TMI Blog2020 (6) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... ble items. All these consumables are being consumed together to achieve the desired output. In absence of any one of these consumables, the entire printing function will be stalled, which clearly shows the importance of each of the components of the bundled supplies. At the same time, it also shows that none of supplies are ancillary in nature. It is established beyond doubt that the bundled supplies by the Appellant to its customers has no principal supply, which is one of the primary conditions for any supply to be treated as the composite supply as envisaged under section 2(30) of the CGST Act, 2017. Circular No. 32/06/2018-GST, March 1, 2018 states that value is only the guiding factor, and not the sole factor for determining the principal supply in the bundle of supply. Therefore, the Appellant s contention based on the consumption pattern of the printing consumables, wherein consumption of Electrolnk is 41% in terms of the volume, thereby asserting the Electrolnk as the Principal supply only on the basis of its highest consumption among all the printing consumables, without establishing the fact that the same (Electrolnk) is imparting the essential nature of the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21/2018-19 dated 17.02.2019 = 2019 (8) TMI 30 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA . However, pursuant to the said AAAR order dated 17.02.2019 = 2019 (8) TMI 30 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA , the Appellant, M/s. H.P. Sales Pvt. Ltd., has brought to our notice that the impugned AAAR Order dated 17.02.2019 had not considered the additional submissions dated 11.02.2019 in entirety, filed by them before the AAAR, which was also referred and duly relied upon by them in favour of their case during the course of the personal hearing conducted on 12.02.2019. They, further, pleaded that non consideration of the abovementioned additional submissions dated 11.02.2019, which would have significant bearing on the impugned AAAR order dated 17.02.2019 = 2019 (8) TMI 30 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA , is an error, which is error, apparent on the face of the record, and hence the same need to be amended as per the provision of section 102 of the CGST Act, 2017, which is reproduced herein under: Section 102 of CGST Act 2017: Rectification of Advance Ruling The Authority or the Appellate Authority may amend any order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted on 14.08.2019, was attended by Shri K. Sivarajan, C.A., on behalf the Appellant. He reiterated the additional submissions filed on 11.02.2019 and contended that the impugned AAAR order dated 17.02.2019 = 2019 (8) TMI 30 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA warrants rectification as per the provision of section 102 of the CGST Act, 2017, as the said AAAR order dated 17.02.2019 = 2019 (8) TMI 30 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA did not consider the aforesaid additional submissions filed before the Maharashtra AAAR on 11.02.2019.Shri P.R. Nilewad, the jurisdictional officer also attended the above said hearing, wherein he reiterated the earlier submissions filed before us. 2. The additional submissions filed by the Appellant on 11.02.2019, which forms the basis for the present application filed under section 102 of the CGST Act, 2017 are as under: 3. Appellants are inter-alia engaged in supplying HP Indigo printers and the consumables to re-sellers, who in turn supply them to end customers. The following points are worth noting in this regard: I. The Indigo press machine is sold upfront to the reseller/ end customer as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomer could use the click and A-la-carte model together and in conjunction with other. In these cases, the end customer would contract with the re-seller for supply of Electroink and consumables in a bundle and additional inks in an a-la-carte model. A standard HP Indigo Digital Printing press comes with 4 ink stations installed by default with an option provided to the customer to add 3 more ink stations. The bundle inter-aha comprises 4 types of ink, i.e. Cyan, Magenta, Yellow and Black which are 4 standard process inks which may be mixed in different proportions to achieve most colours required for prints. Additionally, 3 inks i.e. orange, violet, and green, again supplied as part of the click can be placed and used in conjunction to obtain prints with different effects as required. In some scenarios the customers may wish to use these additional inks on an a la carte basis from the reseller. The reseller has similar contractual arrangements with the Appellant. 7. As apparent from above, both models are necessary to serve different customer needs. While the click model is necessarily taken by the customer to effect print in his regular course of business, supplies under A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase Supplies for the different Indigo Press Product Lines under different programs, provided that Reseller shall purchase all of Supplies required by it for each Indigo Press Product Line under the some Supplies purchase program. This clause of the purchase agreement assume significance of the factual background that there exists a notable difference between the conventional offset and HP Indigo Digital offset Printing Technology. The terms of the contract as mentioned above clearly indicate that the recipient of the supply has no option but to accept it as a bundled supply. Thus, the transaction of supply of Electrolnk with consumables cannot be considered as bundled supply but a compulsory supply. Thus, the transaction before us cannot be said to be naturally bundled supply The Impugned Order while determining the characteristics of a Composite Supply has at page 13 observed: The terms of the contract as mentioned above clearly indicate that the recipient of the supply has no option to select individual supply but to accept it as bundled supply . [Emphasis supplied] However, subsequently, on page 14 the Impugned Order has concluded that Each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inks; Further, we wish to submit that the working of the HP Indigo printing press substantiates that the Elertrolnk and the consumables are used in conjunction with each other to deliver the print: The Agreement between the Appellant and the reseller also substantiates that the supply of Electrolnk and the consumables is done only when they are used upon effecting the print command of the end customer. 14. The above substantiate that the consumables are functionally supplied as a natural bundle to the reseller and consequently to the end customer. 15. Interdependency of the consumables The Impugned Order noted that Each of the supplies can be supplied separately as they are not dependent on each other and the identification of the principal supply therefore cannot be drawn from and among the supplies 16. The Appellant humbly submits that the consumables supplied under the Tier Model are fundamental for the printing process to get effectively completed. Shortage or non-availability of any consumables may either result in the print not being achieved or may adversely impact the quality of the printout. 17. Further, drawing reference to Clause 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase under supplies separately does not change the nature of the supply from a naturally bundled supply. The contrary statements in the Impugned Order as highlighted above clearly indicate that the same is liable to be set aside. 23. As provided above, the Impugned Order has erred in concluding that a composite supply should not be done by people but should be part of nature or made in a natural manner. The Impugned order has relied on the dictionary meaning of term naturally bundled to conclude on this principle, without appreciating the applicability of the meaning in the context of the GST law and the facts. 24. Not accepting but assuming where an interpretation of the term naturally means it should not be done by people is adopted, many of the composite supplies, including those clarified by the Revenue authorities by way of circulars and FAQ s, may not qualify as naturally bundled as they evolve out of business practices. Table providing for list of such supplies clarified by CBIC as a composite supply is enclosed with this submission. 25. The Impugned order has clearly mis-construed the terms of agreement entered between Appellant and reseller by understandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncept of compulsory supply or compulsorily bundled in the GST law. Supplies may be naturally bundled or artificially bundled. Without prejudice to our earlier submissions, the department circulars also illustrate cases of composite supply where services are treated as naturally bundled, though these may be compulsory in some case. To illustrate: Boarding school and education service; Room rent in hospital Food supplied to inpatient Printing contracts Re-treading of tyres Airline ticket with food (this is mostly bundled in corporate fares) Hotel packages 32. Further, the concept of natural bundling is not static and evolves as the businesses come up with new models of packaging their products and services. Hotel rooms with breakfast complimentary was a concept which was not always prevalent. Airline tickets combined with food is also one such case. So, the concept of natural bundling has to be looked at as per industry practice, customer preferences, technological and other changes etc. We wish to illustrate the same through an example as highlighted in the Flyer issued by the Central Board of Indirect Taxes Customs ( CBIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that every product supplied herein has a separate lifespan independent of each other. [Emphasis supplied] 35. The Appellant submits that that the consumption pattern of the consumables may vary vis-a-vis each other. However, this fact does not in anyway conclude that the consumables are not supplied in conjunction with each other as there is no pre-requirement or condition that the goods should have the same consumption pattern to be treated as supplied in conjunction to each other. 36. To illustrate, the Appellant s submit that the supply of mosquito coils with the stand is a composite supply. However, the burner may have a different shelf life in the sense that a single stand may be used multiple times for use of burning multiple coils. This does not make the supply of coil stand and coils as a mixed supply. 37. Similarly, for the Appellant, the supply of Electrolnk and consumables may have different consumption pattern, but that does not change the nature of the supply from being naturally bundled . 38. The fact of transfer of property, supply on conjunction with each other, continuous supply and billing based on consumption and statement of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting ink or the Electrolnk is the most critical element from the customer s perspective to achieve the print, as printing essentially requires the placement of ink on paper, and the balance consumables aid in achieving this function. 44. The table provides the pattern of consumption of supplies made under the Click program for effecting a single print from the indigo press machine. S. No. Nature of the Product Consumption (In percentage) 1 Printing Ink (EletroINK) 41 2 Blanket 16 3 PIP- Photo Imaging Plate 13 4 OMP-Other machine Products 10 5 BID- Binary Ink Developer 10 6 OIL 7 7 Blanket Web 2 8 Other Consumables 1 45. The abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned order, the satisfaction of these tests has not been specifically discussed, except for one of the tests i.e. elements not being available separately. The Appellant has explained the satisfaction of these tests explicitly in its submissions made before the Learned Authority, which has not been judiciously considered. illustration provided in the definition of composite supply under Section 2(30) of the CGST Act (similar provision in the Maharashtra State GST Act): Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. Accordingly, the concept of composite supply, shall need to be analysed only where there is a bundled supply of two or more goods or services. 49. Highlighting the abovementioned illustration as provided in the law, a taxable person may be capable of supplying goods only whereas the packing and transportation services are arranged for by the recipient. However, where such services are provided as a bundle along with the supply of goods, the supply shall be a composite supply, principal supply being the supply of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. The HP Electrolnk is the principal supply as for the customers and suppliers, the Electrolnk is the main component of the supply, as is evident from the consumption. The ancillary supplies only help in transferring the ink from the cartridge to the paper. d. There is a single price or the customer pays the same amount, no matter how much package they actually receive or use: The invoicing is done on a per click basis for all the supplies. Every customer is charged a single price for all the goods, irrespective of the fact that in achieving the final output of a print, there is different proportion of Electrolnk and other ancillaries consumed. Therefore, where a single price is charged in relation to bundled supply of goods or services, the said supply cannot be deemed as a mixed supply under GST. The definition of composite supply neither restricts nor lays down any condition on the manner of pricing to be adopted for such classification. Accordingly, bundled supplies having a single price can be classified as a composite supply, where oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ordinary course of business, one of which is a principal supply: Illustration:- Where goods ore packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; It is important to see the definition of principal supply, and goods along with the same. principal supply 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; A reading of the definition of composite supply shows that there should be - a. Two or more taxable supplies, b. of goods or services or both; c. or in combination thereof; d. Which are naturally bundled and supplied in conjunction with each other e. In the ordinary course of business f. One of which is a principal supply. 47. The Contracts are two - one for the supply of goods and the other for the supply of services. The contract or the agreement fulfils the conditions of the composite supply . There is supply of goods and services. They are naturally bundled in the sense that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; It is important to see the definition of principal supply and goods along with the same. principal supply 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; A reading of the definition of composite supply shows that there should be- a. Two or more taxable supplies; b. Of goods or services or both; c. Or in combination thereof; d. Which are naturally bundled and supplied in conjunction with each other; e. In the ordinary course of business; f. One of which is a principal supply. 39. The contract fulfils the condition of composite supply. There is a supply of goods and services. They are naturally bundled in the sense that the goods and services may be required to fulfil the intention of the buyer in giving the contract. The supply of goods and services are provided as a package and the different elements are integral to flow of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Plant which includes the supply of both goods and services is a composite supply as per the definition in the Act. There are two taxable supplies- one of goods and the other of services and they both are naturally bundled and it is natural and also a practice to expect that the contractor who will supply the goods, will also supply the services alongwith it. In the business of contracts for the Solar Power Generating System, it is a practice to provide a Plant as a whole along with the supply of services. We differ with the order of the Advance Ruling Authority in this respect. Giriraj Renewables (Karnataka Appellate AAR) = 2018 (9) TMI 1341 - APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA 22. In the instant case there is no dispute that the contract in question involves a supply of both goods and services. However, in order for the supply to be termed as a composite supply, what is required is that the supply of the goods and the services should at least be bundled, more specifically be naturally bundled, and supplied in conjugation with each other. The term naturally bundled has not been defined in the GST Act. We note that the concept of compos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whereas it is apparent from the terms of the draft contract as indicated above, that, in the instant case, the appellant has vivisected the contract in the initial stage itself into two parts i.e., first a supply of the PV module which constitutes about 60-70% of the value of the contract and then the second part for the supply of the remaining parts and components and services. 24. The first part of the supply is done by purchasing from a foreign supplier the Pv module and transferring the title of the said PV module on High Sea Sales basis to the owner of the project. The Project owner clears the PV module through the Customs and makes available the same to the contractor (Appellant) without consideration at the project site. The appellant have argued that the above modus is merely undertaken for commercial reasons since it is the project owner who is eligible for customs duty exemptions and therefore, the PV module although has been identified and arranged for purchase by the appellant, the same has been actually procured and imported by the other contracting party. We find that the reason for this modus, though compelling is not the relevant to the issue at hand. What is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the supply. The distinction is observed by the contracting parties too in having separately received the consideration for this element of supply from the rest of the supplies made under the contract. Transfer of property of goods for a price is the linchpin of the definition of sale. Clearly, the thing to be delivered (PV modules in this case) has an individual existence before the delivery as the sole property of the party who is to deliver it and for that reason, this then is a sale. If A may transfer property for a price in a thing in which 8 had no previous property then the contract is a contract for sale. On the other hand, where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The intention in the two different transactions is different on the matter of PV module sold on high seas, it is sale; and thereafter other transactions in goods and services are to follow. 27. Therefore, in view of the above, we find that the supply of PV module is a distinct transaction by itself and cannot be said to be naturally bundled with the supply of the remaining parts require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and findings as detailed above are limited to the facts involved in the contract in question. 29. As regards the question whether the benefit of concessional rate of 5% GST on the supply of solar power generating systems and its parts will apply to the sub-contractors, we are of the view that the supplies made by the sub-contractor to the appellant are independent supplies. If the supply by the subcontractor to the appellant is of goods which can be termed as parts of the Solar Power Generating System, then the rate applicable will be 5% in terms of Sr. No. 234 of Notification No. 1/2017- Integrated Tax (Rate), dated 28-6-2017. However. if the supply by the sub-contractor to the appellant is a composite supply, then the rate applicable to the dominant nature of the supply will prevail. We are in agreement with the finding of the AAR on this and uphold the same. 30. In view of our findings and discussions as above, the Ruling dated 21-3-2018 of the Karnataka Authority for Advance Ruling = 2018 (6) TMI 1127 - AUTHORITY ON ADVANCE RULINGS, KARNATAKA is modified as under: (a) The supply of the PV module which is the major component of the Solar Power Plant is not n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord, and warranting the invocation of section 102 of the CGST Act, 2017 for the rectification of the error in the impugned AAAR order, we perused the additional submission dated 11.02.2019 made by the Appellant, vide which they had supplemented their contention made in the grounds of appeal, by way of further clarification in respect of the transactions carried out by them in terms of the agreement entered with their customers, and exhibition of various evidences in the form of the certificates, declaration, documents, records relied upon them to vindicate their claim. 55. Before setting out to discuss the merits of contention made in the additional submissions under consideration, we would like to recapitulate the findings of the impugned AAAR order. 56. In the impugned AAAR order, it was held that the supply of the Electrolnk along with the other consumables comprising of blanket, photo imaging plate, binary ink developer, HP imaging oil, blanket web and other machinery products by the Appellant to its customers is mixed supply and not the composite supply , as being claimed by the Appellant. One of the reasons for the aforesaid ruling, made by the AAAR, was that out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artered Engineers vide the certificate issued by him, wherein he testified as under: all the consumables shall be required to be required to be supplied as bundle to the customer to enable the customer to achieve the print. functionally, the print shall not be available to the customer unless all the goods are used in the prescribed manner to take the print out. To conclude, all indigo press consumables are necessarily required to be consumed together at the same time for effecting the desired output. The entire printing process is centric to the use and consumption of H.P. Indigo s Electrolnk, to yield the desired print results. Accordingly, based on the consumption pattern of the various elements provided for our consideration and our analysis of the printing process, functionally, the Electrolnk is the predominant element in the process of obtaining print impression from H.P. Indigo Printers. Thus, on perusal of the above submissions and the certificate issued by the Chartered Engineer, it is clearly revealed that all the printing consumables comprising Electrolnk, blanket, photo imaging plate, binary ink developer, HP imaging oil, blanket web and other ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these supplies are directly related to the goods, which are being transported. That is, all these supplies have no meaning or existence in absence of the goods. Because, it is the goods only, which are being packed, insured, and then transported to a particular destination. This submission was discussed in para no 57 of the appellate order. It is discussed therein that the example is not applicable to the present case as in the present facts and circumstances of the case, as these supplies are completely independent in nature, and is not related in any manner to the Electrolnk, which is being claimed by the Appellant as the principal supply. All these printing consumables i.e. blanket, photo imaging plate, binary ink developer, HP imaging oil, blanket web and other machinery products can be very much supplied independently by the Appellant to its customers. 61. To support their claim, the Appellant have cited the various illustrations incorporated in CBIC flyers and Circulars issued in respect of the composite supply, which inter alia include one illustration cited in the Circular No. 32/06/2018-GST, March 1, 2018, wherein it was clarified by the CBIC that which part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equally important and indispensable, as the absence of any one of these will adversely impact the functionality of the H.P. Indigo printers. (ii) Reference has been drawn to Circular Ko 32/06/2018 -GST dated 12.02.2018, wherein it was illustrated as under: Health care services provided by the clinical establishments will include food supplied to the patients. Therefore, food supplied to the in-patients as advised by the doctor/nutritionists is a part of composite supply of healthcare and not separately taxable. However, other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are taxable. In the above illustration, it is clearly revealed that the Health care services is the principal component of the composite supply, and the food supplied to the patients are ancillary in nature, as the same is additional to the main supply, which in this case is the supply of health care, which is imparting the true essence or the character of the composite supply, called supply of health case facility. The supply of the food to the patient are in the nature of ancillary owing to the reason that supply of the health care can still continue even ..... X X X X Extracts X X X X X X X X Extracts X X X X
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