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TMI Blog2018 (10) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus - STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE OUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED. 1. We, HP India Sales Private Limited (hereinafter referred to as "the Applicant" or "We"), being taxable person registered under Section 22 of the Maharashtra State Goods and Services Tax Act, 2017 (referred as "MSGST Act") read with Rule 24 of the Maharashtra Goods and Services tax Rules, 2017 (referred as "MSGST Rules"), having GSTIN 27AAACC9862F1ZI, are engaged inter alia in providing printing supplies to be used in HP's Indigo press machines supplied to customers. 2. The HP Indigo digital printing press (hereinafter referred as HP Indigo) is a printing press uniquely designed for ensuring best quality prints in the industry along with wide colour gamut, substrate versat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 12. The Applicant has contracted with authorized resellers for making supplies of ElectroInk with consumables to be used in HP Indigo presses by the customers of HP Indigo presses on a back to back basis. 13. The agreement between the Applicant and the resellers is enclosed as Annexure 2 - HP Indigo Supplier Reseller Agreement, detailing the contractual obligations and other terms of agreement. 14. The resellers also have entered into agreements with the end customers for onward sales of such printing supplies. Sample agreement between the reseller and the end customer is enclosed as Annexure 3. 15. The billing for such arrangement shall be based on "per click basis" calculated on a monthly basis depending on the series of Indigo press machine pertaining to which the goods are supplied, number of clicks and the type of print performed. 16. To illustrate, assuming a customer uses the printer to take 100 prints in a month and each print costs Rs. 10/-, then the customer shall be billed Rs. 1,000 for the Electolnk along with the consumables used for the month. 17. Accordingly, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein. iii. In this regard, Section 2(90) of the MSGST Act defines principal supply as "the supply of goods or services which constitutes predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary" iv. Accordingly, the nature of the predominant element supplied in a composite supply shall be deemed as the nature of the entire value of supply and levying the rate of GST as applicable on the principal supply. v. Drawing inference from the above legal provisions, a bundled supply of goods shall constitute a composite supply under the GST Act where the same is satisfying the following 4 tests: * Such supply involves two or more taxable supplies of goods or services or both or any combination thereof; * The supply of such goods or services is naturally bundled; * The goods or services are supplied in conjunction with each other in the ordinary course of business; and * One of such supply is the principal supply. vi. In this regard, we wish to highlight the following relevant extracts from the HP Indigo Supplier Reseller Agreement (enclosed as Annexure 2) indicating compliance with each of the above conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it for each Indigo Press Product Line under the same Supplies purchase program." Point "a" of Section G (1) - TIER PROGRAM FOR PURCHASE OF SUPPLIES BY RESELLER at page 4 a. "Click" means a chargeable unit for a Single Color Separation transferred onto substrate, except in the case of textured effect printing, where it is the action of texturing by applying pressure between the substrate and the mold. A Click unit may vary depending on the press model. The Indigo press machine requires all the Supplies do be present in the device and collectively consumed. The invoicing for such supplies is also done on a per click basis, referring to the charges for a combined use of the ElectroInk and all the other consumables supplied. Therefore, the Electolnk along with the consumables are naturally bundled. -The goods or services are supplied in conjunction with each other in the ordinary course of business Point 1 of Section B - Appointment at page 3 "1. HP appoints Reseller as an authorized, non-exclusive Reseller for the purchase and resale of Supplies subject to the terms and conditions of this Agreement. HP reserves the right to sell Supplies to all HP end-user customers and resell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard, the Applicant wishes to submit that the ElectroInk supplied under the above arrangement is the predominant element contained in the bundled supply of goods made to authorised reseller. This can be inferred by the fact that the intention of the customer is to receive quality prints from the Indigo press which cannot be supplied without the "printing ink" being loaded therein. Additionally, other goods supplied in this regard are mere ancillary products to the ElectroInk in order to support the printing of the final image onto the paper. The Applicant also submits that the HP indigo digital offset colour technology guarantees the best quality prints in the industry. Further, the liquid ink supplied in this regard is unique to indigo presses to ensure wide and accurate images matching the media. Accordingly, the printing ink supplied herein is the predominant element to ensure execution of entire supply contract by the Applicant Additionally, every product supplied herein has a separate lifespan independent of each other. Accordingly, it can be inferred that consumables are necessary only to provide support function to the activity of printing and ensuring image proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property of HP until utilized in the Press(es). HP retains a security interest in all Supplies until HP receives payment for the same. In addition, upon first request by HP, Reseller will take all steps necessary to register a security interest or lien in favor of HP in the Supplies. Reseller acquires the ''Supplies for its Customers' own use only, and may not sell or otherwise transfer such Supplies to any other third party. Reseller shall further take reasonable efforts to advise its Customers in writing of HP's title to the Supplies as detailed in this Section, require that its Customers use the Supplies provided under the Tier Programme for their own use only and refrain from selling or otherwise transferring such Supplies to any other third party. However, in case of any non-compliance on the part of the Customer with regard to the above-mentioned the same shall be solely to the account of the Customer. If this Agreement or a relevant purchase order is cancelled or terminated, HP will require Reseller to inventory the Supplies and HP shall bill Reseller for Supplies on hand at the Site and not returned to HP within the time specified by HP..." iii. The above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understands that the time of supply involved in respect of supply of ElectroInk with consumables to authorised reseller shall be based on the invoice raised basis the statement of accounts covering the number of clicks made by the customer. 22. We shall be glad to furnish such additional information and relevant documents as the Authority may require for passing its decision where the application is admitted. Prayer A. In view of the above factual and legal position, it is most humbly prayed that this Hon'ble Authority may clarify that: i. Supply of printing supplies ink to be used in an Indigo press is a Composite supply, wherein the printing ink is the principal supply; and ii. The time of supply of printing supplies is when the invoice is raised in respect to such supplies consumed in the process of generating prints by customer. Background document on HP Indigo Printing devices Introduction The HP Indigo range of digital printing presses is based on Digital Offset Colour technology and process, offering a wide range of print based services to customers. This document describes the HP Indigo Digital Offset Colour printing process and its unique features. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centrated form that is loaded into the press in cartridges in a "clean hands" operation. Inside the press it is fed into ink supply tanks, diluted with oil and combined with a charging control fluid, to form a fluid mixture of carrier liquid and colourant particles ready for printing. The mixing is done under accurate automated control, resulting in a stable ink with nearly constant physical traits, leading to consistent prints. Furthermore, ElectroInk incorporates pigments which are the same as offset; this supports both the price and the availability of the final ink product. The Printing Cycle. The HP Indigo printing engine performs the following operations sequentially : 1. Electrostatic charging of the electrophotographic Photo Imaging Plate (PIP) which is mounted on the imaging cylinder; 2. Exposure of the PIP by a scanned array of laser diodes. These lasers are controlled by the raster image processor which converts instructions from a digital file into "power" instructions for the lasers; 3. Image development performed by the Binary Ink Developer (BID) units; 4. Discharging the PIP in p-reparation for transfer; 5. Transfer of the inked image to the blanket cylinder; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of indigo press consumables The Applicant wishes to submit that the terms of reseller agreement (copy provided as Annexure 2 to the Statement of facts submitted along with the application for advance ruling) entered on July 19, 2013 stands valid as on date. Further, any rate revision required to the supply program are agreed mutually between the Applicant and the reseller from time-to-time. However, in this regard no amendment is made to the master agreement dated July 19, 2013. 2. Break-up of revenue earned by Applicant during the last financial year between tier and a-Ia-carte program The Applicant wishes to submit break-up of revenue earned during the F.Y. 2017-18 for supply of consumables used in Indigo press machines, between tier (click) and a-la-carte model as under: Sl. No. Supply model Revenue earned (in mns.) % to total revenue 1 Tier (click) Model 1,179.35 99.14 2 A-la-carte 10.28 0.86 Total 1,189.63 100 While all customers in India who have purchased Indigo machines are required to enter into click model, there are certain customers who would like to purchase inks for enhanced print. These specialized inks are being billed seperately by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble person to a recipient consisting of two or more taxable supply of goods. * The supply of such goods is naturally bundled: The term naturally bundled is not defined in the GST Act. However, in common parlance the term can be understood based on the intention of the parties to the contract. The intention plays a significant role in ascertaining whether such supplies qualify as being naturally bundled. In this regard, the Applicant wishes to draw reference to the relevant extracts of the reseller agreement (submitted as Annexure 2 to the statement of facts) to prove the intention of the parties of the contract: Section 1, Page 1 "Authorization to resell Indigo supplies........." - Redington shall not be the consumer of such goods and only an authorized representative of HP for making the supplies; Section A, Point 79, Page 2 "Tier Program means the supplies purchase program defined in Section G below, which is subject to this Agreement, and whereby the amount the Reseller shall be charged for Supplies shall be a function of the number of print impressions counted, as defined in Section D below" Section G, Point 3, Page 5 'Supplies shall remain the property of HP unti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlance refers to "being used together". In this regard the Applicant wishes to submit the following the following chart explaining the flow of indigo press consumables in effecting a print: Accordingly, to effect prints from the indigo press machine, the device shall require supplies of printing ink, binary ink developer, photo imaging plate, blanket and other ancillaries. The supplies are required to be used in conjunction with each other" to produce the desired output. Further, such supplies are made by HP in its ordinary course of business. The same is evident from the revenue details provided earlier. HP markets and supplies such consumables as a bundle. Additionally, every consumer desirous of receiving such supplies shall be billed for all the goods, irrespective of the actual consumption of the respective products. The goods are supplied to the end customer generally once a month or for some customers twice a month. The goods are not capable of being used if the same any one of them is not used as required. * One of such supply is the principal supply As evident from the chart explaining the flow of consumables, the printing ink (referred as ElectroInk) is the most pred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the customer agrees to pay the consideration on click basis, i.e. the point in time when the supply of all the consumable actually occurs. Where these consumables were not naturally bundled, the consumer would have selected different payment terms for each of the product at the respective point of their consumption. These goods are provided as a package to all the customers of the Indigo press machine under the Tier program, evidencing the fact that such consumables are used together (to effect a print) and therefore the payment is also made for the clicks made and not the consumables held in the device, b. majority of service providers in a particular area of business provide similar bundle of services. Further to the submission made earlier, the HP indigo consumables are provided as a bundled and charged on click basis globally. Also other industrial printers competitors also supply consumables as a bundle and charge on click basis. c. the nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 03. CONTENTION - AS PER THE CONCERNED OFFICER- The submission of Departments as reproduced verbatim, could be seen thus- 1) The applicant submitted that the supply of ink along with oil, plates, consumables, blanket, bib etc. to the reseller is composite supply consisting of supply of goods or services which are naturally bundled and supply with conjunction with each other in ordinary course of business, where ink is the principle supply. 2) To constitute the supply as a composite supply following 4 tests are required to be satisfy: * Such supply involves two or more taxable supplies of goods or services or both or any combination thereof. * The supply of such goods or services is naturally bundled. * The goods or services are supplied in conjunction with each other in ordinary course of business and one of such supplies is the principle supply. 3) The applicant has not provided order copy of customer and reseller to ascertain that the ink and other consumables are supplied together. Hence whether two or more taxable supplies are involved cannot be commented. 4) The applicant has submitted the consumption pattern of Electoink along with consumables suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness the supplies are made available to actual user through the network of Distributor and Reseller. The transaction between importer / manufacturer and its distributor is recognized as independent and separate transaction. Further there are separate transactions of such distributor to reseller and reseller to actual user. There is demand and supply of goods and services on regular basis. Most of times the supply is completed when the goods are removed from one entity/ location to another and tax liability has been discharged by the entity as per provisions. In this case there are two transactions, first between applicant and reseller and second between Reseller and actual user. In GST law transfer of ownership in goods is not mandatory while effecting supply, e.g. In the case of Branch transfer, the goods are owned by a specific company, still the transfer between its two branches is treated as supply. The applicant has invited attention that the ownership / secured interest lies with applicant till the payment as per clicks basis is received and therefore supply takes place only after use of ink and consumables. Hence though the payment is received after use by customer, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses on back to back basis. Further resellers also have entered into agreements with the end customers for outward sales of such printing Supplies. In this model the billing is based on 'Per Click basis' calculated on a monthly basis taking into account the number of clicks and the type of print performed. Applicant has explained the billing method with an illustration as below: Assuming a customer uses the printer to take 100 prints in a month and each print costs of Rs. 10/-, then the customer shall be billed Rs. 1000/- for the ElectroInk along with the consumables used for the month. Accordingly applicant raises monthly consolidated invoice for the click charges on the reseller and in turn the reseller raises an invoice on each of the end customers. We find that on the above factual matrix we have been called upon to decide two questions namely classification of Elecrolnk supplied along with consumables supplied under GST and the time and value of supply of ElectroInk with consumables. 5.2. we shall now deal with each question separately as below : Question 1- classification of ElectroInk supplied along with consumables under GST . On perusal of statement containin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e satisfied. The next ingredient of the composite supply for our consideration is whether these supplies are naturally bundled. The concept of bundled service has been explained in the Education Guide issued by CBEC in the year 2012 even though it is with respect to erstwhile services, it is equally useful in case of supply of goods also: 'Bundled service' means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any Other service or services. An example of bundled service 'would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. The ride is - 'If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character'. In the present case we find that supply of ElectroInk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. 1) The perception of the consumer or the service receiver 2) Majority of service providers in a particular area of business provide similar bundle of services 3) The nature of the various services in a bundle of services. 4) There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. 5) The elements are normally advertised as a package 6) The different elements are not available separately 7) The different elements are integral to one over all supply if one or more is removed, the nature of supply would be affected. We may now apply these tests to the facts of the case to determine whether a particular supply constitute a composite supply under the GST though on the basis of this alone it would not be conclusive whether the supply is composite supply until it fulfils other requirements as well. We find that the Applicant submits that 'Imaging Products' such as ElectroInk, imaging plates, binary ink developer, blanket etc. are supplied to reseller who elect to purchase supplies for the different Indigo Press Product Lines under different programs provided that the reseller shall purchase all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n two supplies. It is also not in dispute that the supplies are made in conjunction with each other and made for a single price. We have already observed that each of the supplies can be supplied separately as they are not dependent on each other and one supply of goods does not occasion the supply of other goods. As the transaction put before us satisfies all the ingredient of 'mixed supply' we conclude the transaction would come and fall under 'mixed supply' as defined in clause 74 of section 2 of the GST Act. Question 2: Determination of Time and Value of supply of ElectroInk with consumables under the Indigo press contract. 5.6. Before we decide the time of supply we shall first take into consideration the business model adopted by the applicant. Applicant has contracted with authorized reseller for making supplies of Electro Ink with consumable to be used in HP Indigo Presses by the customers of HP Presses on a back to back basis. The resellers also have entered into agreements with the end customers for onward sales of such printing supplies. The billing for such arrangement shall be based on 'per click basis' calculated on a monthly basis depending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier. (3) ............................... (4) ............................... (5) Where it is not possible to determine the time of supply under the provisions of sub-section (2) or sub-section (3) or sub-section (4), the time of supply shall- (a) in a case where a periodical return has to be filed, be the date on which such return is to be filed; or (b) in any other case, be the date on which the tax is paid. (6) The time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value. As we have already concluded that the impugned supply is a continuous supply of goods as defined in the clause 32 of section 2 of GST ACT, and therefore the provisions pertaining to time of supply in case of "continuous supply of goods "are relevant. Now we turn to time of supply in case of 'continuous supply of goods' as per section 12 of the GST Act. As per subsection 2 of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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