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2019 (1) TMI 1489 - AAR - GSTClassification of services - Packing of tea bags - rate of GST - composite supply - principal supply - whether the Applicant’s services to HUL are classifiable as packaging service or manufacturing service or both? - Held that:- Consuming tea contained in a tea bag does not require the tea leaves to be taken out of the bag. The tea bag itself is dipped in water, as the bag is porous and is filled with tea leaves. Tea bags, therefore, are distinct from tea leaves, offering a user friendly way of making the beverage. Tea bag pouch is, therefore, not a packaging material, but an input required for manufacturing tea bag as a commercial item separate from blended tea leaves. It is a new product having a distinct name, character and use, and classified as such under Tariff item 0902 40 40 - It is evident, therefore, that the Applicant’s service to HUL for manufacturing tea bags is service for manufacturing a product classified under Tariff item 0902 40 40, where physical inputs are owned by the recipient - The supply is, therefore, to be classified under SAC 9988 and taxed under Sl No. 26(f) of the Rate Notification. The two services (service for manufacturing tea bags and the service for packaging of the manufactured tea bags) are supplied in terms of a single contract and at a single price (as may be ascertained from the invoices). The flow chart shows that the services are supplied as processes in a continuous assembly line, where packaging of tea bags in cartons and wrapping is ancillary to manufacturing tea bags. The tea bags, of course, cannot be delivered unless they are suitably packed. The Applicant is, therefore, making a composite supply to HUL where the service of manufacturing tea bags from the physical inputs owned by HUL is the principal supply. Ruling:- The Applicant makes a composite supply to Hindustan Unilever Ltd, where the service of manufacturing tea bags from the physical inputs owned by the latter is the principal supply. It is classifiable under SAC 9988 and taxable at 5% rate under Sl No. 26(f) of Notification No. 11/2017–CT (Rate) dated 28/06/2017, as amended from time to time. Applicability of this Ruling with respect to other recipients is subject to the specific nature of the contracts with them.
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