2018 (11) TMI 1348 - AAR - GST

Classification of supply - composite supply or mixed supply - maintenance services rendered on customers equipment under the two agreements i.e. comprehensive maintenance services agreement and supply of parts and services agreement which also includes supply and replacement of spare parts - principal supply between goods and services - rate of GST - relevant place of supply - type of tax which needs to be discharged. Held that - The Applicant is a multiproduct, multi-division entity, engaged in manufacturing, distribution and sales agency activities of various industrial products which include metal cutting tools, mining/construction equipment, spares for mining equipment, seamless stainless steel tubes and pipes and wires and heating systems. Further, the Applicant is also engaged in the business of after sales support services for the mining equipment manufactured by its overseas group entities which are imported by the customers into India. The maintenance services rendered on customers equipment - Held that - The applicant can supply the parts or services individually or any combination thereof on a single price which is appropriately covered under mixed supply - the contention of the applicant regarding Comprehensive Maintenance Contract , that the services would be classifiable under the Composite Services, we are of the view that Services supplied under the said contract are to be treated as composite services and the tax rate applicable on the principle supply would also be applicable on the other services. Principal supply between goods and services - Held that - The consumption of goods vary substantially depending on the wear and tear of the equipment, however the consumption of services which would be critical may not vary substantially as these engineers would be stationed at the mine site and accordingly perform maintenance activities on the equipment at regular intervals. Therefore, the predominant element in the composite supply would be provision of maintenance services and the supply of goods would be ancillary to such services - the supply of maintenance services should be considered as the principal supply and the supply of other goods or services shall be ancillary to such principal supply. Rate of GST - Held that - The service code for Maintenance and repair services of commercial and industrial machinery is 9987171 and the prescribed rate of GST is (CGST @ 9% of the taxable value, SGST @ 9% of the taxable value) or IGST @ 18% of the taxable value. Relevant place of supply - type of tax which needs to be discharged - Held that - The determination of place of supply as requested by the applicant cannot be decided by the authorities for Advance Ruling constituted under Section 96 of SGST Act, 2017. The Authority constituted under the said section can determine or pronounce Advance ruling only on the issues specified under Section 97 (2) of CGST/SGST Act, 2017 and determination of place of supply has not been specified under Section 97 (2). In view of above we are not giving any finding in respect of place of supply. Ruling - The activities performed under the Comprehensive Maintenance Contract are to be treated as a composite supply of services and the activities performed under Equipment Parts Supply and Services Agreement are to be treated as Mixed Supply. In respect of the activities performed under Comprehensive Maintenance Contract , the supply of Operation & Maintenance services is the principal supply and the supply of other services are ancillary to such principal supply. The service code for Maintenance and repair services of commercial and industrial machinery is 9987171 and the prescribed rate of GST is 18% (CGST @ 9% of the taxable value, SGST @ 9% of the taxable value) or IGST @ 18% of the taxable value. For the supply of mixed services, the applicant is liable to pay the highest rate of tax as per Section 8(b) of the CGST Act, 2017.

Summary

Issues Involved:
1. Classification of maintenance services under the GST Act.
2. Determination of the principal supply between goods and services.
3. Applicable tax rate for the principal supply.
4. Relevant place of supply and type of tax to be discharged.

Issue-wise Detailed Analysis:

1. Classification of Maintenance Services:
The applicant sought clarification on whether the maintenance services provided under two agreements (comprehensive maintenance services agreement and supply of parts and services agreement) should be classified as 'composite supply' under Section 2(30) of the CGST Act and RJ SGST Act or as 'mixed supply' under Section 2(74) of the GST Act. The Authority found that the integrated contract made by the applicant is classifiable under 'composite supply' as per Section 2(30) of the GST Act, meaning it consists of two or more taxable supplies that are naturally bundled and supplied together in the ordinary course of business, with one being the principal supply. However, the contract for parts and services was classified under 'mixed supply' as per Section 2(74) of the CGST/RGST Act, 2017, where individual supplies of goods or services are made in conjunction for a single price but do not constitute a composite supply.

2. Determination of the Principal Supply:
The concept of principal supply applies only to composite supplies. The Authority determined that in the case of composite supply, the applicant is primarily providing operation and maintenance services, making these the principal supply. The supply of goods (spare parts and consumables) is ancillary to the maintenance services. The maintenance services ensure the uninterrupted operation of the equipment, and the supply of goods is incidental to these services.

3. Applicable Tax Rate for the Principal Supply:
The maintenance services provided under the agreements were classified as a composite supply of maintenance services. The applicable tax rate for these services falls under the 'Chapter Heading of 9987- Maintenance, repair and installation (except construction) services' with the Service Accounting Code (SAC) 998717. The prescribed GST rate for these services is 18% (CGST @ 9% and SGST @ 9% or IGST @ 18%). For mixed supplies, the applicant must pay the highest rate of tax as per Section 8(b) of the CGST Act, 2017, which states that a mixed supply shall be treated as a supply of that particular supply which attracts the highest rate of tax.

4. Relevant Place of Supply and Type of Tax to be Discharged:
The applicant queried about the relevant place of supply and the type of tax to be discharged (CGST & SGST or IGST). The Authority noted that the determination of the place of supply is governed by Chapter V of the IGST Act, 2017, specifically Section 10 for goods and Section 12 for services. However, the Authority for Advance Ruling under Section 96 of the SGST Act, 2017, cannot determine the place of supply as it is not specified under Section 97(2) of the CGST/SGST Act, 2017. Hence, the query regarding the place of supply was disposed of without a specific ruling.

Ruling:
1. Activities under the 'Comprehensive Maintenance Contract' are treated as a composite supply of services, while activities under the 'Equipment Parts Supply and Services Agreement' are treated as mixed supply.
2. For the 'Comprehensive Maintenance Contract,' the principal supply is the operation and maintenance services, with other services being ancillary.
3. The service code for maintenance and repair services of commercial and industrial machinery is 9987171, with a prescribed GST rate of 18%. For mixed supplies, the highest rate of tax applies as per Section 8(b) of the CGST Act, 2017.
4. The query regarding the place of supply was disposed of as it does not fall under the categories mentioned in Section 97(2) of the CGST/SGST Act, 2017.