
Further, in addition to above various judgments under European Union VAT laws have also clarified that a transaction compromising two supplies should be considered as supply of two or more distinct and independent supply or a single supply of service. In the case of Card Protection Plan Ltd. (“CCP”) v/s Commissioner of Customs and Excise Dated 25 February 1999 [case C-349/96] CCP along with services related to its credit card operations was providing services of insurance coverage of damage resulting from loss of credit card. In the above case European court of justice ('IECJ”) held that in order to determine whether the taxable person is supplying the customer with several distinct principle services or with a single service the essential features of the transaction must to ascertain. According to ECJ a supply would be considered as single supply of service where one of the element of the supply is considered as principle service and one or more element is regarded
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ideration for the same. Thus, in case of services provided by the Applicant Company to customers, it appears that the core service is renting of workwear gives the bundle its essential character. Intent of the arrangement between Lindstrom India and customers is renting of workwear for industrial purpose. Supplying the various heads of services that are ancillary to the renting of workwear by Lindstrom India is with the fundamental purpose of supplying the core service of providing workwear to its customers and maintain the same as per terms of the agreement.
f. The main/core services provided by Lindstrom India to customers appears to be of renting and maintaining of industrial workwear to customers. In other words, the aim of customers is to receive agreed number of workwear from Lindstrom India stitched and maintained as per agreed terms to be used by workers of the customers. Therefore, the renting of workwear provided by Lindstrom India appears to be bundle of services, where ot
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itional services i.e.. Weekly cleaning, sale of logo/badges, transportation, locker facility, maintenance and repair etc. are services naturally bundled with the principle supply of renting of workwear. The said services can be construed as ancillary services provided in conjunction with the principle service to render the main/ core service. However, the ancillary services are integral to one overall supply i.e. renting of workwear and cannot be separated from the main service. Therefore, the services qualify to be naturally bundled services provided in conjunction of each Other they will be covered under as composite supply under Section 2 (30) of the CGST Act.
Mixed Supply
23. As per section 2(74) Of the CGST “Mixed supply” has been defined as follows:
“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 su
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pany
25. The concept of taxability of bundled service were also covered in erstwhile regime under Section 66F (3) of the Finance Act 1994 (Service Tax Act). Relevant portion is reproduced below:
The taxability of a bundled service shall be determined in the following manner:
1. if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character;
2. if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax
26. Furthermore, taxability of composite supply is covered under section 8 of CGST Act. Relevant provision is reproduced below:
“Section 8 of CGST: – composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply and the whole cons
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ax applicable on the above services provided by Applicant Company would be that of goods involved in such services and in the case of the Applicant Company goods involved are clothes or apparel.
28. Further, it must be noted that rate of tax applicable on apparel/clothes is also dependent on the sales value or sales price of the goods in question which is elaborated as follows:
Goods
GST Rate
Articles of apparel and Clothing accessories, knitted or crocheted, of sale value not exceeding INR 1000 per piece
5%
If exceeding INR 1000 per piece
12%
Articles of apparel and clothing accessories, not knitted or crocheted, of sale value not exceeding INR 1000 per piece
5%
If exceeding INR 1000 per piece
12%
29. Keeping in mind the above section in the present case, since the primary activity of the Lindstrom India is renting of workwear which is predominant element of the services provided by Lindstrom India to its customers and other services provided along with renting of
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s follows:
“(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”
31. Therefore, in case the transaction of (a). Renting of workwear along with other ancillary services mentioned in Para B.1 or (b) Renting of workwear along with ancillary services and locker facility to its customer by the Applicant company for a single consideration is considered as mixed supply of services under GST, entire bundle of services shall be deemed to be against supply of service which attracts the highest rate of tax and accordingly the whole consideration shall become chargeable to GST at such highest rate.
PRAYER
In view of the foregoing, it is prayed that this Hon'ble Authority be pleased to hold, adjudge and declare its ruling on the matters covered as follows:
1. That the transfer of the workwear to its customer by the Applicant Company amounts to transfer of right to use goods;
2. That the services pro
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e has perused the documents provided by M/s. Lindstorm Services India Pvt Ltd as well as the previous records available on this issue. The reply to the questions raised by M/s. Lindstorm Services India Pvt Ltd is as follows:
Question 1 :
1. What is the classification of the activities/transactions carried out by the applicant company as mentioned in the statement of facts (Annexure-I). In particular,
i) DO these activities/ transactions of renting of work wear qualify as “transfer of right to use” of goods by applicant company to its customers in terms of entry 5(f) of Schedule II of CGST Act,
ii) Alternatively do these activities/ transactions qualify as “transfer of right in goods” in terms of Entry 1 (b) of Schedule II of CGST, Act?
Entry 1 (b) of Schedule II of CGST Act, 2017 states that:
Transfer
(b) an transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of service.
Entry 5(f) of Schedule II of CGST Act,
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ract, the ownership of the workwear rests with M/s. Lind storm Services India Pvt Ltd. Only the right to use the workwear is passed on their customers with a condition that the workwear should only be used for the purpose for which they were designed in the first place. The customers cannot sublet the workwear or use it for any other needs. Thus, this is not an absolute or un-conditional transfer of rights. Hence, this activity is more aptly categorized under Entry 5(f) of Schedule II of CGST Act, 2017 as this is transfer of the right to use the goods(workwear) for the said purpose (in this case) for a specified period (12 months or perpetuity) for a pre-determined consideration (weekly rent).
Question 2:
ii) What is the nature of the supply based on the facts and circumstances as mentioned in the statement of facts i.e. renting of work wear along with other services such as transportation, weekly washing etc. for a single consideration?
* Does this supply qualify as “composite su
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oes 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;
The services provided by M/s. Lindstorm Services India Pvt Ltd. are as listed below:
i. Renting of workwear
ii. Wash, maintenance & repair
iii. Transport of workwear including trolleys and transport of bags
iv. Lockers for storage of workwear
v. Modification of workwear as per specifications
vi. Sale of logo/ badges/ nametags Replacement or reimbursement of old workwear against a redemption charge.
From our records, it has also been observed that M/s. Lindstorm Services India Pvt Ltd provide services of Supply of Manpower (if need be) for the Management of lockers & workwear at the customer's p
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ing on board can be availed only if the air transport is availed. Without the latter, the former ceases to exist. Besides, due to lack of other options on board, the two services are naturally bundled.
(ii) Stay in a hotel combined with a service of laundering: Without the former the latter ceases to exist. The latter is not a standalone service and adds to enhance the quality of the former. Hence, the two services are naturally bundled.
Applying the same ratio decided to the case of M/s. Lindstorm Services India Pvt Ltd, it is evident that Washing, Maintenance and Repair of workwear is a standalone service and it is independent of the service of renting of workwear. There are many industries which offer only the services of Washing, Maintenance and Repair of clothes. As perused from our records, M/s Lindstorm Services India Pvt Ltd has also provided only “Washing Services in the past to one of their customers (namely Glaxo Smith Kline). Hence, it is evident that this bundling of s
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4. HEARING
The case was taken up for Preliminary hearing on DT. 18.07.2018 when Sh. Ankit Shah, applicant along with Ms. Mausumi Sarkia and Ms. Anjana Varma appeared and requested for admission of application as per contentions in their ARA. Jurisdictional Officer, Ms. Arpita, Asstt. Commissioner of CGST & CE, Belapur- IV, Division appeared and stated that she does not have any objection with respect to admission and made written submissions.
The application was admitted and called for final hearing on 23.08.2018, Sh. Tarun Jain, Advocate along with Sh. Ankit Shah, applicant Ms. Anjana Varma and Sh. Saurabh Chhadwa appeared and made oral and written submissions. Jurisdictional Officer, Sh. Sadanand Patnaik Asst. Commissioner, Belapur-IV, Division appeared and stated that they have already made written submissions.
05. OBSERVATIONS
We find that the applicant has raised questions as mentioned above on which advance ruling is sought. We now deal with the questions raised, as under:-
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urther states that applicant owns the rented products and shall have the exclusive right to wash and service them. We also find from the terms of the agreement that workwear is designed as per the fittings of every individual and further at the request of customer applicant fixes on the workwear with logos/ badges making the goods identifiable. The agreement also mentions that in the event either applicant or the customer withdraw from the agreement, the workwear remains the Applicant's property. The facts of the present case are similar to the facts in the judgment of Hon. High Court of AP in case of M/s. G.S. Lamba & Sons Vs. State of Andhra Pradesh reported as 43 VST 323 (AP) = 2011 (1) TMI 1196 – ANDHRA PRADESH HIGH COURT wherein petitioners agreed to provide five dedicated fleet of transit mixers and these dedicated vehicles were to be painted in a particular style and colour. The court held that during the period of contract for any third party, the goods as visible in use would
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s such as transportation, weekly washing etc. for a single consideration?
* Does this supply qualify as “composite supply” as per Section 2(30) of CGST Act?
* Alternatively does this supply constitute a “mixed supply” under Section 2(74) of CGST Act?
This question is about the nature of supply. From the terms of the contract as mentioned in earlier part, we find that the activities carried out by the applicant is renting of workwear, which we have declared as supply of services. Besides renting of workwear and as per the terms of the contract, ancillary activities such as transport of workwear, weekly cleaning, maintenance, repairs and finishing of workwear is carried out by the applicant. It is thus obvious that impugned transaction as envisaged by the contract consists of more than two taxable supplies of services. In view of this the applicant concludes that services provided by them such as renting of workwear and other ancillary services constitute composite supply as defi
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to justify their case, the applicant has strongly relied upon the 'Education Guide' issued by CBEC in the year 2012, wherein the concept of 'composite supply' has been explained.
We have already reproduced the same in the para 'Applicant's interpretation of law'. From the perusal of entire transaction as evidenced by the contract we find that the provision of renting of workwear is combined with provision of ancillary services such as transportation, weekly clearing, maintenance, repairs and finishing of the said workwear. Thus applicant satisfies one of the conditions that is essential character of 'Bundled Service' of the composite supply.
Applicant having satisfied one of the essential character of composite supply as mentioned above now examine whether these services are bundled in the ordinary course of business which is one of the essential character of supply. To answer this Question we have to refer to Object of the Agreement' at para 2 of the agreement made between M/s. Nutr
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le separately
* The different elements are integral to one overall supply – if one or more is removed, the nature of supply would be affected.
The above principle can be adopted to the facts of the present case to determine whether impugned supply is a bundled services in the ordinary course of business.
From the perusal of object of agreement we find that services other than renting of workwear are being supplied not in the ordinary course of business but under the compulsion imposed by the applicant on the customer. Further we find that services such as washing, maintenance and transportation etc. are standalone services and are normally available separately. We agree with the jurisdictional officer that all so called ancillary services are independent of the service of renting of workwear and that there are many service providers who offer specific service such as washing, maintenance and repair of cloths. Applicant has also provided 'Washing Services' in the past to one of th
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ed supply if these items are supplied separately;
Thus, in order to identify, if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be mixed supply. Further we find that customer pays single price under single invoice for the package of services. We have already ruled out the possibility of the present transaction being a composite supply, and the fall out is that the transaction qualifies as a mixed supply as defined in section 2(74) of the GST Act.
06. In view of the deliberations as held hereinabove, we pass an order as under:
ORDER
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO.GST-ARA-43/2018-19/B-115
Mumbai, dt. 15.09.2018
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tement of facts (Annexure-I) i.e., renting of workwear along with other services such as transportation, weekly washing etc. for a single consideration? In particular,
* Does this supply qualify as “composite supply” as per section 2 (30) of CGST Act?
* Alternatively, does this supply constitute a “mixed supply” under section 2 (74) of CGST Act?
Answer: – The supply of renting of workwear along with other services such as transportation, weekly washing etc. for a single consideration is a mixed supply under section 2 (74) of CGST Act.
Question 3. In the event the answer to question (2) above is that the transaction undertaken by the Applicant Company qualifies as 'composite supply',
(i) What will be the “principle supply” for the purpose of section 2 (90) of CGST Act?
(ii) What will the applicable rate of GST?
(iii) Whether the conclusion (i.e. the transaction is a 'composite supply) will remain the same if in addition to the services covered in question no. 2 above Applican
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