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2021 (8) TMI 360 - AUTHORITY FOR ADVANCE RULING, TELANGANAClassification of supply - composite supply or not - rate of tax of the principal supply could be adopted for the whole of supplies or not - sale of LPG, Collection of Take or Pay Charges for not lifting minimum assured quantity and rental charges for supplier gas system installed at the customer premises to store the LPG which is a condition precedent for supply of LPG - supply/sale of LPG be treated as principal supply or not. HELD THAT:- The applicant is in the business of sale of LPG to industrial customers. They have installed Supplier Gas System (SGS) consisting of 30 Nos of LPG cylinders, Regulators, Primary pressure regulating systems, Vaporizers etc. As seen from the agreement a minimum quantity of LPG has to be necessarily purchased by the buyer. And if such minimum amount is not purchased they shall pay by way of commitment charges i.e., ‘Take or Pay’ Charges at the rate of ₹ 2900/MT of such shortfall in quantity. This amount Shall be paid once in a quarter. Composite supply is defined in the GST Act in Section 2(30) as follows “Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, 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. Take or pay contract - HELD THAT:- ‘Take or Pay’ contract is a contact which requires the buyer to either purchase and receive a minimum amount of product at a set or pay for this minimum without taking immediate ‘Take or Pay’ clauses in a contract ensure compensation for the seller in the event buyer does not purchase a specified quantity of goods or services in the course of a continuous supply. The Hon’ble Courts of India in a catena of cases held that ‘Take or Pay’ charges are meant to compensate for breach of a contract. In the case of applicant ‘Take or Pay’ Charges are evidently compensation for breach of contract and a penalty stipulated to be paid to the applicant by his buyer for not purchasing the minimum quantity specified in the agreement. Thus these charges come into existence only when there is no supply of LPG. That means supply of LPG and ‘Take or Pay’ Charges are mutually exclusive and can never exist together. The forbearance comes into existence only upon breach and hence the requirements of a composite contract mentioned above are not fulfilled. Thus, sale of LPG, Collection of Take or Pay Charges for not lifting minimum assured quantity and rental charges for supplier gas system installed at the customer premises do not form a composite supply - the question of supply/Sale of LPG be treated as Principal Supply do not arise at all.
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