2025 (4) TMI 869 - AAR - GST

Classification of goods - HSN code - Geometry Compass Box supplied by the Applicant to BMC - GST rate at which the supply should have been made - HELD THAT - The goods supplied includes a metal box inside which various articles such as compass divider scale protractor set squares pencil eraser and sharpener are supplied. It is seen that the customer i.e. BMC in this case pays a single amount for the said goods thereby fulfilling the condition that the customer pays one single price for the entire package. It is also well known in commercial and general parlance by the customer that a Geometry Box will contain certain instruments used for drawing such as Compass divider scale protractor and set square. In the instant case in addition to the aforesaid items the applicant is also supplying a pencil an eraser and a sharpener in the said box. Such items are not normally advertised as a ORITY package. Further it is common knowledge that the customer can purchase a compass a divider a scale a protractor set squires pencil eraser and sharpener separately and the said items are sold separately in the market by various suppliers. Therefore the fact that the goods are available separately mitigates the assumption that the goods supplied by the applicant can be termed as a composite supply . By applying the aforementioned principles and guidelines to examine whether the goods provided by provided by the applicant can be considered as naturally bundled in a Geometry Box we find that such services are not naturally bundled with each other in the ordinary course of business. Each individual items can be purchased separately and the specific combination of goods supplied in the geometry box by the applicant is not a combination which can be termed as naturally bundled and sold in the commercial market. Therefore this combination cannot be treated as naturally bundled in the ordinary course of business. Since the combination of goods sold by the applicant cannot be treated as a composite supply the goods sold by the applicant will be considered to be a mixed supply involving supply of various goods. Conclusion - i) The Geometry Compass Box supplied by the applicant to BMC amounts to mixed supply u/s. 2 (74) and is appropriately classifiable under Chapter Sub Heading 90178010 being HSN of the goods that attracts highest rate of tax. ii) The rate of GST applicable would be 18%.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Authority for Advance Ruling (AAR) were:

(a) What is the correct Harmonized System of Nomenclature (HSN) code applicable to the Geometry Compass Box supplied by the applicant to the Brihan Mumbai Municipal Corporation (BMC)?

(b) What is the applicable Goods and Services Tax (GST) rate on the said supply?

These questions arose due to conflicting classifications and GST rates proposed by the applicant and the BMC, necessitating authoritative clarification.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of the Geometry Compass Box under the correct HSN code

Relevant Legal Framework and Precedents: The classification was to be determined under the GST regime, specifically referring to the CGST Act, 2017 and MGST Act, 2017, and the applicable GST notifications prescribing rates against HSN codes. The Customs Tariff Act, 1975, was also referred to for detailed HSN code descriptions.

The applicant contended that the product should be classified under HSN 90172010, which covers "Drawing, marking-out or mathematical calculating instruments," attracting an 18% GST rate. The BMC contended the classification should be under HSN 73102910, which pertains to "Mathematical boxes, geometry boxes and colour boxes," attracting a lower GST rate of 6%.

Court's Interpretation and Reasoning: The AAR examined the descriptions of both HSN codes in detail. HSN 7310 relates to containers or boxes made of iron or steel, such as tanks, casks, drums, and boxes primarily serving as containers. The applicant's product was not merely a container but included multiple articles such as compass, divider, scale, set squares, protractor, pencil, eraser, and sharpener.

HSN 9017 covers various drawing and mathematical instruments, including compasses and protractors. The applicant's product contained these instruments and additional stationery items.

The AAR noted that the product supplied was a collection of various items placed in a metal box, marketed as a "Geometry Compass Box." The question was whether this constituted a single product or a composite/mixed supply of individual goods.

Key Evidence and Findings: The applicant submitted product descriptions, pictures, and the purchase order details. The BMC's purchase order mentioned HSN 73100000 and a GST rate of 12%, but the applicant applied HSN 90172010 with 18% GST. The AAR also examined the Customs Tariff Act's detailed HSN descriptions to ascertain the correct classification.

Application of Law to Facts: The AAR applied the definitions of composite supply (Section 2(30) CGST Act) and mixed supply (Section 2(74) CGST Act). Composite supply involves goods or services naturally bundled and supplied together with one principal supply, whereas mixed supply involves multiple supplies made together for a single price but not naturally bundled.

Using CBIC's Education Guide and FAQs, the AAR analyzed whether the items in the box were naturally bundled. It found that although the box contained various drawing instruments, it also included items like pencil, eraser, and sharpener, which are not normally part of a geometry box and are sold separately in the market. The customer pays a single price for the entire package, but the individual items are not naturally bundled in ordinary business practice.

Treatment of Competing Arguments: The applicant argued for classification under HSN 90172010 as the product is a set of mathematical drawing instruments. The BMC argued for classification under HSN 73102910, treating the product as a geometry box container made of metal. The AAR rejected the BMC's argument that the entire product should be classified as a container under HSN 7310 because the supply included multiple articles beyond just the metal box.

Conclusions: The AAR concluded that the supply constituted a mixed supply of various goods rather than a composite supply or a single product. Hence, individual items should be classified under their respective HSN codes.

Issue 2: Determination of the applicable GST rate on the supply

Relevant Legal Framework and Precedents: Section 8 of the CGST Act governs tax liability on composite and mixed supplies. For mixed supplies, the tax rate applicable is that of the supply attracting the highest rate of tax.

Court's Interpretation and Reasoning: Since the supply was held to be a mixed supply, the AAR examined the GST rates applicable to each item in the box. The metal box (geometry box) attracts 12% GST, compass and similar instruments attract 12%, scale attracts 18%, pencil sharpener attracts 12%, pencil attracts 12%, and eraser attracts 5% GST.

The highest GST rate among these is 18% applicable to the scale (90178010).

Key Evidence and Findings: The GST rate notifications and schedules were referred to, confirming the rates applicable to each item.

Application of Law to Facts: Applying Section 8(b) CGST Act, the entire supply attracts the highest rate of tax, i.e., 18%.

Treatment of Competing Arguments: The applicant's contention for 18% GST was accepted. The BMC's lower rate contention was rejected based on the classification analysis.

Conclusions: The GST rate applicable on the mixed supply of the Geometry Compass Box is 18% (9% CGST + 9% SGST).

3. SIGNIFICANT HOLDINGS

The AAR held:

"The Geometry Compass Box supplied by the applicant to BMC amounts to mixed supply u/s. 2 (74) and is appropriately classifiable under Chapter Sub Heading 90178010, being HSN of the goods that attracts highest rate of tax."

"The rate of GST applicable would be 18% (9% CGST + 9% SGST)."

Core principles established include:

• The classification of goods supplied as a set must consider whether the supply is a composite supply (naturally bundled) or a mixed supply (not naturally bundled).
• Goods that are individually available and not ordinarily bundled in the market cannot be treated as composite supply merely because supplied together in a box.
• For mixed supplies, the GST rate applicable is that of the item attracting the highest rate.
• HSN classification must be consistent with the nature of goods supplied, not merely the container or packaging.