2019 (3) TMI 656 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – TMI – Liability of GST – principal supply of the composite supply qua maintenance contracts executed between the customer and the Applicant – Held that:- The main purpose behind executing the contract is to keep the engines unimpaired and operative at all times for which a fixed price has been decided for the AMC. In order to provide immediate services to the customer and to keep the minimum downtime of the engines, the Applicant has engaged dealers who inter-alia provide maintenance services to the customers on behalf of the Applicant – The goods, material, spare parts, etc. are required to be supplied only when necessary i.e. when, during the course of maintenance services it is found by the skilled personnel that there is a need for such parts which will effectively keep the runtime of the DG Sets at maximum acceptable time.
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A composite supply means that there is a supply of two or more goods or services together
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ipal supply in the transaction before us is supply of service, then the place of supply is required to be determine. The place of supply would be determined in terms of the default Section 12(2) of the IGST Act which states that the location of the recipient would be the place of supply.
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Since the supply of maintenance service in the present case is for a single price with supply of spare parts/goods as and when required, the supply of both, goods and services are made in conjunction with each other in the ordinary course of business and therefore considering the provisions of the GST Laws, the supply of services/goods in the present case is naturally bundled, with the supply of goods being incidental to the supply of services and therefore such contract are to be considered as a composite supply of service where the principal supply is service and the supply of goods is incidental to such supply of service.
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Thus, the principal supply in the present case between the applica
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e 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 thus- STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED 1. This Application is being preferred by Cummins India Limited, Maharashtra ( Applicant/ Company'), a company incorporated in India under the provisions of the Companies Act, 1956 having its registered office at Cummins India Office Campus, Survey No. 21, 5th Floor, Tower A, Balewadi, Pune-411045. 2. The Applicant is engaged in providing goods and services which qualify as 'supply' as per provisions of the Central Goods and Service Tax Act, 2017 ( CGST Act ) and is duly registered thereunde
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To carry out preventive maintenance; – Routine maintenance – To check safety controls; – General inspection of parts; – Supply of consumables; – Other repairs and replacements. As per terms of the AMC agreement between the customer and the Applicant, the Applicant is responsible to upkeep the engines in good working condition by undertaking regular maintenance. In order to provide immediate services to the customer and to keep the minimum downtime of the engines, the Applicant has engaged dealers which inter-alia provide maintenance services to the customers on behalf of the Applicant. If in the course of providing the maintenance services, the dealer is required to utilize consumables, parts etc., it can do so at his discretion (i.e: without any prior permission of the Applicant or customer) and the value for such parts or consumables are recovered from the Applicant under AMC. 6. These goods, consumables etc. required for undertaking activities referred under AMC are made available t
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ing of maintenance services along with supply of necessary parts, it is necessary to analyze the definition of 'works contract' as given in Section 2(119) of the CGST Act. Relevant extract of the same is reproduced below for ease of reference:- (119) works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; 2.2. On perusal of the above definitions, it can be stated that repair and maintenance relating to any immovable property would fall under the ambit of 'works contract'. In the present facts, the Applicant is engaged in providing repair and maintenance in respect of engines which are movable in nature and hence, it would not be considered as 'works contract'. T
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ss. 2.4. In the present facts, the AMC covers in its scope the services of maintenance and supply of parts/consumables as may be required. Mere supply of parts/consumables does not fulfill the requirement of the customer unless the same is appropriately used by the professional expert. Consequently, supply of service and parts is considered as naturally bundled and intrinsically linked with each other to effectively perform the obligations as stipulated under AMC. Given the fact that both the conditions as prescribed under Section 2(30) of CGST Act have been fulfilled, the underlying transaction constitute as a 'composite supply'. 2.5. It is further submitted that once any 'supply' qualifies as 'composite supply' then in view of Section 8 of the CGST Act, the tax structure applicable thereto including determination of assessable value, classification, tax rate etc. needs to be determined with reference to the principal supply comprised thereunder. The term '
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goods follows as a part and parcel of providing the maintenance service comprehensively. In such a case, supply of maintenance service appears to be the dominant intention of the scope of services as envisaged under AMC and thus supply of maintenance service partakes the character of a 'principal supply'. 2.8. At this stage, it would be relevant to refer the past judicial precedents which inter alia discuss the dominant intention of the transaction to decide the taxability of the same under erstwhile regime. Reference is made to the Supreme Court Ruling in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Purushottam Premji [(1970) 26 STC 38 (SC)] = 1970 (4) TMI 127 – SUPREME COURT OF INDIA wherein some of the tests were evolved to determine taxability of the contract. Relevant extract of the judgment is reproduced below for your easy reference:- The primary difference between a contract for work or service and a contract for sale of goods is that in the former there is
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g, servicing, repairing, overhauling of aircrafts, their instruments and accessories. In this regard, the Court held that the activity undertaken by the Appellant is in the nature of service and accordingly not liable to sales tax. M/s. Rainbow Colour Lab & Anr. Vs. The State of Madhya Pradesh & Ors (MANU/SC/0061/2000) = 2000 (2) TMI 2 – SUPREME COURT OF INDIA The Appellant is engaged in taking photographs, developing and printing films. In this case, it was held that property passing on to the customer in the form of photographic paper is only incidental to the service contract. This activity cannot be subjected to sales tax. M/s. Everest Copiers through R.A. Partner, etc. Vs. The State of Tamil Nadu [MANU/SC/0671/1996] = 1996 (7) TMI 482 – SUPREME COURT OF INDIA The Appellant is engaged in the business of photocopying. It was decided that the contract between the Appellant and the customer is a contract of work or service, not a contract of sale. 2.10. Accordingly, in the pre
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ich substantiates that the purpose of the contract is that of providing services, Relevant clauses are provided below: Maintenance Agreement This Comprehensive Annual Maintenance Contract for DG sets (installed at various locations Of. HDFC Bank limited – Pan India as per Annexure I) is made on this 1st day of April 2017 at Pune by and between: …………………… 1(b) Penalty Further, CUMMINS has expressly agreed that it shall employ its best efforts and provides all necessary resources to perform its services and maintain an uptime of 92% per annum of the DG sets installed at the bank's premises. CUMMINS shall discuss and review the progress and status of the current/and all assignments, on a regular basis as agreed and in addition as and when required with the Bank Failing which the Bank, will decide for location/DG set specific (as the case may be) penalty to be levied @ 10% of AMC amount payable/paid under. Annual Maintenance Contract in respect of assets installed at suc
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hind executing the contract is to keep the engines unimpaired and operative at all times. The same can be substantiated by the following:- Primary obligation of the Applicant is to ensure that equipment is in working condition at least for minimum specified period; In case of major repairs or downtime of the DG sets, the Applicant is required to provide DG set on rental basis to the customer so that there would not be any disturbance to the customer's operations; The Applicant is liable to pay penalty to the customers in case they are not able to up-keep the machine for minimum period of time as prescribed in the agreement; Supply of consumables and small parts such as filters, hoses, gaskets are covered in the contract; Replacement or supply of major parts of the machine are specifically excluded from the scope of contract. Fixed price has been decided for the AMC. 2.13. It is settled position: that intention of the contract is required to be understood in terms of the clauses of
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n is service; place of supply would be determined in terms of the default Section 12(2) of the Integrated Goods and Services Tax Act( IGST Act ) which states that the location of the recipient would be the place of supply. Relevant portion of the Section is reproduced below:- (2) The place of supply of services, except the services specified in sub-sections (3) to (14),- (a) made to o registered person shall be the location of such person; (b) made to any person other than a registered person shall be, (i) the location of the recipient where the address on record exists, and (ii) the location of the supplier of services in other cases. 2.16. Further, the location of the supplier of service would be determined as per the definition provided under Section 2(15) of the IGST Act which is as under: location of the supplier of services means,- (a) where o supply is made from a place of business for which the registration has been obtained, the location of such place of business; (b) where a
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stomers are located in Maharashtra, the Applicant is charging CGST and SGST. IT IS SETTLED POSITION THAT 'SERVICE' FORMS PRINCIPAL SUPPLY OF AMC TRANSACTION 2.19. We would like to refer to the Advance Ruling pronounced by the Uttar Pradesh Advance Ruling Authorities on identical issue on May 16, 2018 wherein it has been held that AM transactions is composite supply and service forms a principal supply thereunder: Relevant portion of the Ruling is reproduced below for your easy reference: a) Whether supply of comprehensive annual maintenance service which may also involve incidental supply of spare parts/ goods should be classified as a composite supply or mixed supply? Ans. -Since the supply of maintenance service is for a one and fixed price with or without supply of spare parts/goods and supply of service and goods is made in conjunction with each other in the ordinary course as per maintenance contracts, this maintenance service to the extent of presence of all the necessary
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er referred Ruling, Applicant submits that 'service forms principal supply of AMC. 3. PRAYER In view of the submissions, it is most humbly prayed that Hon'ble authorities may kindly pass a ruling to clarify that AMC's are in the nature of 'composite supply' of which service forms principal supply. 03. CONTENTION – AS PER THE CONCERNED OFFICER The submission, as reproduced verbatim, could be seen thus- BRIEF FACTS OF THE CASE Applications made by M/s Cummins India Ltd. (hereinafter referred as the applicant ) vide their letters dated 26.07.2018 are examined and it is noticed that the applicant have made two applications seeking advance ruling on three issues. Comments on their application are as under: I. Determination of Principal Supply The applicant stated that they are engaged in the business of manufacturing diesel and natural gas engines and also engaged in distribution business which provides after sales services to its customers which includes supply of spare
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e, as defined, the predominant element of a composite supply can be determined on the basis of conditions of the supply agreements (in this case Annual Maintenance Contract). The applicant has been requested to submit a copy of the AMC for examination of the case. The applicant submitted copy of Maintenance Agreement between HDFC Bank Limited and them wherein the obligations of the applicant is to ensure the uptime of equipment to an extent of 92 percent per annum and will provide services like four preventive visits per annum, maintenance of DGE SET as per manufacturer standard practices wherein all other parts and repairs shall be charged at actual. They also carry out supply of all maintenance consumables, periodic maintenance and troubleshooting in engines and alternators. Also, in their application, at para 2.11 the applicant submitted text of a portion of the AMC agreement which explains the obligations of Cummins under the maintenance agreement which is reproduced as under: Part
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g:- I. Primary obligation of the applicant is to ensure that equipment is in working condition at least for minimum specified period; II. In case of major repairs or downtime of the DG sets, the Applicant is required to provide DG set on rental basis to the customer so that there would not be any disturbance to the customer's operations; III. The applicant is liable to pay penalty to the customers in case they are not able to up-keep the machine for minimum period of time as prescribed in the agreement; IV. Supply of consumables and small parts such as filets, hoses, gaskets are covered in the contract; V. Replacement or supply of major parts of the machine are specifically excluded from the scope of contract. VI. Fixed price has been decided for the AMC. In view of the above and the fact mentioned in the copy of the Maintenance agreement submitted to this office, it appears that the predominant element of supply under AMC is supply of service. 04. HEARING The case was scheduled fo
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plicant has submitted that they are engaged in the business of manufacturing diesel and natural gas engines which is supplied to their end customers. They also provide after sales services to their customers on account of engines supplied by them and also by various other parties, which includes supply of spare parts, maintenance services, rebuilding of engines and batteries. The applicant has submitted two agreements entered into with M/s HDFC bank and M/s Yes Bank. They have also submitted a correspondence received from M/s BEML Limited for Work Order to execute the Guaranteed spares and availability contracts for 18Nos. QSK 19C Engines fitted on BH160M Dumpers a/c CCI . We find that the applicant executes an Annual maintenance Contract ( AMC ) with end customers to provide maintenance services, which helps in keeping customer's engines in a good working condition. These services are provided for a fixed charge based on the nature of maintenance activity that may be required, whi
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is to keep the engines unimpaired and operative at all times for which a fixed price has been decided for the AMC. In order to provide immediate services to the customer and to keep the minimum downtime of the engines, the Applicant has engaged dealers who inter-alia provide maintenance services to the customers on behalf of the Applicant. Considering the factual position narrated in Para 2.12 above, it is also submitted that the dominant intention of the activity would be considered as service where skill is important rather than supply of goods and the skill is supplied by the dealers who use competent engineers to perform the services mentioned in the contract. The goods, material, spare parts, etc. are required to be supplied only when necessary i.e. when, during the course of maintenance services it is found by the skilled personnel that there is a need for such parts which will effectively keep the runtime of the DG Sets at maximum acceptable time. Now, to arrive at a decision,
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as prescribed under Section 2(30) of CGST Act have been fulfilled, the underlying transaction constitute as a 'composite supply'. The agreements also reveal that the applicant is engaged in providing repair and maintenance in respect of engines which are movable in nature and hence, it would not be considered as a Work Contract 'since works contract under the GST laws envisages immovable property wherein transfer of property in goods is involved in the execution of such contract. Now that we find that there is a rendering of composite supply we need to find out as to what is the principal supply in this case, whether it is a supply of goods or supply of services. Therefore we refer to the definition of the term 'principal supply' which is defined under Section 2(90) of the CGST Act and is as under:- (90) principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part o
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s considered i.e in this case the place would be Maharashtra where the applicant is registered. To sum up, since the supply of maintenance service in the present case is for a single price with supply of spare parts/goods as and when required, the supply of both, goods and services are made in conjunction with each other in the ordinary course of business and therefore considering the provisions of the GST Laws we find that supply of services/goods in the present case is naturally bundled, with the supply of goods being incidental to the supply of services and therefore such contract are to be considered as a composite supply of service where the principal supply is service and the supply of goods is incidental to such supply of service. 05. In view of the extensive deliberations as held hereinabove, we pass an order as follows : 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- 65/2018-19/B-161 Mum
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