TMI Blog2018 (12) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... and finishing of the said workwear. Thus applicant satisfies one of the conditions that is essential character of ‘Bundled Service’ of the composite supply - also, 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. 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 - the possibility of the present transaction being a composite supply is already ruled out, and the fall out is that the transaction qualifies as a mixed supply as defined in section 2(74) of the GST Act. Ruling:- The activities/transactions of renting of workwear qualify as “transfer of right to use” of goods in terms of entry 5 (f) of Schedule II of Central Goods and Services Act, 2017. The supply of renting of workwear along with other services such as transportation, weekly washing etc. for a single con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 thus- STATEMENT OF FACTS Background 3. Lindstrom Services India Private Limited ( Lindstrom India or Applicant Company ) is an Indian company incorporated under Companies Act in the year 2007 in New Delhi, Lindstrom India is a subsidiary of Lindstrom Oy , having head office at Helsinki, Finland which is engaged in renting of workwear, mat services, protective equipment, hygiene, restaurant textile and shop towel services in Europe and Asia, Notwithstanding the large scale of activities carried out by the parent entity (i.e. Lindstrom Oy), the Applicant Company (i.e. Lindstrom India) is engaged in limited range of business functions which are (i) renting of work wear (such as coats and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding other additional services to its customer on request of the customer and includes services such as (i) renting of 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 rental on per product (work wear) as per the price agreed between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Locker facility to the customer: Lindstrom India provides locker facility to its customer to keep the workwear safe in the lockers after their daily usage. Lockers are being deployed at the location of the customer by Lindstrom India. Lindstrom India charges a weekly additional price for providing locker facility to its customer. b. Sales of logo / badges: Lindstrom India provides services of stitching the logo of the customers on the workwear, Logos are purchased by Lindstrom India and are stitched to the workwear rented to the customer. For attaching the customer 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the business of the Applicant Company. It is specifically omitted that the explanation of the activities above is for the purpose of giving to this Hon ble Authority a holistic view of the business of the Applicant Company. However the Applicant Company is only seeking advance ruling for the following two scenarios i.e. (a). The services covered under B.I above and (b). Additionally in the case where locker facility as covered in Para 13 (a) above is provided to customers as part of the ancillary services covered in Para B.1 for a single consideration. Statement containing the applicant s interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant s view point and submissions on issues on which the advance ruling is sought). Applicant Company s interpretation of law 1. The Applicant Company submits the following amongst such other grounds that may be urged at the time of hearing of this application before this Hon ble Authority. The Applicant Company craves leave 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 neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 any cancellation or alteration that particular workwear cannot be sold to another customer. (d) During the possession of the workwear, the customer have exclusive rights to enjoy and use the workwear as per their requirements and desire and the Applicant Company has no right to prescribe any restrictions or limitations on enjoyment of the workwear by customers. The Applicant Company does not have rights to prescribe any manner, method or modalities of use of the workwear to the customers. Throughout the agreement tenure, the title of workwear remains with Lindstrom India. 8. Furthermore, the Applicant Company submits that the below table illustrating whether the activities of Lindstrom India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orkwear qualifies as transfer of right to use of goods. Without prejudice to the aforesaid. the transaction in relation to workwear amounts qualifies as supply of services under GST laws 11. Schedule II of the CGST Act lays down 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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; 19. In order to qualify as a composite supply following conditions are to be met: The supplies are naturally bundled; Supplied in conjunction with each other; and Supplied in the ordinary course of business. 20. Thus, to qualify as a composite supply, it needs to be analyzed whether the supply of services are so naturally bundled that the supply of said goods and services cannot be made separately or removal of any one 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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incidentally 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, Lindstrom India is providing renting of workwear along with the weekly washing. We understand that renting of workwear along with weekly washing and maintenance is service which is bundled in the ordinary course of business. d. Though there is no guidance provided by tax authorities on composite supply under GST laws (in the manner provided under erstwhile service tax laws), guidance under service tax regime may be considered for reference purpose to understand the intention of the lawmakers. Further, in addition to above various judgments unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 other additional services such as weekly washing, washing, locker facility, transportation etc. are provided in conjunction with the core service of renting of workwear to workers of the customers in useable condition. Thus, renting of workwear to customers appears to be the core service which give essential character to the bundled services. g. From a commercial perspective it would be more viable for customers to obtain the additional services from Lindstrom India which is inclusive of like weekly cleaning, sale of logo/ badges, transportation, locker facility, maintenance and repair etc. Therefore it would be a fallacy to say that the above mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility 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 consideration shall be leviable to GST at the rate applicable on the principal supply. Section 2 (90) CGST: Principle supply means the supply of goods and services which constitute the predominant eleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Applicant Company is a transfer of right to use of goods i.e. Workwear by the Applicant Company and the rate applicable on such services will be same as applicable on such workwear/ apparel keeping in mind the sales value which is less than INR 1000 in the case of Applicant Company. Therefore, the rate of tax applicable on services provided by Applicant Company should be 5% not 12%. 30. In case the above supplies by the Applicant company are not mixed supply of services, the taxability of the of such mixed supply of services is covered under section 8 of CGST Act and the relevant portion is reproduced as 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transfer of title thereof, is a supply of service. Entry 5(f) of Schedule II of CGST Act, 2017 states that (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. M/s. Lindstorm Services India Pvt Ltd provide workwear on rent to their customers. These work wear are tailor-made to the requirements of their customers. They also provide services of Washing, Maintenance Repair of these workwear on a weekly basis. The period of contract is 12 months and can extend for perpetuity. Besides, the rental is paid on a weekly basis. Then ownership of workwear rests solely with M/s. Lindstorm Services India Pvt Ltd. And they can take stock of the workwear at their customer s permises anytime. The workwear are identified by individual codes. In case of wear and tear, replacement is carried out at an additional fee and at the end of the contract, the workwear can be owned by the customers on payment of redemption charge. From the above, it is clear that for the period of the contract, the ownership of the workwear rests with M/s. Lind storm Services India Pvt Ltd. Onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 premises. For a supply to be considered as a Composite Supply, as per the Taxation of Services, an Education Guide, / 2012 dated 20.06.2012, issued by Central Bureau of Excise and Customs, an illustrative list of indicators could be : Whether 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituents will be applicable . 04. 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:- Question 1. What is the classification of the activities/transactions carried out by the Applicant Company as mentioned in the statement of facts (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing workwear qualifies as transfer of the right to use any goods for any purpose (whether or not for a specialized period) for cash, deferred payment or other valuable consideration and thus would be categorized as supply of services within the meaning of entry 5(f) of Schedule II of the GST Act. Question 2: 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that M/s. Drums Food International Pvt. Ltd. shall rent from M/s. Lindstorm Services India Pvt. Ltd. the workwear and Lindstorm engages in delivering, washing and servicing the workwear and taking care of the required replacement of the workwear in accordance with their purpose of use. Lindstorm owns the rented products and shall have the exclusive right to wash and service them. In order to understand the concept whether services are naturally bundled in the ordinary course of business we also refer to the Education Guide 2012 issued by the Board and as per the Education Guide indicators as given in respect of bundling of services in the 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction 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 For reasons as discussed in the body of the order, the questions are answered thus - Question 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 / transactions of renting of workwear qualify as transfer of right to use of goods (i.e. workwear) by the Applicant Company to its customers in terms of entry 5 (f) of Schedule II of Central Goods and Services Act, 2017 (CGST Act )? Alternatively, do these activities transactions qualify as transfer of right in goods in terms of entry 1 (b) of Schedule II of CGST Act? Answer :- Answered is in affirmative. The activities/transactions of renting of workwear qualify as transfer of right to use of goods in terms of entry 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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