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TMI Blog2019 (3) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... reveal that there is definitely is a supply of two or more goods or services together and such goods or services are provided together in the normal course of business and therefore there is no doubt that there is a composite supply by the Applicant in this case As both the conditions as prescribed under Section 2(30) of CGST Act have been fulfilled, the underlying transaction constitute as a 'composite supply'. In the subject case it is seen that even though the AMC covers both, supply of goods and service, the predominant intention is to provide maintenance services for the proper upkeep of the machines belonging to their clients and, supply of goods follows as a consequent to the supply of maintenance service. Hence supply of maintenance service is the dominant intention of the contracts and can be considered as the 'principal supply' - the principal supply in the transaction before us is supply of service, then the place of supply is required to be determine. The place of supply would be determined in terms of the default Section 12(2) of the IGST Act which states that the location of the recipient would be the place of supply. Since the supply of maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1956 having its registered office at Cummins India Office Campus, Survey No. 21, 5th Floor, Tower A, Balewadi, Pune-411045. 2. The Applicant is engaged in providing goods and services which qualify as 'supply' as per provisions of the Central Goods and Service Tax Act, 2017 ( CGST Act ) and is duly registered thereunder bearing GSTIN 27AAACC7258B1zW, 3. The Applicant is inter alia engaged in the business of manufacturing diesel and natural gas engines and this business can broadly be bifurcated as follows:- Engine business - It manufactures engines of 60 HP which is generally used in automobile industry Power Systems business - This unit manufactures high horsepower engines of 700 HP to 4500 HP which are used in marine, railways and defense. Distribution business - It provides after sales services to its customers which includes supply of spare parts, maintenance services, rebuilding of engines and batteries. 4. The Applicant executes an Annual Maintenance Contract ( AMC ) with end customers to provide maintenance services to their customers which aid in keeping customer's engines in a good working condition. These services are provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CGST Act. Relevant extract of the same is reproduced below for ease of reference:- (119) works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; 2.2. On perusal of the above definitions, it can be stated that repair and maintenance relating to any immovable property would fall under the ambit of 'works contract'. In the present facts, the Applicant is engaged in providing repair and maintenance in respect of engines which are movable in nature and hence, it would not be considered as 'works contract'. Therefore, it is necessary to analyze the definition of 'composite supply as given in Section 2(30) of the CGST Act. Relevant extract of the same is reproduced below for ease of reference:- (30) 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minant intention behind the contract. 2.7. It is submitted that even though the AMC covers rendition of service as well as supply of goods in its scope, the very intention of the Applicant is to provide the maintenance services (i.e. upkeep the machine) and as such supply of goods follows as a part and parcel of providing the maintenance service comprehensively. In such a case, supply of maintenance service appears to be the dominant intention of the scope of services as envisaged under AMC and thus supply of maintenance service partakes the character of a 'principal supply'. 2.8. At this stage, it would be relevant to refer the past judicial precedents which inter alia discuss the dominant intention of the transaction to decide the taxability of the same under erstwhile regime. Reference is made to the Supreme Court Ruling in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Purushottam Premji [(1970) 26 STC 38 (SC)] = 1970 (4) TMI 127 - SUPREME COURT OF INDIA wherein some of the tests were evolved to determine taxability of the contract. Relevant extract of the judgment is reproduced below for your easy reference:- The primary difference between a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer to avail the services of professionals who are expert in the field of maintenance of the engines attached to the machines such as gensets, excavators, dumpers etc. It is submitted that the intention of an annual maintenance agreement is to ensure that systems/machines should function properly. Maintenance of the machines helps to extend the life of the machine, maximize the energy efficiency of the equipment and eliminate unexpected system failure. Such AMC's are generally executed to stop larger failures by periodic and systematic inspection and necessary overhauling of the equipment. 2.11. in this regard; we would like to refer the clauses of the contract execute between customer and the Applicant which substantiates that the purpose of the contract is that of providing services, Relevant clauses are provided below: Maintenance Agreement This Comprehensive Annual Maintenance Contract for DG sets (installed at various locations Of. HDFC Bank limited - Pan India as per Annexure I) is made on this 1st day of April 2017 at Pune by and between: ........................ 1(b) Penalty Further, CUMMINS has expressly agreed that it shall employ it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply of major parts of the machine are specifically excluded from the scope of contract. Fixed price has been decided for the AMC. 2.13. It is settled position: that intention of the contract is required to be understood in terms of the clauses of the agreement. Considering the factuat position narrated in Para 2.12 above, it is also submitted that the dominant intention of the activity would be considered as service where skill is important rather than supply of goods. The same can be corroborated by the following facts:- Mere availability of parts/components, in absence of an engineer competent to use this, neither suffices the customer's requirement nor discharges Applicant from its obligation under AMC; Applicant's obligation under AMC had been at numerous times suitable discharged by merely applying intellect, efforts and monitoring, without necessitating any part/ component 2.14. In light of the above, it is submitted that the main object of the contract is to supply services and making available of parts/components is ancillary to the same. Consequently, the principal supply of the transaction is 'service' and GST implications sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance Ruling Authorities on identical issue on May 16, 2018 wherein it has been held that AM transactions is composite supply and service forms a principal supply thereunder: Relevant portion of the Ruling is reproduced below for your easy reference: a) Whether supply of comprehensive annual maintenance service which may also involve incidental supply of spare parts/ goods should be classified as a composite supply or mixed supply? Ans. -Since the supply of maintenance service is for a one and fixed price with or without supply of spare parts/goods and supply of service and goods is made in conjunction with each other in the ordinary course as per maintenance contracts, this maintenance service to the extent of presence of all the necessary ingredients cited in the legal provisions quoted supra, is naturally, bundled with the incidental supply of goods., it is case of composite supply of service, b) In case the said contract is considered as composite supply, what is the principal supply between goods or services? Ans. - The said contract merits to be considered to be a composite supply of service, and principal supply is service inasmuch as the supply of goods is merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act, 2017 means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. Hence, as defined, the predominant element of a composite supply can be determined on the basis of conditions of the supply agreements (in this case Annual Maintenance Contract). The applicant has been requested to submit a copy of the AMC for examination of the case. The applicant submitted copy of Maintenance Agreement between HDFC Bank Limited and them wherein the obligations of the applicant is to ensure the uptime of equipment to an extent of 92 percent per annum and will provide services like four preventive visits per annum, maintenance of DGE SET as per manufacturer standard practices wherein all other parts and repairs shall be charged at actual. They also carry out supply of all maintenance consumables, periodic maintenance and troubleshooting in engines and alternators. Also, in their application, at para 2.11 the applicant submitted text of a portion of the AMC agreement which explains the obligations of Cummins under the maintenance agreement which is reproduced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate appeared and stated that they would be making submissions in due course. The application was admitted and called for final hearing on 27.11.2018, Sh. Rohit Jain, Advocate along with Deepak L Bahirwani, Tax Director-Cummins India Group, Group CFO's Officer and Sh. Vivek Baj, C.A. ELP appeared and made oral contentions as per details submitted by them. No one from the side of the department was present. 05. OBSERVATIONS We have gone through the facts of the case. The issue put before us is in respect of the agreement entered into, by the applicant with their clients, the salient features of which have been enumerated above by both, the applicant as well as the jurisdictional officer. The Applicant has submitted that they are engaged in the business of manufacturing diesel and natural gas engines which is supplied to their end customers. They also provide after sales services to their customers on account of engines supplied by them and also by various other parties, which includes supply of spare parts, maintenance services, rebuilding of engines and batteries. The applicant has submitted two agreements entered into with M/s HDFC bank and M/s Yes Bank. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such parts which will effectively keep the runtime of the DG Sets at maximum acceptable time. Now, to arrive at a decision, we first of all will refer to the definition of 'composite supply which is given in Section 2(30) of the CGST Act, 2017 and is reproduced below:- (30) 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; Thus it is clear that a composite supply means that there is a supply of two or more goods or services together and such goods or services are provided together in the normal course of business. In the present case, a perusal of the agreements reveal that there is definitely is a supply of two or more goods or services together and such goods or services are provided together in the normal course of business and therefore there is no doubt that there is a composite supply by the Applicant in this case As both the conditions as prescribed under Section 2(30) of CGST Act have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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