TAXABILITY OF VARIOUS IMAGING PRODUCTS IS MIXED SUPPLY

[Dr. Sanjiv Agarwal]

Whether supply of various imaging products can be considered as a composite supply was tested by Advance Ruling Authority as well as Appellate Advance Ruling Authority recently. In Re: H.P. India Sales  2019 (8) TMI 30 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA; , applicant is engaged in continuous supply of imaging products, i.e., electroink, photo imaging plates, binary ink developer, printing blankets, recycled agent, imaging agent and imaging oil to resellers for exclusive use in H P Printing machine on basis of maximum usage per impression.

The AAR vide ruling dated 08.06.2018 [ IN RE : HP INDIA SALES PRIVATE LIMITED (2018) 10 TMI 1515; ], ruled that such supply was a mixed supply. Being aggrieved, assessee filed an appeal before the AAAR.

The AAR observed that a composite supply is defined as supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods and services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is the principal supply.

In the instant case, all the products are equally important for the printing to happen. It is not that the printing can take place with only Ink and that the other products are not necessary. One of the major ingredients of a composite supply is that, one of the supplies is a ‘principal supply’ and the others are subservient or incidental to it. The example given in the CGST Act is that of supply of goods alongwith freight [insurance where the supply of the goods is the principal supply. It cannot be said that the Electroink is the principal supply here and the others like the developer or the Plate are incidental- on the other hand they are equally important to complete the supply. In a supply of goods, the customer agrees to purchase the goods and then agrees to pay for the insurance/freight and it is not that the supply of goods would not be complete without the insurance/freight but it is rather vice versa. The supply of insurance/freight depends on the supply of goods. In the present case, all the Imaging products are equally necessary and it is not that any one of them is a Principal supply. Therefore, it cannot be said that this is a composite supply where the supply of Ink is a principal supply. The imaging products are supplied based on the usage cycle of the Reseller. It may be, that for the first time, the products may be supplied together but it may not happen that the products are supplied together every time. While ink may be supplied after a 1000 clicks, the others like the plate may be replaced after 2000 clicks.

Further, the products are to be used on a HP printing machine and therefore, for the best printing, the HP products only have to be used. The fact that this is so does not at all make it a composite supply as it has an element of compulsion in it whereas there is no place for compulsion in a composite supply.

The AAAR therefore, dismissed the appeal and affirmed the ruling pronounced by AAR.