2018 (10) TMI 598 - AAR - GST

Levy of GST - Supply or not? - naturally bundled services - placement of specified medical instruments to unrelated customers - Whether the placement of specified medical instruments to unrelated customers like hospitals. labs etc, for their use without any consideration, for a specific period constitute supply? - Whether such movement of goods constitutes otherwise than by way of supply under GST? Held that - The name of agreement executed between the parties is styled as the reagent supply and instrument use agreement. The applicant provides instrument for the use of the customer subject to a condition that customer shall procure agreed quantity of products as per the scheduled time limit. The customer is also responsible for the Cost of any repairs required in connection with any damage caused to the instrument due to negligence or misuse. The agreement between the parties, established that the supply of two components are indispensable for the fulfillment of contract and getting required output - the supply of two components based on the strength of agreement qualifies the concept of combination or two or more naturally bundled supply and becomes composite supply. The supply of instrument and the products to a hospital/ laboratory is for monetary consideration. Being a composite supply, it is the discretion of the parties to fix the point of exchange of consideration. While supplying the instrument, the applicant deferred the consideration and merged it with the price of products like reagents, calibrators, disposals etc - There is clear provision in the agreement to the effect that, if the customer fails to meet its exclusive purchase obligation or its minimum purchase obligation, the applicant shall have the right to recover the deficit amount from the customer. From this, it is clear that the price realized from the Customer includes subsumed rent of the equipment also. That is why if required quantity of consumable is not used, the customer hospital has the liability to pay the deficit amount. The different elements of the transaction as evidenced by the agreement; namely the provision of the right to use the machine / instrument without consideration and the supply of reagents etc for consideration with a Clause that a minimum amount / quantity of such reagents etc shall be procured are integral to an overall supply namely; the right to use the machine instrument; which is the principal supply. Hence as per provisions of Section 8 of the GST Acts;, the entire transaction is liable to GST under Sl No. 17 (iii) - Heading 9973 - Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other consideration. Ruling - The placement of specified medical instruments to unrelated customers like hospitals, labs etc. for their use without any consideration, against an agreement containing minimum purchase obligation of products like reagents, calibrators, disposals etc for a specific period constitute composite supply. The principal supply is the transfer of right to use of any goods for any purpose and is liable to GST under Sl No. 17 (iii) - Heading 9973 of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017.

Summary

Issues Involved:
1. Whether the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., without consideration, for a specific period constitutes supply?
2. Whether the movement of goods constitutes otherwise than by way of supply under GST?

Analysis:

Issue 1: Placement of Medical Instruments as Composite Supply
The applicant places medical instruments at hospitals or labs without consideration, with the customer having the right to use the equipment during the contract period. The agreement binds the customer to procure specified products from the applicant. The agreement is for the supply of both the instrument and the products, making it an indivisible contract. The supply of the instrument and products is naturally bundled, constituting a composite supply. The applicable tax rate is determined by the principal supply, which is the instrument, taxed at 18% GST. The applicant's attempt to split the supply through independent transactions is considered a colorable business model to avoid higher tax rates applicable to composite supplies.

Issue 2: Transfer of Right to Use Goods
The agreement establishes that the supply of the instrument and products is interdependent, forming a composite supply. The consideration charged for the products is linked with the right to use the instrument. The transaction is deemed as the transfer of the right to use goods for consideration, falling under Heading 9973 of the GST Act. The entire transaction, including the supply of products, is liable to GST under this provision.

Conclusion:
The ruling states that the placement of medical instruments without consideration, along with a minimum purchase obligation for products, constitutes a composite supply. The principal supply is the transfer of the right to use goods, subject to GST under the relevant notification.