2019 (3) TMI 1865 - AAR - GST

Classification of services - composite supply of services or not - supply of parts or not - repair services carried out by the Applicant under the Dealership Agreement with HMIL to fulfill the warranty obligation of HMIL - entire repair services including supply of spares - to be classified under S. No 25 in Notification 11/2017-Central Tax (Rate) dated 28th June 2017 / parallel Notification issued under SGST Act subjected to tax at the rate of 9% under CGST? - Section 2(30) of CGST Act/ Section 2(30) of SGST Act 2017. HELD THAT - Applicant are mainly providing Repair Maintenance Services to their customers under Warranty Repair Service by servicing of their vehicles under Warranty period In the event of defective parts/components they replace such parts/components which appear to be just incidental or ancillary to the main activity of Repairing Services . The supply of such parts/components in the warranty repair activity is integral to the Warranty Repair Service in as much as without replacing such parts/components the Warranty Repair Service could not be executed. Therefore the supplies of Labour Services and Parts/components together under Warranty Repair Service are naturally bundled and have been supplied in conjunction with each other in the ordinary course of business. Since the supply of repair services in the present case the supply of both goods and services are made in conjunction with each other in the ordinary course of business and therefore considering the provisions of the GST laws we find that supply of services/ parts is naturally bundled with the supply of parts being incidental to the supply of services and therefore such contract are to be considered as a composite supply of services where the principal supply is services and the supply of goods (Parts) is incidental to such supply of services. The provisions of agreement between HMIL and PSCL read with definition of composite supply as defined under Section 2(30) of CGST Act 2017/SGST Act 2017 it is to clarify that following ruling is applicable if repair service provided by the applicant shall be covered under composite supply if - (a) Primarily Repair service is provided under warranty period (b) Parts are replaced as incidental to repair service under warranty period in ordinary course of business and (c) PCSL is being reimbursed by HMIL for labour charge and parts under warranty period.

Issues Involved:
1. Classification of repair services under the Dealership Agreement with HMIL as a composite supply of services.
2. Tax rate applicable to the entire repair services including the supply of spares.

Detailed Analysis:

Issue 1: Classification of Repair Services as Composite Supply of Services

The applicant, M/s Premier Car Sales Ltd. (PCSL), a registered GST assessee, engaged in the sale of motor vehicle parts and accessories, entered into a Dealership Agreement with Hyundai Motors India Limited (HMIL) to provide repair services during the warranty period. The applicant sought clarification on whether these repair services, which involve the supply of parts, should be classified as a composite supply of services under Section 2(30) of the CGST Act/SGST Act, 2017.

The Authority for Advance Ruling examined the submissions and found that the repair services provided by PCSL under the warranty obligation involve both labour charges and the supply of parts. These services are predominantly repair services, with the supply of parts being incidental or ancillary. As such, the repair services and the supply of parts are naturally bundled and supplied in conjunction with each other in the ordinary course of business.

Section 2(30) of the CGST/SGST Act defines a composite supply as a supply consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other, with one being the principal supply. Section 2(90) defines the principal supply as the predominant element of a composite supply.

The Authority concluded that the repair services provided by PCSL, which include the supply of parts, qualify as a composite supply of services. The principal supply in this case is the repair services, and the supply of parts is incidental to these services.

Issue 2: Tax Rate Applicable to Repair Services Including Supply of Spares

The second issue was whether the entire repair services, including the supply of spares, can be classified under S. No. 25 in Notification 11/2017-Central Tax (Rate) dated 28th June 2017, and subjected to tax at the rate of 9% under CGST.

The Authority noted that the repair services provided by PCSL are classified under SAC 998729, "maintenance and repair services of other goods." The tax liability on a composite supply is determined based on the principal supply, which in this case is the repair services.

As per Section 8 of the CGST/SGST Act, the tax liability on a composite supply comprising two or more supplies, one of which is a principal supply, is treated as a supply of the principal supply. Therefore, the tax liability on the warranty repair services, including the supply of parts, is determined based on the tax rate applicable to the repair and maintenance services.

The Authority ruled that the warranty repair services, including the supply of parts, are subjected to tax as per S. No. 25 in Notification 11/2017-Central Tax (Rate) dated 28th June 2017, and the parallel notification issued under the SGST Act, which classifies these services under the heading "Repair & Maintenance Service" with the applicable tax rate.

Ruling:

1. The repair services carried out by the Applicant under the Dealership Agreement with HMIL, to fulfill the warranty obligation of HMIL, which also involves the supply of parts, can be classified as a composite supply of services under Section 2(30) of the CGST/SGST Act, 2017.
2. The entire repair services, including the supply of parts, can be classified under the heading "Repair & Maintenance Service," which is the principal/predominant supply in a warranty repair service. Accordingly, such warranty repair services with parts/components are subjected to tax as per S. No. 25 in Notification No. 11/2017-Central Tax (Rate) dated 28th June 2017, and the parallel notification issued under the SGST Act, as amended.

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