2022 (6) TMI 1203 - AAR - GST

Classification of supply - composite supply or not - arrangement for overhaul and repair of engines - principal supply in overhaul and repair of engines is services or not - rate of tax (GST) for all supplies (consisting of parts/ sub-assemblies and repair services) - HELD THAT - The applicant has itself stated that the impugned supply can be sub divided into 4 types of supplies out of which it wants this Authority to consider only 2 types of supplies for decision. In other words, it means that the supply under the impugned Tender cannot be considered as a single composite supply of goods and services or both which are naturally bundled because the applicant itself has divided the Tender into 4 different supplies. It is observed that the Tender is for one Work Order comprising of different types of activities and arrangements all under one document and the applicant wants this Authority to divide the impugned activities artificially in four parts and answer the questions pertaining only to Major overhaul and Overhaul / repair of sub-assemblies. Such division of the single Tender to answer particular situations and ignore other situations will not be the right way to go forward and therefore this Authority will not be able to answer the questions raised by the applicant. Hence the questions raised by the applicant in respect of activity Major overhaul and Overhaul / repair of sub-assemblies, are not being answered.

Issues Involved:
1. Whether the arrangement for overhaul and repair of engines constitutes a "composite supply".
2. Whether the "principal supply" in the overhaul and repair of engines is 'services'.
3. Whether the rate of tax (GST) for all supplies (consisting of parts/sub-assemblies and repair services) is 18%.

Issue-wise Detailed Analysis:

1. Whether the arrangement for overhaul and repair of engines constitutes a "composite supply":

The applicant, M/s Cummins India Limited, contended that the overhaul and repair arrangement with ONGC should be considered a "composite supply" as defined under Section 2(30) of the CGST Act. They argued that the supply involves both goods (parts/sub-assemblies) and services (repair and overhaul), which are naturally bundled and supplied together in the ordinary course of business. The applicant emphasized that the principal supply in this arrangement is the service of repair and overhaul.

However, the Authority observed that the applicant had divided the supply under the Tender into four different supplies (A, B, C, and D) in their submissions. They also noted that the applicant withdrew their application for parts A and B, which involved only the supply of services. Consequently, the Authority concluded that the supply under the Tender cannot be considered a single composite supply of goods and services or both, as the applicant itself had divided the Tender into different supplies. Therefore, the Authority did not answer the question regarding the arrangement being a composite supply.

2. Whether the "principal supply" in overhaul and repair of engines is 'services':

The applicant argued that the principal supply in the overhaul and repair arrangement is the service of repairing and maintaining engines. They supported this by stating that the dominant intention of the transaction is to provide specialized services to keep the engines in working condition, with the supply of parts being ancillary to the service. The applicant referred to various legal precedents and rulings to support their claim.

The Authority, however, did not provide a direct answer to this question. They noted that the applicant had divided the supply into different parts and had withdrawn their application for parts A and B. As a result, the Authority found it inappropriate to answer the question regarding the principal supply being a service, given the divided nature of the supply under the Tender.

3. Whether the rate of tax (GST) for all supplies (consisting of parts/sub-assemblies and repair services) is 18%:

The applicant contended that the rate of tax applicable to the overhaul and repair arrangement should be 18%, as it is a composite supply with the principal supply being a service. They argued that the tax rate for services under Notification No. 11/2017-C.T.(R) is 18%, and since the principal supply is a service, the entire supply should be taxed at this rate.

The Authority did not provide a direct answer to this question either. They reiterated that the applicant had divided the supply into different parts and had withdrawn their application for parts A and B. Given this division, the Authority found it inappropriate to answer the question regarding the tax rate for the entire supply under the Tender.

Conclusion:

The Authority did not answer any of the three questions posed by the applicant. They concluded that the supply under the Tender cannot be considered a single composite supply due to the applicant's division of the supply into different parts. Consequently, the questions regarding the principal supply being a service and the applicable tax rate were also not answered.

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