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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 ..... ied in conjunction. Thus the ingredients of the definition of composite supply are satisfied. Whether these supplies are naturally bundled? - Held that:- The supply of ElectroInk with consumables by the applicant to the distributor/reseller constitute bundled supply which involves more than two taxable supplies of goods. The dictionary meaning of the word 'Naturally' with reference to supply implies that it should be in the natural manner or is happing or existing as a part of nature and not made or done by the people - In the present case and per the terms of the HP's agreement with reseller / customer which provides that "Reseller may elect to purchase Supplies for the different Indigo Press Product Lines under different programs, provided that Reseller shall purchase all of the Supplies required by it for each Indigo Press Product Line under the same Supplies purchase program." This clause of the purchase agreement assume significance of the factual background that there exists a notable difference between the conventional offset and HP Indigo Digital offset Printing Technology. The terms of the contract as mentioned above clearly indicate that the recipient of the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within 15 days from the end of each calendar month with respect to supplies made in the preceding month. Section 31 (4) is the relevant section where provisions are made for issue of invoice in case of continuous supply of goods. Time of supply - Held that:- The applicant has to raise invoice on or before 15th day from the end of each calendar month with respect to supplies made in the preceding month. Thus the time of supply in the present case will be the earliest date between the date of invoice or the date of payments with respect to impugned supply as per the provisions of section 12(2) of the GST Act. Vlues of supply of ElectroInk with consumables under the Indigo Press Contract - Held that:- The impugned transaction is a mixed supply with nature of supply as continuous supply of goods for single price and therefore the Value of supply of goods as per section 15 of the GST Act shall be the transaction value as reflected in the invoice issue by the applicant. Ruling:- The supply of Electro Ink supplied along with consumable is a mixed supply as defined u/s section 2 (74) of the GST Act and is also a continuous supply of goods as defined u/s 2 (32) of the GST Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 versatility, speed, productivity and with the ability to vary every printed copy. 3. The HP Indigo machine is based on a unique digital offset colour technology specially designed to cater the printing requirements of large scale print service providers. The HP Indigo printers are significantly different from other office and industrial use printers due to the specialized liquid ink (hereinafter referred as ElectroInk) being used in its print process. 4. Additionally, ancillaries comprising of oil, binary ink developer, bib, blanket, print imaging plate and other machine products (hereinafter collectively referred as consumables ) are also consumed in the Indigo press machines in the course of effecting prints. 5. A write up on HP Indigo presses is enclosed as Annexure 1 - Background document on HP Indigo printing devices providing a details of the HP Indigo press technology, its characteristics and consumption. 6. In this regard, the ElectroInk along with the consumables ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led ₹ 1,000 for the Electolnk along with the consumables used for the month. 17. Accordingly, when the running statement of accounts are collated for the respective end customers, the Applicant raises a consolidated invoice for the click charges on the reseller. Sample copy of the invoice raised by the Applicant on the reseller is enclosed as Annexure 4. 18. Also the reseller raises an invoice on each of the end customers based on the contractual arrangement between the reseller and the end customer. Sample copy of the invoice raised by the reseller on the end customer is enclosed as Annexure 5. QUESTION ON WHICH ADVANCE RULING IS SOUGHT 19. In light of the above facts disclosed, the Applicant wishes to seek clarification on the following matters from the Authority for Advance Ruling established in the State of Maharashtra under the MSGST Act: I. Classification of ElectroInk supplied along with consumables under GST, and II. Determination of time and value of supply of ElectroInk with consumables under the indigo press contract STATEMENT CONTAINING APPLICANT'S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF OUESTION(S) ON W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following relevant extracts from the HP Indigo Supplier Reseller Agreement (enclosed as Annexure 2) indicating compliance with each of the above conditions laid down for classifying a supply as a composite supply: - Such supply involves two or more taxable supplies of goods or services or both or any combination thereof, Point 17 of Section A - Definitions and appendices at page 2, 17. Supplies means Imaging Products and Operator Maintenance Parts required for the operation of the Indigo Press(es) . Point 6 of Section A - Definitions and appendices at page 2 6. Imaging Products mean ElectroInk , Photo Imaging plates, binary ink developer (BIDs), printing blankets, recycled agent, imaging agent and imaging oil. Accordingly, the supplies involved in HP Indigo press arrangement comprises of supply of two or more taxable goods being made thereof. Further, the term used in the definition, or any combination thereof indicates that any combination of supply of two or more goods as a bundle satisfies the requirement for being classified as a composite supply. - The supply of such goods is naturally bundled Point 1 of Section C-SUPPLIES at page 3 3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 resellers. Point 3 of Section C-SUPPLIES at page 3 3. Purchase of Supplies by Reseller shall be subject to either the Tier or A-La-Carte programs set forth in Sections G and H below, and their respective terms and conditions. Reseller may elect to purchase Supplies for the different Indigo Press Product Lines under different programs, provided that Reseller shall purchase all of the Supplies required by it for each Indigo Press Product Line under the same Supplies purchase program. Point a of Section G (4) - 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. Therefore, drawing reference from the above extracts of the contract, the Indigo press supplies are conisidered as being supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 processing is smoother and faster. Also, the mode of billing in relation to such supplies is based on the number of dicks generated during a specific period, which primarily requires printing ink to be loaded into the press machines. The Applicant also wishes to submit the consumption pattern of Electolnk along with the consumables supplied to authorised reseller for your record as under. The same is also the pattern in which the undermentioned goods are consumed by end customers: SI. No. Nature of product HSN Consumption (%) 1. Printing Ink (ElectroInk) 32151190 41% 2. Blanket 59111000 16% 3. PIP - Photo imaging plate 59119090/ 84439100 13% 4. OMP - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 clause suggests that the goods delivered by the Applicant to the Customer through the Reseller shall remain the property of the Applicant and shall be passed on to the Customer through the Reseller only upon invoicing for the same and receiving payment. Therefore the supply of goods is being made on a recurrent basis based on the invoicing by the Applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority 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, it details the principle characteristics of its predominant component consumed in the printing process, the HP Indigo's liquid ink - ElectroInk technology along with its uses. Brief on Digital Offset Colour Technology The HP Indigo process is fully digital from image creation to printing. The printed im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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; 6. Heating of the inked image carried by the blanket forming the final image in form of a thin tacky film; 7. Complete transfer of the final image film to the substrate held by the impression cylinder; and 8. Removal of any residual ink and electrical charge form the PI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lid 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... program satisfies the requirement of supply being made by a taxable 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supplied in conjunction with each other in the ordinani course of business: The term in conjunction in common parlance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained above, the perception of the customer is to receive (consume) all such goods together in order to obtain the desired output. The same can further understood by the 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 serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is in the manner required. Therefore, considering the above facts and explanations, the HP indigo consumables supplied under the tier program satisfies all the conditions of a composite supply. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. These goods are required to be taxed as per separate HSN provided by the applicant. B) Departments submission regarding Time and Supply . Submission on the issue of Continuous supply.- In ordinary course of business 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the applicant is of two type: Tier and A-La -Carte. As per of the terms of contract with the authorised reseller, applicant is making supplies of ElectroInk with consumables to be used in HP Indigo Presses by the customers of HP Indigo Presses 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 ₹ 10/-, then the customer shall be billed ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply. In the light of facts discussed above, there is no doubt to conclude that the impugned transaction consists of two or more taxable supplies of goods and also the goods are supplied in conjunction. Thus the ingredients of the definition of composite supply at (i) and (iii) above are 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to decide another aspect of composite supply i.e. whether the goods are supplied in the ordinary course of business. In this regard useful reference can be made to GST Flyers issued by CBEC in which certain tests are laid down which are listed below to ascertain supply of goods or services or both in the ordinary course of 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; There is no dispute that applicant's supplies consist of two or more than 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the said supplier, be the date of issue of invoice in respect of such excess amount. Explanation 1 .-For the purposes of clauses (a) and (b), supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment. Explanation 2 .-For the purposes of clause (b), the date on which the supplier receives the payment shall be 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 additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13% 4. OMP -Other machine products (miscellaneous) Multiple 10% 5. BID - Binary ink developer 84439100 10% 6. OIL 27101980 7% 7. Blanket Web 59111000 2% 8. Other Consumables Multiple 1% As discussed above we have found that the impugned transaction is a mixed supply with nature of supply as continuous supply of goods for single price and therefore the Value of supply of goods as per section 15 of the GST Act shall be the transaction value as reflected in the invoice issue by the applicant. 06. In view of the deliberations held hereinabove, we pass the order as under: ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO. GST-ARA-38/2017-18/B-45 Mumbai, dt.08/06/2018 For reasons as discussed in the body of the order, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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