2018 (12) TMI 1275 - AAR - GST

Classification of supply - Composite supply or mixed supply - Transfer of right to use - activities / transactions of renting of workwear - Transfer of right in goods or not - entry 5 (f) of Schedule II of Central Goods and Services Act, 2017. Held that - It is clear that for the contractual period, the ownership of the workwear rests with the applicant and only the right to use the workwear is intended to be passed on to the customer for the period of contract - the activity of renting workwear qualifies as transfer of the right to use any goods for any purpose (whether or not for a specialized period) for cash, deferred payment or other valuable consideration and thus would be categorized as supply of services within the meaning of entry 5(f) of Schedule II of the GST Act. Renting of work wear along with other services such as transportation, weekly washing etc - The provision of renting of workwear is combined with provision of ancillary services such as transportation, weekly clearing, maintenance, repairs and finishing of the said workwear. Thus applicant satisfies one of the conditions that is essential character of Bundled Service of the composite supply - also, services other than renting of workwear are being supplied not in the ordinary course of business but under the compulsion imposed by the applicant on the customer. If the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be mixed supply - the possibility of the present transaction being a composite supply is already ruled out, and the fall out is that the transaction qualifies as a mixed supply as defined in section 2(74) of the GST Act. Ruling - The activities/transactions of renting of workwear qualify as transfer of right to use of goods in terms of entry 5 (f) of Schedule II of Central Goods and Services Act, 2017. The supply of renting of workwear along with other services such as transportation, weekly washing etc. for a single consideration is a mixed supply under section 2 (74) of CGST Act.

Summary

Issues Involved:

1. Classification of activities/transactions of renting of workwear.
2. Nature of supply: whether it qualifies as "composite supply" or "mixed supply".
3. Principal supply and applicable GST rate if the transaction is a "composite supply".

Issue-wise Detailed Analysis:

1. Classification of Activities/Transactions of Renting of Workwear:

The key question was whether the renting of workwear qualifies as a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act or as a "transfer of right in goods" under entry 1(b) of Schedule II of the CGST Act. The judgment highlights that the applicant retains ownership of the workwear while transferring the right to use to the customer. The workwear is tailor-made and marked with logos, making it identifiable. The court referred to the case of M/s. G.S. Lamba & Sons vs. State of Andhra Pradesh, where similar conditions were held to constitute a "transfer of right to use". Based on these observations, the judgment concluded that the activities/transactions qualify as a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act.

2. Nature of Supply: Composite Supply vs. Mixed Supply:

The judgment examined whether the supply of renting workwear along with ancillary services such as transportation, weekly washing, etc., for a single consideration qualifies as a "composite supply" or a "mixed supply". The definition of "composite supply" under Section 2(30) of the CGST Act requires that the supplies be naturally bundled and supplied in conjunction with each other in the ordinary course of business. The applicant argued that these services are naturally bundled, citing the Education Guide issued by CBEC in 2012. However, the judgment found that services like washing, maintenance, and transportation are standalone services and are available separately. The applicant had also provided only "washing services" to a customer in the past, indicating that these services are not naturally bundled. Consequently, the judgment ruled that the supply does not qualify as a "composite supply" but as a "mixed supply" under Section 2(74) of the CGST Act.

3. Principal Supply and Applicable GST Rate:

Since the transaction was determined to be a "mixed supply", the judgment did not need to address the questions regarding the principal supply and the applicable GST rate. The applicable rate for mixed supplies is determined by the highest rate applicable to any of the supply's constituents.

Order:

1. The activities/transactions of renting of workwear qualify as a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act.
2. The supply of renting workwear along with other services such as transportation, weekly washing, etc., for a single consideration is a "mixed supply" under Section 2(74) of the CGST Act.
3. The questions regarding the principal supply and applicable GST rate were not required to be answered due to the determination that the transaction is a "mixed supply".