2022 (3) TMI 181 - AAAR - GST

Classification of supply - supply of goods or supply of services - printed leaflet supplied by the applicant - classified under CHS No. 4901 or under SAC No. 9899? - HELD THAT - The appellant is engaged in the activity of printing leaflets (further divided into insert/outsert) the said activity is done on the inputs namely paper ink owned by the appellant himself and content supplied by the clients mainly located in the pharmaceutical sector - the basic transaction between the appellant (supplier) and the clients (recipient) is that the client (mostly from the pharmaceutical sector) approaches the appellant (supplier) with the content/instructions that is required to be printed in the form of leaflet. The paper and the ink used in printing is owned by the appellant. The transaction is considered to be completed only when the desired content/instructions is printed in the desired format by the appellant (supplier) and handed over to the customer. Thus in this transaction. there is an element of supply of goods as well as supply of service. The appellant is also on record to accept that in the instant case there is a supply which comprises of goods as well as that of service. The term naturally bundled has not been defined in the act; however if various elements of supply are naturally bundled in the ordinary course of business then it is to be considered as being naturally bundled. The concept or ordinary course of business depends on the normal or frequent practice followed in the area of business - Another condition is that the supplies should be made in conjunction. As per the Cambridge dictionary meaning the noun Conjunction is a situation in which the events or conditions happen together. In the instant case the supply of goods as well as the service happens at the same time hence the supply can be considered to be in conjunction - it can be safely deduced that the supply made by the applicant is a composite supply the same has also be accepted by the appellant in their grounds of appeal. The appellant as a part of their defence has also put forth their practical difficulties while discharging their legal obligation under EPCG/ Advance License Scheme or under supplies to SEZ they have also shown their inability to claim refund under the category of deemed export. Without going into the merits of the practical difficulties presented by them we observe that such arguments should not have any bearing on the outcome of the legally explained order. The classification of goods or services cannot be made merely on the ground that classifying their supply in a particular manner will deprive them from other benefits. There are no infirmity in the ruling of the Advance Ruling Authority.

Summary

Issues Involved:
1. Classification of the supply of printed leaflets.
2. Determination of whether the supply constitutes goods or services.
3. Interpretation of relevant GST provisions and circulars.
4. Practical difficulties faced by the appellant under various schemes.

Detailed Analysis:

1. Classification of the Supply of Printed Leaflets:
The appellant, engaged in printing leaflets using their own paper and ink but with content supplied by clients, sought clarification on whether this activity falls under the category of supply of goods (CHS No. 4901) or supply of services (SAC 9989). The Advance Ruling Authority ruled that printing of pamphlets/leaflets falls under the category of supply of service (SAC No. 9989).

2. Determination of Whether the Supply Constitutes Goods or Services:
The appellant argued that the supply of leaflets should be classified as goods under HSN No. 4901, citing historical classification under the Central Excise regime and various pronouncements. They contended that the transaction involved the supply of goods (leaflets) with the ancillary service of printing. The appellant referenced Section 8(a) of the CGST Act, 2017, which states that in the case of composite supply, the tax liability should be determined based on the principal supply. They asserted that the principal supply in their case was the leaflet (goods), not the printing (service).

3. Interpretation of Relevant GST Provisions and Circulars:
The appellate authority examined the CBIC Circular No. 11/11/2017-GST dated 20.10.2017, which clarified the taxability of printing contracts. The circular distinguished between items like books, pamphlets, brochures (where printing is the principal supply, thus classified as services) and items like printed envelopes, letter cards (where the goods are the principal supply, thus classified as goods). The authority found that the appellant’s case fell under the former category, as the primary purpose of the transaction was to print content provided by the client, making the printing service the principal supply.

4. Practical Difficulties Faced by the Appellant Under Various Schemes:
The appellant highlighted practical difficulties in fulfilling export obligations and claiming refunds under the EPCG/Advance License Scheme and SEZ supplies if their supply was classified as services. However, the appellate authority stated that practical difficulties should not influence the legal classification of the supply.

Conclusion:
The appellate authority upheld the ruling of the Advance Ruling Authority, confirming that the supply of printed leaflets by the appellant constitutes a supply of services under SAC No. 9989. The appeal was disposed of accordingly, with no changes to the original ruling.

Ruling:
For the reasons discussed, the appellate authority found no reason to interfere with the order of the Advance Ruling Authority, thereby disposing of the appeal accordingly.