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TMI Blog2019 (3) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... erence 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 thereunder bearing GSTIN 27AAACC7258B1zW, 3. The Applicant is inter alia engaged in the business of manufacturing diesel and natural gas engines and this business can broadly be bifurcated as follows:- * Engine business - It manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case may be, in respect of the aforesaid question(s) 1. ISSUE FOR DETERMINATION Determination of GST liability by deciding principal supply of the composite supply qua maintenance contracts executed between the customer and the Applicant. OUR SUBMISSIONS SUBJECT TRANSACTION IS A COMPOSITE SUPPLY COMPRISING OF SERVICE AS 'PRINCIPAL SUPPLY' 2.1. As the underlying transaction involves rendering 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e predominant element of a composite supply and to which any other supply forming part of that composite apply is ancillary;" 2.6. On scrutiny of the above referred definition, it is submitted that principal supply basically signifies the supply of goods/services that form a substantial or a predominant element of a composite supply and all other related supplies are ancillary in nature. Accordingly, in order to decide the taxability of the underlying transaction, it is important to determine the 'principal supply of the transaction i.e. dominant intention behind the contract. 2.7. It is submitted that even though the AMC covers rendition of service as well as supply of goods in its scope, the very intention of the Applicant is to provide the maintenance services (i.e. upkeep the machine) and as such supply of 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 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 present facts, it is submitted that there is no intention of transfer of property in goods to the customer. The engines on which maintenance activity is being carried out by the Applicant belongs to the customer itself. Further, the maintenance contract has been executed by the customer to avail the services of professionals who are expert in the field of maintenance of the engines attached to the machines such as gensets, excavators, dumpers etc. It is submitted that the intention of an annual maintenance agreement is to ensure that systems/machines should function properly. Maintenance of the machines helps to extend the life of the machine, maximize the energy efficiency of the equipment and eliminate unexpected system failure. Such AMC's are generally executed to stop larger failures by periodic and systematic inspection and necessary overhauling of the equipment. 2.11. in this regard; we would like to refer the clauses of the contract execute between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 the agreement. Considering the factuat 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. The same can be corroborated by the following facts:- * Mere availability of parts/components, in absence of an engineer competent to use this, neither suffices the customer's requirement nor discharges Applicant from its obligation under AMC; * Applicant's obligation under AMC had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he customers are located outside Maharashtra, the Applicant is charging 1GST. On the other hand, where the customers 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 ingredients cited in the legal provisions quoted supra, is naturally, bundled with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falls under 'composite supply' as it consists of two or more taxable supplies of goods or services or both and hence, the applicable tax structure is to be determined with reference to the principal supply comprised there under. As per the definition of 'principal supply' defined under Section 2(90) of the CGST Act, 2017 means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. Hence, 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. Rohit Jain, Advocate along with Sh. Narender Vaidya, DGM Taxation appeared and made oral contentions for admission of application as per contentions in their ARA application. Jurisdictional Officer Sh. B. K. Mishra, Supt., Pune II, CGST Commissionerate appeared and stated that they would be making submissions in due course. The application was admitted and called for final hearing on 27.11.2018, Sh. Rohit Jain, Advocate along with Deepak L Bahirwani, Tax Director-Cummins India Group, Group CFO's Officer and Sh. Vivek Baj, C.A. ELP appeared and made oral contentions as per details submitted by them. No one from the side of the department was present. 05. OBSERVATIONS We have gone through the facts of the case. The issue put before us is in respect of the agreement entered into, by the applicant with their clients, the salient features of which have been enumerated above by both, the applicant as well as the jurisdictional officer. The Applicant 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, we first of all will refer to the definition of 'composite supply which is given in Section 2(30) of the CGST Act, 2017 and is reproduced below:- "(30) "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;" Thus it is clear that a composite supply means that there is a supply of two or more goods or services together and such goods or services are provided together in the normal course of business. In the present case, a perusal of the agreements reveal that there is definitely is a supply of two or more goods or services together and such goods or services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods 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 Mumbai, dt.19.12.2018 For reasons as discussed in the body of the order, the questions are answered thus- Question:- Determination of GST liability by deciding principal supply of the composite supply qua maintenance contracts executed between the customer and the Applicant. Answer:- In view of the above discussions, it is held that the principal supply in the present case between the applicant and the custom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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