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TMI Blog2020 (1) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... riod without any consideration. The petitioner also enters into Reagent Supply and Instrument Use Agreements with various hospitals, laboratories etc, whereunder, the arrangement between the parties is for the supply of medical instruments to the hospital/laboratory concerned, for their use, without any consideration for a specified period and for the supply of specified quantities of reagents, calibrators, disposables etc. at the prices specified in the agreement, through its distributors on payment of applicable GST. It is stated that, as per the agreement, while the supply of instruments is by the petitioner, the supply of reagents, calibrators and disposables are effected by its distributor, who purchases the said products from the petitioner on principal to principal basis. When the distributor supplies the reagents, calibrators and disposables to the hospitals/laboratories concerned, the distributor discharges the applicable GST on the price charged for supply of the said products. In other words, there is no direct sale/supply of the reagents, calibrators and disposables by the petitioner to the hospitals/laboratories in question. It is also stated that the value of instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of reagents, calibrators, disposables etc., which is otherwise taxable @ 5% [2.5% CGST + 2.5% SGST], became taxable at the rate of tax applicable to the instruments, namely, 18% [9% CGST + 9% SGST]. 3. Aggrieved by the said order of the AAR, the petitioner preferred an appeal before the Appellate Authority, the 6th respondent in the writ petition. The said appeal, however, was rejected by the 6th respondent, who confirmed the order of the AAR, by Ext.P1 order. In the writ petition, Exts.P1 and P2 orders are impugned inter alia on the contention that, while the 5th and 6th respondents erred in rendering a finding as regards composite supply, when the said query was not raised before them for clarification, the said finding itself was illegal and against the provisions of the CGST/SGST Act. 4. Appearing for the petitioner, the learned senior counsel Sri. V. Sridharan assisted by Adv. Sri.Shaji Thomas, would contend as follows: * The 5th and 6th respondents decided an issue that was not referred to them for their ruling. The said respondents therefore acted without jurisdiction in rendering their findings on the issue relating to composite supply. * The finding that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reads as follows: "Whether in the facts of the present case, the provision of specified medical instruments by the Applicant to unrelated parties like hospital(s), Lab (s), for uses without any consideration, constitutes a "supply" or whether it constitutes "movement of goods otherwise than by way of supply" as per provisions of the CGST/SGST Act, 2017?" The AAR examined the query in the backdrop of the agreement entered into between the petitioner and the hospitals/laboratories concerned, and opined that the petitioner was effecting two supplies, namely, of medical instruments and of reagents/calibrators/disposables to be used along with the instrument. Since the instrument supplied had no utility to the customer unless he also bought the reagents/calibrators/disposables, the supply of the instrument and the reagents etc. had to be seen as naturally bundled to form a composite supply. The AAR went on to observe that the supply of the instrument was to be treated as the principal supply, in the said composite supply, and accordingly, that the reagents, calibrators and disposables had to be taxed at the higher rate applicable to the instrument supplied. The arrangement of sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I also find that its findings on the said issue are at any rate legally untenable. The concept of enhancement of utility of the instrument through the supply of reagents/calibrators/disposables, while relevant for the purposes of valuation of the supply of instruments, cannot be imported into the concept of composite supply under the GST Act. A distinction has to be drawn between the nature of a supply and the valuation thereof. While clubbing of two independent supplies may be resorted to for the purposes of valuation of each of those supplies, there is no scope of clubbing of two independent supplies so as to notionally alter the very nature of each of those supplies as they existed in fact, at the relevant point in time. For a supply to be seen as a composite supply, it must answer to the definition of the term "composite supply" at the time of its supply. As per Section 2(30) of the CGST Act, "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, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of what the parties had agreed or the legal structure of their transaction. Moreover, economic reality had to be distinguished from economic neutrality which was a principle of VAT law. That principle precluded, inter alia, taxable persons who carried on the same activities from being treated differently for VAT purposes. That was one of a variety of doctrines which had been established in VAT law to prevent the distortion of competition. However, the authorities did not support the proposition that the doctrine of neutrality required two separate supplies to be treated as a single supply because the suppliers were related parties and their supplies were linked. xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx" 10. Secondly, the two supplies do not answer to the description of being "naturally bundled and supplied in conjunction with each other in the ordinary course of business". While they were not bundled together as a matter of fact, in the instant case, there is also no material to suggest that they are so bundled and supplied in conjunction with each other in "the ordinary course of business". In fact, the business model followed by the petitioner appears to have he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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