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TMI Blog2020 (11) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by Authority for Advance Ruling, Andhra Pradesh. 1. Background of the Case: 1. Halliburton Offshore Services Inc. is a global service provider, engaged in providing various oilfield services to Exploration and Production companies across the globe. Presently, the applicant has contracted to provide Mud Engineering and Dr (ling Waste Management services for drilling three HPHT Exploratory Wells in KG Basin, Andhra Pradesh. 2. In the course of supplying such services the applicant also supplies various goods such as drilling mud, completion fluids and well-bore cleanup chemicals/additives or any other chemicals which are used for providing such services. 3. In 2014, the applicant was awarded a contract bearing letter of award no. OIL/KGB/CONT-6505290/ KKD-14/2014 dated 30th March 2014 by M/s. Oil India Limited (hereinafter referred to as "OIL INDIA") having its registered office at Duliajan, Assam. The Contract was awarded for providing mud engineering and other services as stated in the contract for their "Krishna-Godavari(KG) Basin Project" in the state of Andhra Pradesh. 4. Under the above Contract, the applicant has been contracted to provide mud engineering and drilli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 7 of the CGST Act, defines the term "Supply" very broadly which includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. C. Admittedly, as submitted in the facts above, the above contract entered into with OIL inter-alia entails both providing of mud engineering and drilling services and supply of mud chemicals and additives required for providing the aforesaid services. D. In terms of 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; Illustration - 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; E. Upon the perusal of the above definition, it appears that the key ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r- dependent with each other. L. The Ld. Authority has observed that a comprehensive reading of scope of work (as provided in the contract including the aspects thereof) gives an understanding that the contract is not merely for supply of additives/ chemicals/ consumables or not merely for providing of services. In the perspective of the customer or recipient i.e., OIL, the contract is a single package comprising of 'supply of services and supply of goods.' M. The Ld. Authority has observed that scope of work to be provide by the Appellant under the contract is a combination of supply of service and supply of goods which are naturally bundled and the principal supply of service (mud engineering or drilling waste management services) and supply of goods viz. mud chemicals and additives for incidentals or ancillary supply to the main supply. N. Accordingly, it is not in dispute that the aforesaid supplies made by the appellant under the contract are "naturally bundled" in the ordinary course of business, and the supply of mud engineering or drilling management services is the principal supply. Thus, the supplies made by the appellant being naturally bundled, is an accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the base, and the appellant is also under obligation for providing of actual delivery verification. iii) Clause 16.2 - Section II of the Contract refers to supply of mud chemicals and additives -which includes submission of specification of all the offered chemicals, supply of complete line of mud chemicals and additives, maintenance of adequate stocks of these items, furnishing of test reports to OIL, payment on actual consumption basis etc. iv) Clause 16.2.5 - Section II of the Contract - The recipient i.e. OIL reserves the right to terminate the contract if the chemicals and additives are found to be of substandard qUality and the contractor is unable to replace those within a reasonable time without affecting operations. S. It is submitted that by relying upon the aforesaid clause the Ld. Authority has inter-alia held as follows: i) All the activities/ events viz. procurement, delivery, usage, rejection or replacement, demobilization and receipt of consideration - relating to mud chemicals and additives can be done independently and separately. ii) All the activities or events relating to goods (chemicals/ additives/ consumables) are not necessarily procured, delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usly or at the same time is very narrow and untenable in law. In case the said interpretation is held to be valid then any continuous supply will never qualify as composite supply. V. Reliance in this regard, is placed on the judgement of the Hon'ble Kerala High Court in the case of Abbott Healthcare Pvt. Ltd. vs. Commr. of Commercial Tax, Thrissur, 2020 (34) G.S.T.L. 579(Ker.), wherein the Hon'ble High Court has held as follows: "11. In my view, a finding as regards composite supply must be 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." W. The aforesaid findings of the Hon'ble High Court are squarely applicable to the facts of the present case, which has not been considered by the Ld. Authority while issuing the impugned Ruling. Admittedly, in case of continuous supplies like those in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vations, which, with due respect, in the opinion of the appellant are not relevant to decide whether the supply of services and goods are in conjunction with each other. For example, the Ld. Authority has observed that the services and goods are not supplied as a single package, but are separately available or can be procured independently. It is submitted that having observed and held that the appellant is obligated to provide complete services with goods and non-provision of one will affect the other, and in fact contractually the appellant is duty bound to provide both, are sufficient to hold that both goods and services are supplied in conjunction with each other and therefore constitute composite supply. DD. In view of the aforesaid, the supply of the mud chemicals and additives and the mud engineering and drilling services are "composite supply" in terms of Section 2 (30) of the CGST Act. Rate of applicable GST EE. Section 8 of the CGST Act inter-alia provides that a compos ite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply i.e. the rate of tax applicable will be that of the principal sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Council, and or being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of services of description as specified in column (3) of the Table below, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2), shall be levied at the rate as specified in the corresponding entry in column (4), subject to the conditions as specified in the corresponding entry in column (5) of the said Table:- SI.No Chapter, Section or Heading Description of service Rate (percent) Conditions (1) (2) (3) (4) (5) 24 Heading 9986 (ii) Support services to mining, electricity, gas and water distribution 9 - Notification No.1/2018- C.T. (Rate), dated 25.01.2018 "CGST Rates on intra-State supply of specific services- Amendment to Jumbo Notification No.11/2017 - C.T.(Rate) In exercise of the powers conferred by sub-section (1) of section 9, sub section (1) of section 11, sub-section (5) of section 15 and sub-section (1) of section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober 2020, for which the authorized representative, Sri Prasad Paranjape, Advocate attended and reiterated submissions already made. 4) Discussions and Findings: We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant as well, in light of the ruling pronounced by the AAR. The issue at hand for discussion is whether the supply of mud engineering services and supply of imported mud chemicals and additives provided on consumption basis by the applicant under the contract qualify as composite supply or not. Before embarking upon the question, it is worthwhile to examine the intricacies of the subject matter with reference to the two taxable supplies involved in the question. 1. Supply of Mud Engineering service: * Mud Engineering is the service rendered (Drilling Fluids engineering, often referred to as Mud Man service) on a drilling rig to ensure the properties of the Drilling Mud are within the designed Specifications. * *The Drilling Mud is created using the local as well as imported ingredients and supplied to the service recipient. 2. Supply of Chemicals and additive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above." In light of the above discussion, with reference to the parameter (a) mentioned above, it is observed that both the supplies are not supplied or provided as a complete package 'at a single price'. The tax invoices filed by the appellant reveal that different invoices are raised for both the supplies separately and individually. With reference to the parameter (b) mentioned above, the supplies of chemicals and additives and mud engineering services are two different supplies and separately available. Section 3 of the contract no.6205290 projects the schedule of rates distinctly for both the supplies. Moreover, in the instant case the supply of chemical and additives and mud engineering services can be procured in a piecemeal approach up to the satisfaction of the service re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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