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TMI Blog2018 (12) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Services Act, 2017 ('CGST Act')? * Alternatively, do these activities transactions qualify as "transfer of right in goods" in terms of entry 1 (b) of Schedule II of CGST Act? 2. What is the nature of the supply based on the facts and circumstances as mentioned in statement of facts (Annexure-I) i, e., renting of workwear along with other services such as transportation, weekly washing etc. for a single consideration? In particular, * Does this supply qualify as "composite supply" as per section 2 (30) of CGST Act? * Alternatively, does this supply constitute a "mixed supply" under section 2 (74) of CGST Act? 3. In the event the answer to question (2) above is that the transaction undertaken by the Applicant Company qualifies as 'composite supply', (i) What will be the "principle supply" for the purpose of section 2 (90) of CGST Act? (ii) What will the applicable rate of GST? (iii) Whether the conclusion (i.e. the transaction is a 'composite supply') will remain the same if in addition to the services covered in question no. 2 above Applicant Company also provides additional service of renting of locker as part of the same consideration? At the outset, we would l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out by the Applicant Remuneration structure 1. Renting of workwear 1. Weekly rental is charged for renting of work wear and ancillary Services. 2. Additional fees is charged For any additional services performed by Lindstrom India on the work wear. 2. Services ancillary to renting of workwear such as transport of work wear, weekly cleaning, maintenance, repairs and finishing 3. Additional Services such as renting of locker(s), modification work, sales of logo(s) and badges etc. B. Nature of activities undertaken by the Applicant Company 4. The Applicant Company is primarily engaged in the business of renting of workwear to its customers. Lindstrom India along with providing the workwear on rent also provides other services which are ancillary to renting of workwear such as weekly washing, cleaning, maintenance and repair(s) and replacement of workwear due to normal wear and tear. Lindstrom India is charging a single consideration (i.e. weekly rental) for these activities. 5. Apart from the services mentioned above Lindstrom India is engaged in providing other additional services to its customer on request of the customer and includes services such as (i) rentin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of both the parties at a schedule time on weekly basis. In case after servicing of the workwear they are found to be not of the quality standards of Lindstrom India, Lindstrom India replaces such workwear Note No. 1: - For the activities mentioned above in para B.1 Lindstrom India charges a single consideration from its customer on weekly basis. Note No. 2: - In some other agreements Lindstrom India may also provide additional service of renting of locker as part of the service for a single consideration. Renting of lockers has been discussed in detail in point no. 11(a) of para B.2 below. B.2 Optional services provided by the Applicant Company for separate consideration 11. Lindstrom India also provides certain optional services to its customers apart from the services mentioned in para B.I above. Lindstrom India is charging separate additional consideration for these optional services as per the price chart of Lindstrom India. The optional services provided by Lindstrom India are described as follows: a. Locker facility to the customer: Lindstrom India provides locker facility to its customer to keep the workwear safe in the lockers after their daily usage. Lockers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly quick wear. * Product is lost while in the customer's possession. * Product returned to the warehouse has undergone modifications requested by the customer, due to which it cannot be returned to its original form. * Product returned to the warehouse cannot be rented further because of its condition f. Changing number of garments: Customer may increase or decrease the number originally rented. The agreed number of workwear can be either be increased by placing additional order with the Applicant Company or decreased by returning the excess garments. In case, the service volume leased from the Applicant Company is reduced by more than 30% from the highest volume of the past 6 months, customer will be required to pay compensation to Lindstrom India in accordance with redemption policy. g. In the above para we have explained/covered different types of business activities entered by the Applicant Company for your reference and/or understanding of the business of the Applicant Company. It is specifically omitted that the explanation of the activities above is for the purpose of giving to this Hon'ble Authority a holistic view of the business of the Applicant Company. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h (Judgment date 28/01/2011] = 2011 (1) TMI 1196 - ANDHRA PRADESH HIGH COURT, 'transfer of right to use' of goods involves transfer of possession and effective control over such goods. Here, renting of workwear amounts to 'transfer of right to use' on account of transfer of right to possession and effective control in the workwear by the Applicant Company to the customers, as evidenced by the clauses of the agreement. 7. Based on above legal provisions, the Applicant Company respectful submits that the services of renting of workwear provided by it amounts to 'transfer of right to use of the workwear to respective customers, which activity / transaction is covered under entry 5 (f) of the schedule II of the CGST Act. This submission of the Applicant Company is based inter alia on following factual aspects: (a) Ownership of the workwear remains with the Applicant Company throughout the contract but effective control and possession is transferred to respective customers, (b) The Applicant Company has exclusive right to wash and maintain the workwear and maintaining inventory of workwear because the subject workwear are industrial products prepared based on specifications prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were set as a precedent in the judgments to qualify its activities as transfer of right to use goods. This is imperative in view of the fact that the effective control and possession of the workwear is exercised by the customer even though the owner ship of the workwear until termination remains with the Lindstrom India. 10. In light of the above, the Applicant Company interprets that leasing/ renting of workwear by Lindstrom India fulfills the conditions as laid down by the Hon'ble Supreme court to determine 'transfer of right to use'. Therefore, renting of workwear qualifies as 'transfer of right to use' of goods. Without prejudice to the aforesaid. the transaction in relation to workwear amounts qualifies as "supply of services" under GST laws 11. Schedule II of the CGST Act lays down the activities to be treated as supply of goods or supply of services. Entry 1 (b) and Entry 5 (f) of Schedule II of CGST Act deals with transfer of right in goods without transfer of title and transfer of right to use of goods for any purpose for a consideration respectively. In both cases, the transaction shall qualify as supply of services. Relevant portion has been reproduced below: "S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular supply. On a few occasions, certain transactions require supply of a combination of services or combination of goods or combination of both goods and services that maybe taxed at different GST rates. 17. In view of the above, GST laws require that such supplies should be classified as either a 'composite supply' or a 'mixed supply'. Composite Supply 18. As per Section 2 (30) of CGST Act, "Composite supply" has been defined as follows: "composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or 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 a principal supply;" 19. In order to qualify as a composite supply following conditions are to be met: * The supplies are naturally bundled; * Supplied in conjunction with each other; and * Supplied in the ordinary course of business. 20. Thus, to qualify as a composite supply, it needs to be analyzed whether the supply of services are so naturally bundled that the supply of said goods and services cannot be made separately or removal of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. Lindstrom India is the market leader in providing such services and these services are provided by Lindstrom as a package to its customers therefore this condition will automatically get fulfilled, 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 service and the other services combined with such service are in the nature of incidentally or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business, Lindstrom India is providing renting of workwear along with the weekly washing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration for the same. Thus, in case of services provided by the Applicant Company to customers, it appears that the core service is renting of workwear gives the bundle its essential character. Intent of the arrangement between Lindstrom India and customers is renting of workwear for industrial purpose. Supplying the various heads of services that are ancillary to the renting of workwear by Lindstrom India is with the fundamental purpose of supplying the core service of providing workwear to its customers and maintain the same as per terms of the agreement. f. The main/core services provided by Lindstrom India to customers appears to be of renting and maintaining of industrial workwear to customers. In other words, the aim of customers is to receive agreed number of workwear from Lindstrom India stitched and maintained as per agreed terms to be used by workers of the customers. Therefore, the renting of workwear provided by Lindstrom India appears to be bundle of services, where other additional services such as weekly washing, washing, locker facility, transportation etc. are provided in conjunction with the core service of renting of workwear to workers of the customers in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al bundle and are not considered as composite supply, they must be considered as mixed supply of services such as renting of workwear and other ancillary services by the Applicant Company as it involves two or more supplies of goods and services which are made in conjunction of each other and Lindstrom India is charging a single consideration for the same. Taxability of transactions of Applicant Company 25. The concept of taxability of bundled service were also covered in erstwhile regime under Section 66F (3) of the Finance Act 1994 (Service Tax Act). Relevant portion is reproduced below: The taxability of a bundled service shall be determined in the following manner: 1. if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character; 2. if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax 26. Furthermore, taxability of composite supply is covered under section 8 of CGST Act. Relevant provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate as applicable on renting of workwear shall apply on the services provided by the Applicant Company which has been clarified in above points i.e. the service of renting of workwear by the Applicant Company is a transfer of right to use of goods i.e. Workwear by the Applicant Company and the rate applicable on such services will be same as applicable on such workwear/ apparel keeping in mind the sales value which is less than INR 1000 in the case of Applicant Company. Therefore, the rate of tax applicable on services provided by Applicant Company should be 5% not 12%. 30. In case the above supplies by the Applicant company are not mixed supply of services, the taxability of the of such mixed supply of services is covered under section 8 of CGST Act and the relevant portion is reproduced as follows: "(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax" 31. Therefore, in case the transaction of (a). Renting of workwear along with other ancillary services mentioned in Para B.1 or (b) Renting of workwear along with ancillary services and locker facility to its customer by the Applicant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 states that: Transfer (b) an transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of service. Entry 5(f) of Schedule II of CGST Act, 2017 states that (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. M/s. Lindstorm Services India Pvt Ltd provide workwear on rent to their customers. These work wear are tailor-made to the requirements of their customers. They also provide services of Washing, Maintenance & Repair of these workwear on a weekly basis. The period of contract is 12 months and can extend for perpetuity. Besides, the rental is paid on a weekly basis. Then ownership of workwear rests solely with M/s. Lindstorm Services India Pvt Ltd. And they can take stock of the workwear at their customer's permises anytime. The workwear are identified by individual codes. In case of wear and tear, replacement is carried out at an additional fee and at the end of the contract, the workwear can be owned by the customers on payment of redemption charge. From the above, it is clear that for the period of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided by M/s. Lindstorm Services India Pvt Ltd. are as listed below: i. Renting of workwear ii. Wash, maintenance & repair iii. Transport of workwear including trolleys and transport of bags iv. Lockers for storage of workwear v. Modification of workwear as per specifications vi. Sale of logo/ badges/ nametags Replacement or reimbursement of old workwear against a redemption charge. From our records, it has also been observed that M/s. Lindstorm Services India Pvt Ltd provide services of Supply of Manpower (if need be) for the Management of lockers & workwear at the customer's premises. For a supply to be considered as a Composite Supply, as per the Taxation of Services, an Education Guide, / 2012 dated 20.06.2012, issued by Central Bureau of Excise and Customs, an illustrative list of indicators could be : Whether there is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use; * The elements are normally advertised as a package * The different elements are not available separately * The different elements are integral to one overall supply- if one or more is removed, the nature of the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04. HEARING The case was taken up for Preliminary hearing on DT. 18.07.2018 when Sh. Ankit Shah, applicant along with Ms. Mausumi Sarkia and Ms. Anjana Varma appeared and requested for admission of application as per contentions in their ARA. Jurisdictional Officer, Ms. Arpita, Asstt. Commissioner of CGST & CE, Belapur- IV, Division appeared and stated that she does not have any objection with respect to admission and made written submissions. The application was admitted and called for final hearing on 23.08.2018, Sh. Tarun Jain, Advocate along with Sh. Ankit Shah, applicant Ms. Anjana Varma and Sh. Saurabh Chhadwa appeared and made oral and written submissions. Jurisdictional Officer, Sh. Sadanand Patnaik Asst. Commissioner, Belapur-IV, Division appeared and stated that they have already made written submissions. 05. OBSERVATIONS We find that the applicant has raised questions as mentioned above on which advance ruling is sought. We now deal with the questions raised, as under:- Question 1. What is the classification of the activities/transactions carried out by the Applicant Company as mentioned in the statement of facts (Annexure-I). In particular; * Do these activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any purpose (whether or not for a specialized period) for cash, deferred payment or other valuable consideration and thus would be categorized as supply of services within the meaning of entry 5(f) of Schedule II of the GST Act. Question 2: What is the nature of the supply based on the facts and circumstances as mentioned in the statement of facts i.e. renting of work wear along with other services such as transportation, weekly washing etc. for a single consideration? * Does this supply qualify as "composite supply" as per Section 2(30) of CGST Act? * Alternatively does this supply constitute a "mixed supply" under Section 2(74) of CGST Act? This question is about the nature of supply. From the terms of the contract as mentioned in earlier part, we find that the activities carried out by the applicant is renting of workwear, which we have declared as supply of services. Besides renting of workwear and as per the terms of the contract, ancillary activities such as transport of workwear, weekly cleaning, maintenance, repairs and finishing of workwear is carried out by the applicant. It is thus obvious that impugned transaction as envisaged by the contract consists of more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kwear and Lindstorm engages in delivering, washing and servicing the workwear and taking care of the required replacement of the workwear in accordance with their purpose of use. Lindstorm owns the rented products and shall have the exclusive right to wash and service them. In order to understand the concept whether services are naturally bundled in the ordinary course of business we also refer to the Education Guide 2012 issued by the Board and as per the Education Guide indicators as given in respect of bundling of services in the ordinary course of business are - * There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. * The elements are normally advertised as a package. * The different elements are not available separately * The different elements are integral to one overall supply - if one or more is removed, the nature of supply would be affected. The above principle can be adopted to the facts of the present case to determine whether impugned supply is a bundled services in the ordinary course of business. From the perusal of object of agreement we find that services other than renting of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an 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-43/2018-19/B-115 Mumbai, dt. 15.09.2018 For reasons as discussed in the body of the order, the questions are answered thus - Question 1. What is the classification of the activities transactions carried out by the Applicant Company as mentioned in the statement of facts (Annexure-I). In particular, * Do these activities / transactions of renting of workwear qualify as "transfer of right to use" of goods (i.e. workwear) by the Applicant Company to its customers in terms of entry 5 (f) of Schedule II of Central Goods and Services Act, 2017 (CGST Act')? * Alternatively, do these activities transactions qualify as "transfer of right in goods" in terms of entry 1 (b) of Schedule II of CGST Act? Answer:- Answered is in affirmative. The activities/transactions of renting of workwear qualify as "transfer of right to use" of goods in terms of entry 5 (f) of Schedule II of Central Goods and Services Act, 2017 ('CGST Act') Question 2. What is the nature of the supply based on the facts and circumstances as mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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