2019 (8) TMI 1218 - AAR - GST

Classification of supply - Composite supply or not - Ex works plus freight and insurance - CBEC C Flyer no. 4 dtd. 01.01.2018 - HELD THAT - It is specifically mentioned in the illustration that Goods packed and transported with insurance, then supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected is also indicative of bundling of services in ordinary course of business as mentioned in the CBEC C Flyer no. 4 and the case of the applicant is the similar one - The above is applicable to the case of the applicant and hence Ex works plus freight and insurance to be treated as composite supplies. Levy of GST - showing and charging freight and insurance portion separately in invoice - HELD THAT - If freight and insurance portion are shown and charged separately in invoice, it would not change the fact that the supply is a composite supply and hence there cannot be different type of treatments of tax liability of supply of different goods/services naturally bundled together - it is very clear that freight and insurance, charged by the supplier to the recipient of a supply, is included in the value for charging of tax under The Central Goods and Service Tax Act, 2017 and Gujarat Goods Services Tax Act, 2017. Inclusions specified in section 15(2) which is to be added to the transaction value under GST - HELD THAT - The arranging of delivery of goods is the responsibility of supplier and accordingly transportation insurance (anything done before delivery of goods) being arranged by supplier. The actual freight cost incurred by supplier varies with pre contracted price with buyer - GST is applied on supply of goods or services. If there are two values of any supply, then GST is to be taxed on the higher value of supply. Hence in this case, the higher of the two value i.e. the actual cost of Freight and insurance or the pre contracted fixed freight per unit of the product, shall be included in the value of composite supply.

Summary

Issues Involved:
Charging of GST on Freight and Insurance

Analysis:
1. Nature of Supply: The applicant, M/s. Aditya Birla Nuvo Limited, raised queries regarding the treatment of Ex works plus freight and insurance as composite supplies. They argued that as per the definition of composite supply under section 2(30) of The Central Goods and Service Tax Act, 2017, goods, packing materials, transport, and insurance form a composite supply with goods being the principal supply. The applicant contended that their product is a principal supply and freight and insurance are part of the composite supply, emphasizing that the product cannot be sold without including freight and insurance. They also mentioned that if they do not charge GST on freight, the liability would fall on the recipient to pay under the reverse charge mechanism. The applicant believed that they were providing a composite supply, including freight and insurance.

2. Contractual Terms: The applicant highlighted that their contract price includes Ex works and local transportation, insurance, and other incidental services. They argued that the consideration for their performance is exclusive of taxes and duties, which are reimbursable by the recipient, Power Grid Corporation of India Ltd. (PGCIL). However, PGCIL was not agreeing to pay GST on the freight element. The applicant suggested that PGCIL should seek clarity on the applicability of GST through an advance ruling.

3. Legal Provisions: The Central Goods and Services Tax Additional Commissioner, Vadodara-II, supported the applicant's interpretation based on the definition of composite supply under the GST Act. The judgment referred to the CBEC & C Flyer no. 4, which outlines indicators of a composite supply, such as the main service and ancillary services bundled together for better enjoyment of the main service. The ruling concluded that Ex works plus freight and insurance should be treated as composite supplies.

4. Tax Liability: The judgment clarified that showing and charging freight and insurance separately in the invoice would not change the fact that the supply is a composite supply. The ruling emphasized that different treatments for tax liability on naturally bundled goods/services are not permissible. Additionally, it was determined that the value of freight and insurance reimbursed by the buyer, whether based on actual cost or pre-contracted fixed freight per unit, should be included in the value of the composite supply for GST calculation.

In conclusion, the ruling by the Authority for Advance Ruling in Gujarat affirmed that Ex works plus freight and insurance should be treated as composite supplies under the GST Act. It clarified the tax liability on such supplies and emphasized the inclusion of freight and insurance charges in the value for GST calculation, irrespective of how they are invoiced.