News Update

For rains-ravaged Kerala 'relief' calls pour in; Customs explains proceduresMultiple personality Order - Implications and way forward!Customs Brokers and their woesST - Respondent cannot take shelter under a faulty software programme when they themselves handled system - Penalty u/s 78 of FA, 1994 wrongly set aside by CESTAT: High CourtBudget Allocation of Rs 2875 Cr - CBIC not happy with trend of spending less!I-T - Once trademark acquired is used for selling products, its eligibility for depreciation cannot be questioned, simply because trademark is not put to use for manufacturing activities: HCRecasting base year for GDP - Govt mulling over various alternativesFlood-battered Kerala - Cabinet Secretary-headed NCMC calls for shifting focus on supplies of food, water, medicines, power, fuel and telecom servicesIndia successfully test-fires 'Helina', copter-based anti-tank guided missile + also test-fires guided bombs smart anti-airfield weapon systemGovt yet to firm up mind for back-casting of GDP series; Various alternatives under considerationMulti-modal transport - TIR Convention comes into forceJalandhar CGST Commissionerate is first to become e-OfficeAadhaar Regulator to launch phased introduction of face recognition features from Sept 15Walmart wraps up Flipkart acquisition formalities; Current management to run operationsFormer UN Chief Kofi Annan passes away at 80DRI, Police & para-military forces seize 78 drums of ganja, heroin & tabletsKerala CM says worst flood in 100 years; PM announces Rs 500 Cr immediate reliefWorld Humanitarian Day - UN urges global leaders to protect people caught in conflictST - Tribunal has relied upon speech of Finance Minister for holding that assessee was not liable to pay tax without discussing relevant provisions of law/notifications - Matter remanded: HCAdvance Ruling - a nightmare for taxpayers?I-T - Exemption u/s 10(23C)(iv) can be claimed only to the extent of actual income and not for accumulated income: ITATSection 197 Certificate - CBDT proposes to amend Rules to make it electronicImport of Pet Coke allowed for only cement, lime kiln, calcium carbide and gasification Industries, when used as feed stock/manufacturing process on Actual User ConditionCBDT puts in abeyance controversial clauses relating to GAAR & GSTEvery 1% growth in mining industry soars up industrial production index by 1.5%, says FICCIRailways launches 'Digital Screens' at 22 Stations
 
Composite SupplyľIs test of indivisibility valid test?

 

MAY 15, 2018

By Satya Sai

SECTION 8(a) of CGST Act determines the tax liability in case of composite supply. As per Section 8(a) of CGST Act, composite supplys hall be treated as supply of principal supply. Therefore, the classification and rate for composite supply would be determined based on principal supply.

As per Section 2(30) of CGST Act,the following conditions are to be satisfied in order to treat a supply as "Composite Supply":

1. The activity should consist of two or more taxable supplies of goods or services or both, or any combination thereof,

2. All those supplies are naturally bundled and

3. These are supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Para 3 of e-version of GST flyers issued by CBIC on Composite and Mixed supplystates as follows regarding ‘natural bundling of supplies':

“Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below:

- The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business .

- 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.

- 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 that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business.

- Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are –

- There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

- The elements are normally advertised as a package .

- The different elements are not available separately.

- The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.

"No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above."

The above principles explained in the light of what constitutes a naturally bundled service can be gainfully adopted to determine whether a particular supply constitutes a composite supply under GST and if so what constitutes the principal supply so as to determine the right classification and rate of tax of such composite supply."

The indicators above are similar to the tests applied for determining whether services are naturally bundled or not under erstwhile service tax regime [Para 9.2.4 of Service Tax Education Guide refers] .

However, recently, a question has come up before the Hon'ble West Bengal Authority for Advance Ruling in the case of Switching Avo Electro Power Ltd - 2018-TIOL-05-AAR-GST that whether supply of UPS along with battery would be treated as composite supply as per Section 2(30) of CGST Act, 2017 / WBGST Act, 2017. The Hon'ble West Bengal Authority for Advance Ruling held that goods are naturally bundled in a supply contract if the contract is indivisible . For example, a works contract within the meaning of section 2 (119) of the GST Act is a composite supply. Steel, cement and other goods and services supplied are inseparable in a contract for civil construction. The recipient has not contracted for the supply of steel, cement or architectural service, but for the service of constructing the civil structure, where all these supplies are inseparable and, therefore, naturally bundled. The contract for the supply of a combination of UPS and battery, if not built as a composite machine, is not indivisible. The recipient can split it up into separate supply contracts if he chooses. The goods supplied in terms of such contracts are, therefore, no longer naturally bundled and cannot be treated as a composite supply.

From the above ruling, it appears that if any transaction comprising of two or more taxable supplies, then such transaction would be treated as composite supply only when such supplies are indivisible in nature, which is not stipulated under CGST Act or under the indicators mentioned above.

On the other hand, independently applying the above tests to the facts of the ruling, the following result may emerge:

- Large number of service receivers reasonably expect that the person supplying UPS also supplies battery required for such UPS.

- Majority of service providers also supply UPS along with battery.

- In many cases, UPS and battery are advertised together.

Therefore, from the above results, it can be argued that supply of UPS along with battery would be treated as composite supply. However, the Hon'ble Advance Ruling authority has applied a test of indivisibility and held that it is not composite supply.

At this juncture, it is relevant to note the illustration mentioned under definition of composite supply in the CGST Act which is as follows:

"Illustration.- 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."

The above example involves various supplies viz., goods, packing materials, transportation, insurance. It can be observed that all these supplies are divisible and can be contracted for separately with different parties. This fact does not preclude classification of the above supplies as composite supply. Therefore, in author's view, the test of indivisibility applied by the West Bengal Advance Ruling Authority for determining whether supplies are naturally bundled, may not be in line with the intention flowing from the provisions of CGST Act.

(The author is Principal Associate, Lakshmikumaran & Sridharan, Hyderabad and the views expressed are strictly personal.)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

POST YOUR COMMENTS
   

TIOL Tube Latest

Legal Wrangle | GST | Episode 80

What's New

CGST Rule Notification
CGST Rate Notification
CGST Circular
IGST Rate Notification
UTGST Rate Notification
Cess Rate Notification
Income Tax Notification
Income Tax Circular
CBDT Order - IT Return  
Customs Tariff Notification
Customs NT Notification
Customs Circular
Anti Dumping Notification
Excise - Instruction  
Service Tax Circular
DGFT Notification
DGFT Public Notice
DGFT Circular
RBI Circular

TAXATION & WILDLIFE



wso shell wso shell Indoxploit Shell wso shell hacklink hacklink satışı hacklink deface mirror hacklink satış wso shell