2020 (11) TMI 1038 - AAAR - GST

Classification of supply - composite supply or not - naturally bundles services or not - supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the applicant under the Contract - supplies made under the Contract merits classification under Entry 9986 (ii) - Service of exploration, mining or drilling of petroleum crude or natural gas or both and subject to GST at the rate of 12%/18% as the case may be? - supply of mud chemicals and additives on consumption basis at OIL India's location in India provided under the Contract qualify for concessional GST rate of 5% against an Essentiality Certificate ('EC') under Notification No. 50/2017-Customs dated 30th June 2017. HELD THAT - The supply of Mud Engineering Services and supply of chemicals and additives are undoubtedly two specialized and distinct supplies. Now it requires to be examined whether both the said supplies of chemicals and additives and rendering the mud engineering services constitute a 'composite supply' or not - the two taxable supplies under discussion are to be examined in light of the two primary conditions i.e., whether they are 'naturally bundled' and are 'supplied in conjunction' with each other. In the absence of the clear cut explanation in the Act, regarding the concept of 'naturally bundled' the reliance is placed on Education Guide issued by CBEC (now CBIC) in the year 2012. Thus, 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 recipient. It is a fact, as admitted by the appellant that it is a clause inserted in the contract to protect the interest of OIL, the right to seek replacement of the personnel/ goods independently if they are not as per satisfaction of OIL. It clearly indicates that both the supplies are not naturally bundled. The said supplies of the mud engineering services and supply of chemicals and additives are different supplies liable to tax under the CGST/APGST Act. Thus, in view of the discussions the observation made by the Advance Ruling Authority is upheld, rejecting the interpretation of the appellant.

Summary

Issues Involved:
1. Whether the supply of mud engineering services along with the supply of imported mud chemicals and additives provided on a consumption basis qualifies as a composite supply.
2. The applicable GST rate if the supplies qualify as a composite supply.
3. The applicability of the concessional GST rate of 5% against an Essentiality Certificate under Notification No. 50/2017-Customs dated 30th June 2017.

Detailed Analysis:

1. Composite Supply Qualification:
The appellant, a global service provider, entered into a contract with OIL India to provide mud engineering and drilling waste management services, which included the supply of mud chemicals and additives. The appellant sought a ruling on whether these supplies qualify as a composite supply under the CGST Act.

The definition of "composite supply" under Section 2(30) of the CGST Act requires that the supplies must be naturally bundled and supplied in conjunction with each other, with one supply being the principal supply. The appellant argued that both the services and goods supplied are naturally bundled and interdependent, thus qualifying as a composite supply. They cited industry practices and customer expectations to support their claim.

However, the Authority for Advance Ruling (AAR) held that the supplies do not qualify as a composite supply, stating that the supplies of chemicals and additives and mud engineering services are distinct and can be procured independently. The AAR emphasized that the supplies are not naturally bundled, as evidenced by separate invoicing and the contractual clauses allowing OIL to seek replacements independently.

The Appellate Authority upheld the AAR's ruling, agreeing that the supplies are neither naturally bundled nor supplied in conjunction with each other. The Authority referenced the CBEC Education Guide to support their conclusion, noting that the supplies do not meet the criteria for being naturally bundled in the ordinary course of business.

2. Applicable GST Rate:
Given that the supplies do not qualify as a composite supply, they are to be taxed separately under the respective HSN codes. The appellant had argued that if the supplies were considered composite, the principal supply of mud engineering services would determine the GST rate. The applicable rate for mud engineering services under SAC 9986 is 12% post-amendment (previously 18%).

3. Concessional GST Rate:
The appellant also sought clarity on the applicability of the concessional GST rate of 5% against an Essentiality Certificate under Notification No. 50/2017-Customs. The AAR ruled that this concessional rate is available at the time of importation of goods, subject to the fulfillment of specified conditions and the satisfaction of the Proper Officer.

Conclusion:
The Appellate Authority concluded that the supply of mud engineering services and the supply of chemicals and additives are distinct supplies and do not constitute a composite supply under Section 2(30) of the CGST Act. Consequently, these supplies are to be taxed separately under the respective HSN codes, and the concessional GST rate of 5% is applicable at the time of importation, subject to specified conditions. The ruling of the AAR was upheld.