2019 (9) TMI 1483 - AAR - GST

Classification of supply of goods as well as services - composite supply or not - Supply of bus or separate supplies - Supply of chassis, taxable at the rate 28% as per the prescribed HSN - Provision of services in respect of activity of mounting/fabricating of bus body on the chassis wherein the said activity of mounting/fabricating is outsourced by the Applicant to the body builder - recovery of the bus body building charges incurred by the Applicant on behalf of customer in capacity of an agent - to be covered in the ambit of Schedule I of Central Goods and Services Tax Act, 2017 - to be leviable at the rate of 18% as supply of services or not - CBIC vide Circular No. 34/8/2018-GST, dated 1-3-2018. HELD THAT - From the definition of Composite Supply, it is clear that in the present case there is a composite supply of goods i.e. chassis and supply of services i.e. fabrication/mounting of bus body on the chassis supplied by the applicant. Now, classification of this composite supply, as goods or service would depend on which supply is the principal supply which is to be determined on the basis of facts and circumstances of the present case - From the above definition of principal supply it is clear that in the present case there is a principal supply of goods or services which constitutes the predominant element of a composite supply. The predominant element of the composite supply is to be determined on the basis of facts and circumstances of the present case. It is clear that the bus body builder is doing fabrication of body on chassis provided by the principal (the applicant is principal in this case; type 1), this amounts to job work, the supply would merit classification as service, and 18% GST as applicable will be charged accordingly - the applicant has a complete bus ready to supply to the customer. The supply of chassis mounted with bus body to the customer, shall be treated as a supply of bus; classifiable under chapter heading 8702; taxable at the rate 28%. The Applicant will enter into a contract with its customer for the sale of chassis. Pursuant to which, request is received from the customer for fabrication of the bus body on the chassis purchased by him. In this regard, a subsequent contract will be entered between the Applicant and the customer for the provision of services in respect of activity of mounting/fabricating of bus body on the chassis. In respect of the above, the Applicant will further enter into an arrangement with body builder for mounting the bus body (as per customer specifications). For executing supplies as per the above arrangement, the Applicant sends the chassis to the bus body builder under the cover of a challan - it emerges that the applicant whether a dealer or an agent is providing only chassis. All inputs/materials required for fabrication of bus body, has to be used by the bus body builder from its own account. Under such situation it is the bus-body which is being fabricated and also being mounted on the chassis provided by the applicant. Therefore, it is not merely job-work. Rather it is supply of bus body and the activity of fitting/fabrication/mounting of bus body on chassis is an ancillary activity to the principal activity of supply of bus-body. Hence, in terms of the clarification issued by the CBIC vide Circular No. 34/8/2018-GST, dated 1-3-2018; the impugned activity is a composite supply, with principal supply being supply of bus-body - It is clear from the above invoice that the bus body builder is supplying bus body to the applicant as principal supply. Where the Applicant enters into a contract for sale of chassis of bus to the customer and subsequently, enters into a separate arrangement with the said customer, wherein the Applicant is appointed as an agent by the customer for undertaking the activity of mounting of bus body on the chassis on behalf of the customer. The recovery of the bus body building charges incurred by the applicant on behalf of customer in capacity of an agent, should be covered in the ambit of Schedule I of Central Goods and Services Tax Act, 2017 and thus, leviable to GST taxable at the rate 28% - it is evident that the activity of fabrication, fitting and mounting of bus bodies on the chassis supplied by the applicant is a composite supply with supply of goods i.e., bus-bodies, being principal supply (HSN Code 8707).

Summary

Issues Involved:
1. Classification and tax treatment of supply of chassis mounted with bus body.
2. Classification and tax treatment of supply of chassis and provision of services under two separate contracts.
3. Tax treatment of recovery of bus body building charges incurred by the applicant on behalf of the customer in the capacity of an agent.

Detailed Analysis:

Issue 1: Classification and Tax Treatment of Supply of Chassis Mounted with Bus Body
The applicant, engaged in trading and fabrication of bus bodies, questioned whether the supply of chassis mounted with bus body should be treated as a supply of bus or separate supplies. The Authority referred to the CBIC Circular No. 34/8/2018-GST, which clarifies that bus body building involves both goods and services, with classification depending on the principal supply.

As per Section 2(30) and Section 2(90) of the CGST/SGST Act, 2017, a composite supply consists of multiple supplies where one is the principal supply. The tax liability on a composite supply is determined by the principal supply per Section 8 of the CGST/SGST Act, 2017.

In this case, the principal supply is the bus body, and the activity of mounting the bus body on the chassis is ancillary. Therefore, the supply of chassis mounted with the bus body is treated as a supply of bus, taxable at 28% under chapter heading 8702.

Issue 2: Classification and Tax Treatment of Supply of Chassis and Provision of Services Under Two Separate Contracts
The applicant proposed two models under Type 2 transactions where separate contracts are made for the sale of chassis and the provision of services for mounting the bus body.

Model A: The applicant sells the chassis and subsequently provides services for mounting the bus body. The body builder charges the applicant for the mounting services, and the applicant then charges the customer.

Model B: The applicant sells the chassis, which is shipped to the body builder for mounting the bus body, and then the built-up bus is sent directly to the customer. The applicant charges the customer for both the chassis and the mounting services separately.

The Authority clarified that in both models, the activity of mounting the bus body on the chassis is classified as a service (HSN 9988) and taxable at 18%. However, the supply of chassis and the provision of services should be treated as a composite supply of goods (bus bodies) with the principal supply being the bus body, taxable at 28% under chapter heading 8707.

Issue 3: Tax Treatment of Recovery of Bus Body Building Charges Incurred by the Applicant on Behalf of the Customer in Capacity of an Agent
In Type 3 transactions, the applicant acts as an agent for the customer, arranging for the bus body to be mounted on the chassis. The recovery of bus body building charges by the applicant, acting as an agent, falls under Schedule I of the CGST Act, 2017, and is subject to GST. The activity is considered a composite supply with the principal supply being the bus body, taxable at 28%.

Ruling:
1. The supply of chassis mounted with bus body is treated as a supply of bus, classifiable under chapter heading 8702, and taxable at 28%.
2. The supply of chassis and the provision of services under two separate contracts is treated as a composite supply of goods (bus bodies), with the principal supply being bus bodies, classifiable under chapter heading 8707, and taxable at 28%.
3. The recovery of bus body building charges by the applicant on behalf of the customer as an agent is covered under Schedule I of the CGST Act, 2017, and is taxable at 28%.