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2025 (4) TMI 226 - AAR - GSTScope of Supply - inclusion of a free Scraping Tool in the pack of Apsara Oil Pastels - independent supply of the scrapping tool under Section 7 of the CGST Act 2017 - classification and rate of tax on supply of the Apsara Oil Pastels with Free Scraping Tool - HELD THAT - There is a supply of scrapping tool which is very much a part and parcel of the kit containing Apsara oil pastels with free scraping tool . The averment of the scraping tool being an accessory to the main product does not fulfil the criterion set forth that the oil pastel and the scraping tool are integral to the overall supply ie if the scraping tool is removed the nature of the supply would be affected - the product of the applicant Apsara Oil Pastels with free scraping tool would not fall under the ambit of composite supply. The applicant supplies two products in a single pack/box for a single price. Further as already discussed supra such supply does not constitute composite supply. Therefore the applicant s product is covered under the category of mixed supply as defined under section 2 (74) of CGST Act 2017. Tax liability in respect of a supply falling under the ambit of mixed supply is governed by section 8 (b) of CGST Act 2017 - HELD THAT - The provision specifies that the tax liability of a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the higher rate of tax in the mixed supply. The product Apsara Oil Pastels with free scraping tool is classifiable under HSN 3926 and would attract GST @ 18% in terms of entry no 111 of schedule-III. Conclusion - i) Inclusion of a free Scraping Tool in the pack of Apsara Oil Pastels amounts to independent supply of the scrapping tool under Section 7 of the CGST Act 2017. ii) Apsara Oil Pastels with free Scraping Tool is classifiable under HSN 3926 and is leviable to GST @ 18%.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are: 1. Whether the inclusion of a free 'Scraping Tool' in the pack of Apsara Oil Pastels constitutes an independent 'supply' of the scraping tool under Section 7 of the CGST Act, 2017. 2. What is the classification and rate of tax applicable to the supply of 'Apsara Oil Pastels with Free Scraping Tool' under the provisions of the CGST Act, 2017 and the GGST Act, 2017? ISSUE-WISE DETAILED ANALYSIS Issue 1: Inclusion of Scraping Tool as Independent Supply Relevant legal framework and precedents: Section 7 of the CGST Act, 2017 defines the scope of supply, which includes all forms of supply of goods or services made for a consideration in the course of business. The applicant argued that the scraping tool, being free of cost, does not constitute a supply. Court's interpretation and reasoning: The Court found that the inclusion of the scraping tool in the kit with oil pastels is a supply. Despite being offered free of charge, the scraping tool is part of the overall supply of the kit, which is sold for a consideration. The Court referenced Circular No. 92/11/2019-GST, which clarifies that offers like 'Buy One, Get One Free' are not individual supplies of free goods but rather a combination of supplies offered for a single price. Key evidence and findings: The Court noted that the entire kit, including the scraping tool, is sold for a consideration. The argument that the scraping tool is not a supply because it is free was found untenable. Application of law to facts: The Court applied Section 7 of the CGST Act, determining that the scraping tool is indeed part of the supply of the kit, despite being offered without a separate charge. Treatment of competing arguments: The applicant's reliance on previous rulings in unrelated contexts was dismissed as irrelevant to the present case. Conclusions: The Court concluded that the inclusion of a scraping tool in the pack of Apsara Oil Pastels constitutes an independent supply under Section 7 of the CGST Act, 2017. Issue 2: Classification and Tax Rate of the Combined Product Relevant legal framework and precedents: Section 2(30), 2(90), and Section 8 of the CGST Act, 2017 define composite and mixed supplies. The applicant argued that the supply should be classified as a composite supply, with oil pastels as the principal supply. Court's interpretation and reasoning: The Court disagreed with the applicant's classification as a composite supply. It found that the scraping tool and oil pastels are not naturally bundled or integral to each other, as required for a composite supply. Instead, it determined the supply to be a mixed supply under Section 2(74) of the CGST Act. Key evidence and findings: The Court considered the definitions and examples of composite and mixed supplies, noting that the scraping tool is not essential to the use of oil pastels and can be sold separately. Application of law to facts: The Court applied the criteria for mixed supply, concluding that the supply of oil pastels with a scraping tool meets these criteria, as the products are sold together for a single price but are not naturally bundled. Treatment of competing arguments: The applicant's arguments regarding the accessory nature of the scraping tool and its integration with oil pastels were rejected due to lack of supporting evidence. Conclusions: The Court concluded that the supply is a mixed supply and should be taxed at the higher rate applicable to the scraping tool, which is 18% under HSN 3926. SIGNIFICANT HOLDINGS The Court held that: (i) The inclusion of a free 'Scraping Tool' in the pack of Apsara Oil Pastels amounts to an independent 'supply' of the scraping tool under Section 7 of the CGST Act, 2017. (ii) The product 'Apsara Oil Pastels with Free Scraping Tool' is classifiable under HSN 3926 and is subject to GST at 18%, as it constitutes a mixed supply. Core principles established: The judgment clarifies that the inclusion of free items in a product package can still constitute a supply under GST if the overall package is sold for a consideration. Additionally, it establishes that supplies not naturally bundled or integral to each other should be classified as mixed supplies, subject to the highest applicable tax rate.
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