2018 (10) TMI 257 - AAR - GST

Classification of Supply - composite or mixed supply? - supply of comprehensive annual maintenance service - principal supply - place of provision of service - service recipient - taxability. Whether supply of comprehensive annual maintenance service which may also involve incidental supply of spare parts/ goods should be classified as a composite supply or mixed supply? In case the said contract is considered as composite supply, what is the principal supply between goods or services? In case goods are considered as principal supply, how the taxability should be determined considering i. The contract would entail supply of various goods falling under different tax brackets; ii. These goods would be supplied on a need basis as and when required at different point(s) of time and iii. There is no fixed value ascribed for goods in the contract considering these goods would be supplied depending upon condition of the locomotive at the time of maintenance. In case services are considered as principal supply, what tax rate should be applicable? In case of the said contract, what is the relevant place of supply and type of tax which needs to be discharged (i.e. CGST & SGST or IGST)? Held that - The said contract merits to be considered to be a composite supply of service and principal supply is service inasmuch as the supply of goods is merely incidental to the maintenance contract in the given facts and circumstances - In terms of Section 8 of the CGST Act, 2017 / SGST Act, 2017, it has been clarified that a composite supply comprising two or more supplies, one of which is a principal supply would be treated as supply of such principal supply. The essential conditions for a supply to qualify as composite supply can be highlighted as a. Two or more taxable supplies of goods or services or both; b. The taxable supplies should be naturally bundled; c. The taxable supplies should be supplied in conjunction with each other; and d. One taxable supply should be a principal supply - In such case, the supply which is the principal supply is treated as the main supply and the entire transaction should be eligible to GST as per the principal supply. Where the service provider and service recipient of a service are located in India, the provisions of Section 12 of the of IGST Act, 2017 determine the place of supply of services. Sub-section (10) of Sec. 12 ibid enjoins that place of supply if service on-board a train shall be the first scheduled points of departure of the convenience. If the location of the supplier and place of are not in the same State or Union territory, it shall be treated as inter-State supply of Services and IGST shall be levied, otherwise CGST & SGST shall be levied - If the supply of services is not made on-board a train, the location of a registered service recipient shall be the place of supply of service as per Section 12(2) ibid. Ruling - Since the supply of maintenance service is for a one and fixed price with or without supply of spare parts/goods and supply of service and goods is made in conjunction with each other in the ordinary course as per maintenance contracts, this maintenance service to the extent of presence of all the necessary ingredients cited in the legal provisions quoted supra, is naturally bundled with the incidental supply of goods., it is case of composite supply of service. The said contract merits to be considered to be a composite supply of service, and principal supply is service inasmuch as the supply of goods is merely incidental to the maintenance contract in the given facts and circumstances. The supply is considered to be supply of services. The Service Code for the maintenance and repair service of transport machinery and equipment is 998714 and the prescribed rate of GST is CGST @ 9% of the taxable value, SGST @ 9% of the taxable value or IGST @ 18% of the taxable value. Where the service provider and service recipient of a service are located in India, the provisions of Section 12 of the IGST Act, 2017 determine the place of supply of services - The place of supply of services on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, shall be the location of the first scheduled point of departure of that conveyance for the journey.

Summary

Issues involved:
1. Classification of comprehensive annual maintenance service as composite supply or mixed supply.
2. Determination of principal supply between goods or services in a composite supply contract.
3. Taxability determination for goods supplied under a composite supply contract.
4. Applicable tax rate for services in a composite supply contract.
5. Relevant place of supply and type of tax to be discharged in the contract.

Analysis:
1. The applicant sought clarification on whether the comprehensive annual maintenance service, which may involve the supply of spare parts, should be classified as a composite supply or mixed supply. The ruling determined that since the maintenance service is provided for a fixed price with or without spare parts and is naturally bundled with the supply of goods, it qualifies as a composite supply.

2. In the case of the composite supply contract, the ruling established that the principal supply is the service itself, as the supply of goods is merely incidental to the maintenance contract based on the facts presented.

3. The ruling found that taxability determination for goods under the composite supply contract was not applicable as the contract primarily involved the supply of services, making the question of goods being the principal supply irrelevant.

4. Regarding the applicable tax rate for services in the composite supply contract, the ruling referred to the Service Code for maintenance and repair services of transport machinery and equipment, with the prescribed GST rates of CGST @ 9%, SGST @ 9%, or IGST @ 18% of the taxable value.

5. The ruling addressed the relevant place of supply and type of tax to be discharged in the contract. It highlighted that if the service provider and recipient are in India, the place of supply is determined as per Section 12 of the IGST Act, with specific provisions for services provided on-board a train and the implications for inter-State supply of services.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the rulings provided by the Authority for Advance Ruling in Uttar Pradesh.