2019 (8) TMI 30 - AAAR - GST

Classification of supply of goods - Electrolnk supplied along with consumables - time and value of supply of Electrolnk with consumables under the Indigo press contract - composite supply or Mixed supply - naturally bundling of services. HELD THAT - The Agreement is between HP and its Reseller and as per the agreement, HP appoints Reseller as an authorized, nonexclusive Reseller for the purchase and resale of Supplies subject to the terms and conditions of the Agreement. As per SUPPLIES under Section C, the resellers have a choice to go for A la -carte or the Tier programs. In the definitions, A-La-carte Program is defined as a supplies purchase program defined in Section E. Section G of the agreement lays down the main features of the Tier program, where the click of the printer is a chargeable unit for a Single Colour Separation transferred onto substrate. Clause 6 of Section G say that HP shall have the right, at its discretion, to recover Supplies on-hand at Reseller s site in excess of its and its Customers aggregate two months requirements based on the Maximum Usage per Impression or delay delivery to Reseller of additional supplies beyond the amounts in excess of two months requirements based on maximum usage Per Impression for Reseller and its Customers. - HP supplies Imaging Products to its Resellers based on the Maximum Usage per Impression. As per the appellant, these Imaging products are supplied as a naturally bundled supply in conjunction and therefore are a composite supply as per Section 2 (30) of the CGST Act. Mixed supply or Composite supply - HELD 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 present case what immediately comes to mind is that 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. Such is not the case here. 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, we cannot say that this is a composite supply where the supply of Ink is a principal supply.

Summary

Issues Involved:
1. Classification of Electrolnk supplied along with consumables under GST.
2. Determination of time and value of supply of Electrolnk with consumables under the Indigo press contract.

Issue-wise Detailed Analysis:

1. Classification of Electrolnk supplied along with consumables under GST:

The Appellant, HP India Sales Private Limited, contended that the supply of Electrolnk along with consumables should be classified as a composite supply under GST. The Advance Ruling Authority had previously ruled this supply as a mixed supply, which the Appellant challenged.

The Authority for Advance Ruling (AAR) identified the essential ingredients that constitute a composite supply, which include:
- The supply consists of two or more taxable supplies of goods or services or both.
- Such supplies are naturally bundled.
- Supplied in conjunction with each other.
- Such supplies are in the ordinary course of business, one of which is a principal supply.

The AAR concluded that while the supply of Electrolnk with consumables satisfied the first and third conditions, it did not meet the criteria of being naturally bundled and having a principal supply. Therefore, it was classified as a mixed supply.

The Appellant argued that the AAR erred in concluding that the supplies were not naturally bundled and did not have a principal supply. They highlighted that the Electrolnk and consumables were supplied together based on the HP-reseller agreement and were billed on a "per click basis," indicating a naturally bundled supply. They also pointed out that the agreement provided options for different supply models, and the restriction to use the supplies together was a normal business practice, not a compulsory condition.

The Appellant further argued that the term "compulsory supply" is not derived from the provisions of the CGST Act, 2017, and the AAR's interpretation was incorrect. They emphasized that the supply of Electrolnk with consumables was made in the ordinary course of business and was naturally bundled, as evidenced by the terms of the HP-reseller agreement and the business practices.

2. Determination of time and value of supply of Electrolnk with consumables under the Indigo press contract:

The AAR held that the supply of Electrolnk with consumables constituted a continuous supply of goods. The time of supply would be the earliest date between the date of invoice or the date of payment, as per Section 12(2) of the GST Act. The value of supply would be the transaction value as reflected in the invoice issued by the applicant.

The Appellant did not dispute this ruling and accepted the AAR's determination regarding the time and value of supply.

Grounds of Appeal:

The Appellant argued that the AAR's classification of the supply as a mixed supply was incorrect. They contended that the supply of Electrolnk with consumables met all the criteria for a composite supply, including being naturally bundled and having a principal supply. They provided detailed arguments and evidence to support their claim, including references to the HP-reseller agreement, business practices, and consumption patterns.

Discussions and Findings:

The Appellate Authority reviewed the agreement between HP and its reseller, noting that the resellers had the option to choose between the "A la carte" and "Tier" programs. The Authority found that all the products supplied were equally important for the printing process and could be supplied separately. Therefore, it concluded that the supply did not meet the criteria for a composite supply, as there was no principal supply identified.

The Authority also considered the tests for determining a composite supply, such as the perception of the consumer, the nature of the goods, and industry practices. It found that the supply did not satisfy these tests and had an element of compulsion, which is not consistent with a composite supply.

Order:

The Appellate Authority upheld the AAR's ruling, concluding that the supply of Electrolnk with consumables was a mixed supply and not a composite supply. Therefore, the appeal was dismissed, and the original order of the Advance Ruling Authority was affirmed.