TMI Blog2022 (3) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... pply and Instrument use agreement. Accordingly, the hospitals or laboratories where the equipments are installed have the right to use the machine during the period of contract; but the title and ownership of the instrument continues to be with the appellant and the customer has to return the instruments to the appellant at the end of the specified period or at the earlier termination of the agreement - there is provision of transferring right to use the instruments from appellant to hospitals/labs for a fixed tenure. As per the provisions contained in Sl. No: 1(b) to schedule II of the Act, it is specified that any transfer of right in goods or of undivided share in goods without the transfer of title thereof is a supply of services. Hence, the activity of the appellant prima facia qualifies to be categorized as supply of services vide Schedule II to the Act. It is well settled principle that a taxing statute must be interpreted in the light of what is clearly expressed; it cannot imply anything, which is not expressed, it cannot import provisions in the statute so as to supply any assumed deficiency. Thus, it is evident that the activity or transaction undertaken by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2. The Appellant submits that following activities are carried out in terms of the said agreement. Placement of specified medical instruments to unrelated hospitals, labs for their use, without any consideration, for a specified period: Under the Agreement, specified medical instrument (hereinafter referred to as the 'instrument') is provided by the appellant to the identified unrelated hospitals, labs etc. for their use for a specified period without any consideration. The instruments are placed at the unrelated hospital's/ lab's premises for use by them. The ownership in the instruments continues to be with the appellant and all rights, title and interest in the instruments are owned and vested in the appellant at all times during the instruments without any consideration. The said instruments have a period of use. The hospitals/labs only possess a permission to use the said instruments provided to the hospitals for a specified period and are returnable at the end of the specified period or at the earlier termination the Agreement. The instruments are centrally stocked by the appellant at its warehouse located in Ahmedabad, Gujarat. From the warehouse of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial and business expediency of the pharma industry. 3.5. The order dated 02.05.2017 of Deputy Commissioner (Int.), Dept. of Commercial Taxes, Ernakulam, in the VAT regime, the case of M/s. Prompt Enterprises (distributor of Appellant) in respect of detention of instrument belonging to the Appellant on 04.03.2016, demonstrates that the appellant was following the same business model even in the erstwhile VAT regime. This itself demonstrates that the model was adopted by the appellant due to commercial and business expediencies. A copy of the order dated 02.05.2017 of Deputy Commissioner (Int.), Dept. of Commercial Taxes, Ernakulam is also submitted with. 3.6. The appellant submits that the placement of the instrument was without any consideration, the appellant believed that no supply was being made by the appellant to the hospitals/labs. Therefore, such instruments were moved to the premises of the hospitals/labs under the cover of delivery challan without any tax invoice. A consignment of instruments that was transported by the appellant to a Lab (M/s. Le Aayush Laboratory, Kozhikode. Kerala) without any consideration pursuant to the terms of the agreement between app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case, the authority could not have held that the placement of instrument and the supply of reagents is a composite supply for the following reason: a. The supply of instrument and the supply of reagent is by two separate persons, i.e., by the Appellant and the distributor of the Appellant. Supply by two persons cannot be fused together to make it a composite supply. b. For two supplies to be composite supplies they have to be supplied on as is where is basis, i.e., at the same time. Thus, in the present Case, continuous supply of service (right to use instrument) and periodic supply of goods/ products cannot be composite supply. 3.10. The Hon ble High Court quashed the order dated 14.12.2018 and 26.09.2018 and remanded the matter back to Ld. Authority for fresh determination of question posed by the Appellant, i.e., whether the placement of the instrument at the premises of the hospitals/ labs is a supply in terms of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act ) and the Kerala Goods and Services Tax Act, 2017 (hereinafter referred to as the KGST Act ). 3.11. The Appellant filed detailed submission befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the CGST Act. 4. Grounds of Appeal: Being aggrieved and dissatisfied by the impugned order passed by the Ld. Authority, the Appellant has filed the present appeal, inter alia, on the following grounds, which are urged herewith without prejudice to each other: 4.1. The appellant submits that as per the first leg of Section 2 (31)(a) of the CGST Act, consideration may be payment made in money or payment made otherwise than in money. However, it should nonetheless be 'payment'. Further the term consideration is defined under Section 2(31) of the CGST Act as under: (31) consideration in relation to the supply of goods or services or both includes-- (a) any payment made or to be made, whether in money, or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; 4.2. The general meaning of the term payment is, discharge of debt or an liquidated sum, which is discharged by making payment in money or otherwise. The dictionary meaning of the term payment as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services in towards discharge pre-agreed payment. 4.5. It is submitted that in Workmen of Rohtas Industries Ltd. v. H. K. Choudhuri. AIR 1965 Pat 127, the Hon ble Patna High Court Supreme Court observed that In White v. Elmdene Estates, Ltd., (1959) 2 All ER 605 Lord Evershed. M. R, has observed: . The word Payment in itself is one which, in an appropriate context, may cover many ways of discharging obligations. 4.6. The appellant further raised an argument about Section 2(31) that Clause (b) of definition of consideration includes monetary value of any act or forbearance. This is as opposed to clause (a) which covers payment in money or in kind. Further. the act or forbearance which to be treated as consideration should be capable of being expressed in monetary terms. If no monetary value can be attached/ascribed to the act or forbearance, they will not amount to consideration under the CGST Act. This is the most vital aspect to be noted in the present case. The-legislature has used the term monetary value specifically and expressly in the definition of the term consideration . It is cardinal rule of interpretation that legislature is not presumed to wast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the GSTR is as under: Economic value and independent identity 80. As stated at paragraph 68, the test for determining whether a payment is consideration for a supply is whether there is sufficient nexus between the supply and the payment. Consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. However, things such acts, rights and obligations can often be disregarded as payments as they do not have economic value and independent identity separate from the transaction. 81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value. 82. Whether a payment is consideration for a supply depends on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary consideration. The relevant portion of the said example is as under: Example 16-promotion of a particular product 112. Deli Co, as part of an exclusive supply arrangement with supply Co, agrees to purchase a minimum amount of supplies from supply Co at a favourable price during a specified period. In return, Supply Co allows Dell Co to use some of its machines for the same period. The machines are used in connection with the supplies and are expected to become obsolete at the end of the period. 113. Although Deli Co enters into an obligation to purchase products of a minimum specified value, entry into this obligation does not constitute non-monetary consideration. It does not have an independent identity separate from the supply arrangement. The obligation merely defines the supply of the equipment and product by Supply Co for the monetary consideration provided by the customer. 114. The consideration that Supply Co. receives for its supplies of the product and equipment is the money paid by Deli Co each time it purchases supplies from Supply Co. under the terms of the agreement. 4.11. It is further submitted that the relevant extract of the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the CGST Act. 4.14. The Appellant relies upon the decision of Hon ble Bombay High Court in the case of Keshub Mahindra v. Commissioner of Gift Tax [1968 70 ITR 1 Bom]. The issue arose under the Gift Tax Act, 1958 was that Keshub Mahindra Mahindra Ltd (M M). M M was engaged in the business of supplying jeeps manufactured by willys Motors Inc. (manufacturer of jeeps in USA). The jeeps were supplied by another company Willys Overland Export Corporation ( Export Co.). There was a contract between Export Co. and M M that the Export Co. will have a right to elect to opt for the allotment of shares by M M, as and when the shares will be issued. Substsequently, a contract was entered between Keshub Mahindra and two brothers on one hand and Export Co. on the other hand, wherein in Export Co. renounced its right in the earlier contract to elect to opt for the allotment of shares. In return, Keshub Mahindra and two brothers agreed to assign the right to take allotment of rights shares in favour of Export Co. which were to be exercised by Willys Motors Inc. The Gift-tax Officer alleged that the benefactor in the deal were Keshub Mahindra and two brothers when they gave away the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to consider whether the consideration in the present case was as stated in the Gift-tax Act definition in money or money's worth . The appellant submits that the above decision states that any and every obligation will not be a consideration where the statute requires that the consideration should be either money or in money s worth (or has a monetary value). The ratio of the above decision equally applies in the present case and the interpretation of the term consideration under the Gift Tax Act is relevant for determining the ambit of the said term in the CGST Act as the definitions are similar. 4.15. Further it is submitted that the agreement in present case specifically says that it is without consideration. In the present case, the placement of instruments by the Appellant at the premises of the hospitals/labs does not involve any payment made or to be made whether in money or in any other form to the appellant. This is also clear in terms of Clause 2.1 of the Agreement, which is re-produced hereunder: 2.1 Right to use the instruments: Abbott Health care hereby grants, subject to the terms and conditions specified in this Agreement, to the Customer non-tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/labs fails to meet the minimum purchase obligation, they will be liable to pay deficit amount to the Appellant. Such payment of deficit amount is in the nature of damages / compensation for breach of contractual obligation to buy minimum quantity of reagents and not a consideration for any supply even of reagents. 4.18. Further under the CGST Act, consideration is used in the sense of performance of the obligation and not entering into a contractual obligation. Under the Contract Law, there are two stages in a contract; formation of contract and performance of contract. The term consideration under the Contract Law is concerned with the stage of formation of contract. In other words, there should be consideration at the time of formation of contract and subsequent non-payment of consideration will not make a contract without consideration but it will amount to a breach of contract. Pollock and Mulla on Indian Contract Act (15th Edition) at page 56 explains this concept as under: The term consideration must be distinguished from the act of payment of agreed price. The act of payment of price (or its non-payment) is the performance of a promise already agreed. Considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling the reagents to the distributors and the distributors are selling the reagents to the end-customer. There may not be any supply from the applicant to the end-customers in so far as reagents are concerned. In such cases, the appellant transfers the property in goods in the form for reagents to his distributors and the distributors in turn sell it to the end customers. It may be a fact that the goods may not be available in the open market except with the distributors and the contract between the applicant and end-customer may stipulate the purchase of reagents from the distributor, it does not say about the details of such distributor specifically. The moot point is whether the agreement signed between the applicant and the end-customer be binding on the distributor unless the condition to that effect is present in the contract between the applicant and distributor. But the applicant states very clearly that he is selling the goods to the distributor and the distributor is also selling the goods to the end-customer. Hence, it is clear that the supply of reagents to the end-customer is from the distributor and the applicant is merely facilitating such supply by binding h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he consideration. Clause (31) of section 2 of the CGST / SGST Act defines the term consideration: as under: (31) consideration in relation to the supply of goods or services or both includes- 1. any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; 2. The monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: But there is an act of supply of equipment and in the second clause of the definition of consideration , it is seen that the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person. There is a clear inducement of supply of goods from the distributor and hence th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e carefully gone through the facts of the case, the orders issued by the Authority for Advance ruling; the earlier order of this Authority; the judgment of the Hon'ble High Court of Kerala, the grounds of appeal and other written and oral submission made by the appellant during personal hearing. The issue to be determined is, whether the placement of specified medical instruments by the appellant at the premises of unrelated hospitals, labs etc. in pursuance of the agreement for their use for a specific period constitute supply as defined under the CGST/SGST Act, 2017. 6.2. The contentions raised by the appellant were examined in seriatim. The appellant claims that the placement of specified medical instruments at the premises of the unrelated hospitals is without any consideration hence it cannot be categorised as taxable supply under GST Act. 6.3. The provisions regarding Scope of supply is detailed in Section 7 of the CGST Act, 2017, as follows:- (1) For the purposes of this Act, the expression supply includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods or services; 2. The supply should be in the course furtherance of business; 3. The supply should be made for a consideration except in the case of activities specified under Schedule I to the CGST/SGST Act. 6.6. From the contention raised by the appellant, it reveals that they place their specified medical equipments to identified hospitals or laboratories as per the terms and conditions of the Reagent supply and Instrument use agreement. Accordingly, the hospitals or laboratories where the equipments are installed have the right to use the machine during the period of contract; but the title and ownership of the instrument continues to be with the appellant and the customer has to return the instruments to the appellant at the end of the specified period or at the earlier termination of the agreement. It is further stated that the users of the instruments under the agreement only possess a non-transferable right to use the said instruments during the tenure of agreement. Hence, there is provision of transferring right to use the instruments from appellant to hospitals/labs for a fixed tenure. As per the provisions contained in Sl. No: 1(b) to schedule II of the Act, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is nothing but a commercial transaction which is undoubtedly in the course or furtherance of business. 6.9. The next condition to be satisfied is that the transaction / activity should be made for a consideration. The term consideration is defined in Section 2 (31) of the CGST Act, 2017 as follows; (31) consideration in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement, to the Customer a non-transferable right to use the instruments without any consideration for the use per se during the term of this Agreement Title to Instruments. The Customer acknowledges and confirms that Abbott Healthcare owns all rights, title and interest in the Instruments and that the Customer has no right, title or interest in the Instruments other than the right to use the Instruments specifically granted pursuant to this Agreement. Customer Covenants. As per clause 2.4(iii) of the agreement it is specified that, upon the termination of this agreement (except in the event the customer acquires title pursuant to section 5.1.2 hereunder), the customer shall immediately return the instruments to Abbot health care or permit its repossession by Abbott health care and shall extent any assistance that Abbott health care may require in respect of such repossession of the instruments from the premises of the customer, the customer hereby waives any prior notice, any pre-seizure hearing or judicial process as condition precedent to such repossession of instruments by Abbott healthcare. Further clause 2.4(v) of the agreement states that the customer shall use only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexure A to the agreement states the following Architect cl 4100 - 1 unssit Monthly Minimum purchase obligation (MPO) 1) Complete RAP- Monthly minimum purchase obligation of reagents, calibrators, Controls and Accessory - ₹ 4,00,000/Month for first 3 months ₹ 6,00,000/ month for first 3-9 months ₹ 7,50,000/ Month from 9 months onwards Incremental volume : 10% YoY growth Clause 5 of the Agreement states about the Damage to instruments : risk of loss Clause 5.1 of the agreement specifies about the Customer liability ; The customer Shall be liable for the cost of any repairs required in connection with any damage caused by any instrument or any part thereof due to, a. any negligence on the part of or misuse or alteration in the manner of the instruments by the customer its representatives employees agents. b. due to any service or work performed on the instruments by any unauthorised personnel. c. if such damage may be directly or indirectly attributed to any act or omission on the part of a customer its representatives agents that is in breach of any obligation under this agreement. Clause 5.1.2 of the agreement states ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exclusively from the appellant at the prices specified in Annexure B for a value not less than that is mentioned in Annexure A. In case of the monthly purchase falling short of the value agreed, the appellant has the right to raise debit note equal to the deficit amount. Further in clause 3.2 of the Agreement, it is specified that in case of additional placement of Instrument by Abbott, Minimum Purchase obligation will be revised upward proportionately for similar type of Instrument. Further the covenant of Automatic termination in the agreement also states that the agreement will stand automatically terminated in the event that the customer in any manner acquires title to the instruments. These facts itself shows that the Minimum Purchase obligation of. the reagent and forbearance of the customer from using any other reagent than that is prescribed by the appellant serves as a consideration for the placement of the instrument at the premises of the customer. 6.13. The definition of the term consideration under the CGST Act as reproduced above clearly encompasses the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y value of any act or forbearance which causes the inducement of supply of goods or services or both is included in the definition. Thereby the act of assurance from the part of the Customer for exclusive usage of reagents, calibrators and disposable in the instruments according to the approved directions of the appellant and the obligation to purchase minimum assured quantity on the agreed price from the appellant constitutes a valid consideration for inducement of the supply of these services. Further the terms of the agreement reveals that if the customer fails to meet the minimum purchase obligation on monthly basis the appellant will raise debit notes equal to deficit amount which has to be paid by the customer in 7 days from the date of receipt . Section 15 of the Act specifies about the value taxable supply. Sub-section (4) to section 15 specifies that where the value of the Supply of goods of services or both cannot be determined under subsection (1) the same shall be determined in such manner as may be prescribed. Rule 27 to 32 of the GST rules specifies about the determination of value of supply of goods or services, where the consideration is not wholly in money. The su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tax Department of Australia and the definition of consideration in the GST law of Australia. The Hon'ble High Court of Bombay in the Keshub Mahindra case considered the scope of the term consideration as defined in Section 2 (d) of the Contract Act vis- -vis the scope of the word consideration as used in the definition of gift in Section 2(xii) of the Gift Tax Act and came to the conclusion that the word consideration in the definition of gift is qualified by the words in money or money-s worth and hence it limits the meaning of consideration to something which can be reckoned in terms of money and not to any and every obligation which could be valid consideration under the law of contracts and accordingly held that the word consideration as used in the definition of gift in the Gift Tax Act is narrower in scope than the term consideration as defined in the Contract Act. The judgment is not relevant to the instant case not only because the facts and circumstances are distinguishable but also due to the fact that the statutory provisions dealt with are not parimateria as the issue in that case was limited to the meaning and scope of the word consideration as used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of what is clearly expressed; it cannot imply anything, which is not expressed, it cannot import provisions in the statute so as to supply any assumed deficiency. Further it is pertinent to note that it is the settled legal position that a judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. 6.20. In the case of Union of India Ors Vs Dhanwanti Devi Ors reported in (1996) 6 SCC 44, the Apex Court while dealing with the law of precedent and the principle of ratio decidendi held that; It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well settled theory of precedents, every decision contains three basic postulates (i) findings of material facts, is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng something or promise to refrain from doing something is subject to GST. 3. The ruling does not disclose the terms and conditions of the agreement completely. 6.22. Moreover as per section 103 of the GST Act specifies about the applicability of advance ruling. - (1) The advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be only,- (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. The subsection (2) to Section 103 further reads that the advance ruling referred to in sub-section (1) and sub-section (1A) shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed. Accordingly the decision taken by authority of advance ruling or appellate authority of advance ruling of other state does not have a precedent value and not binding on this authority. 6.23. Based on the above discussion, it is evident that the activity or transaction undertaken by the appellant qualifies to be categorised as supply as defined ..... X X X X Extracts X X X X X X X X Extracts X X X X
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