TMI Blog2020 (1) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Natural bundling of services - HELD THAT:- 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 held the field for a considerable period of time and would show that in the ordinary course of business, the supplies are not bundled. As regards composite supply must take into account supplies as effected at a given point in time on as is where is basis. In particular instances where the same taxable person effects a continuous supply of services coupled with periodic supplies of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 instruments placed at the premises of the hospitals/laboratories compared to the total turnover of supply of reagents, calibrators and disposables by the distributor over the contract period, is small and would only be around 20% of the turnover of supply of reagents, calibrators etc. The agreement entered into between the parties also contains a clause which provides that if the hospital fails to purchase specified minimum quantum of reagents, calibrators etc., then the petitioner is entitled to recover from the hospital an amount equal to the deficit in the actual purchases, vis-a-vis, the minimum purchase stipulated under the contract. 2. It would appear that when a consignment of instruments was being transported to a laboratory without any consideration, pursuant to the agreement entered into between the parties, the same was seized by the Assistant State Tax Officer, Kozhikode, on the ground that the goods were not accompanied with a tax invoice but were being transported under a del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: 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 the supplies effected by the petitioner constituted a composite supply of medical equipments together with reagents, calibrators and disposables, is a perverse one because it is not based on any material and is purely based on a presumption and supposition divorced from reality. The supply effected by the petitioner is of an instrument which is independent and distinct from the supply of reagents, calibrators and disposables by the distributor, and hence, the two supplies have to be treated as independent, and not as a composite supply. At any rate, the supply of the instrument cannot be seen as the principal supply in a deemed composite supply, since the value of the instrument supplied during the contract period constitute only about 20% of the value of the reagents/calibrators/disposables supplied during the same contract period. 5. Per contra, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trument 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 supplies by the petitioner through the agreement was seen as a scheme to avoid payment of tax at higher rate. As regards valuation of the said supply, the AAR found that in terms of the agreement, the petitioner had, in fact, supplied the medical instrument for deferred consideration since, according to it, the minimum purchase obligation in respect of reagents etc., under the agreement, ensured that the overall price realised from the customer subsumed within it, the rent for the instrument as well. This was more so because, the agreement between the parties clearly stipulated that if the required quantity of consumables was not purchased by the customer hospital, it was obliged to pay the petitioner the deficit amount. The aforesaid findings of the AAR were upheld by the Appellate Authority as well. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, one of which is a principal supply. 9. Many aspects of the transactions envisaged under the agreement entered into between the petitioner and its customer hospitals/laboratories militate against viewing them as a composite supply as defined above. Firstly, the supplies are made by two different taxable persons; the supply of instrument being by the petitioner and the supply of the reagents, calibrators and disposables being by his distributor, who purchases it from him on principal to principal basis. Although it could be argued that there is a relationship between the said persons that influences the valuation of the supply, the same does not take away from the fact that the supplies are, in reality, made by two different taxable persons. A refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxx 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 held the field for a considerable period of time and would show that in the ordinary course of business, the supplies are not bundled. In my view, a finding as regards composite supply must take into account supplies as effected at a given point in time on as is where is basis. In particular instances where the same taxable person effects a continuous supply of services coupled with periodic supplies of goods/services to be used in conjunction therewith, one could possibly view the periodic supply of goods/services as composite supplies along with the service that is continuously supplied over a period of time. These, however, are matters that will have to be decided ba ..... 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