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TMI Blog2019 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomers aggregate two months requirements based on the Maximum Usage per Impression or delay delivery to Reseller of additional supplies beyond the amounts in excess of two months requirements based on maximum usage Per Impression for Reseller and its Customers. - HP supplies Imaging Products to its Resellers based on the Maximum Usage per Impression. As per the appellant, these Imaging products are supplied as a naturally bundled supply in conjunction and therefore are a composite supply as per Section 2 (30) of the CGST Act. Mixed supply or Composite supply - HELD THAT:- A composite supply is defined as supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods and 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 the principal supply - In the present case what immediately comes to mind is that all the products are equally important for the printing to happen. It is not that the printing can take place with only Ink and that the other products are not necessary. One of the major ingredients of a composite supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HP Indigo ) is a printing press specifically 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. C. The HP Indigo machine is based on a unique digital offset colour technology specially designed to cater to 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 Electrolnk) being used in its print process. D. Additionally, ancillaries comprising 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. E. In this regard, the Electrolnk along with the consumables are directly imported by the Appellant from its overseas suppliers at the customs port situated in Mumbai wherefrom the said goods are cleared on payment of applicable customs duties including IGST. The goods are stored at the Appellant s warehouse in Mahara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voice for the click charges on the reseller. Sample copy of the invoice raised by the Appellant on the reseller is enclosed herewith. Q. 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 herewith. The terms of the agreement between the reseller and customer are the same as between Appellant and reseller. R. With regard to the above background and submissions, the Appellant had filed an application before the Maharashtra Authority for Advance Ruling (hereinafter referred as Authority ) seeking clarification on: i. Classification of Electrolnk supplied along with consumables under GST; and ii. Determination of time and value of supply of Electrolnk with consumables under the Indigo press contract. S. The Authority vide its order (hereinafter referred as impugned order or order ) having reference number GST-ARA-38/2017-18/B-45 issued on June 8, 2018 = 2018 (10) TMI 1515 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA passed the following order on the questions raised by the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bundled in the ordinary course of business, without specific identification of a principal supply. II. Determination of time and value of supply of Electrolnk with consumables under the Indigo press contract. Held in Para 5.6, We find that the supply of goods in the present case fulfil the basic tenets of continuous supply and therefore we find from the above deliberation that the impugned supply is continuous supply of goods as defined in clause 32 of section 2 of the GST Act . Held in Para 5.7, ... Thus the time of supply in the present case will be the earliest date between the date of invoice or the date of payment with respect to the impugned supply as per the provisions of section 12(2) of the GST Act . Held in Para 5.8, ...the value of supply of goods as per Section 15 of the GST Act shall be the transaction value as reflected in the invoice issued by the applicant T. Therefore, the order has concluded that the supply of Electrolnk with consumables is a continuous supply of goods where the time of supply shall be the date of issuance of successive statements of account and the value of supply shall be the transaction val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. 7. The Appellant referred to the following clauses of the HP-reseller agreement: Clause 3 of Para C on Page 3 provides that 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 . 8. Accordingly, the above clause provides reseller with option to choose between supply models, namely A-la Carte and Tier Program. However, post selection of the model, Electrolnk and consumables purchased shall be supplied only in such manner as per the terms of the selected supply model. In other words, the agreement only restricts usage of Electrolnk and consumables under different supply models for the same indigo press machine. 9. The above clause has been inferred by the impugned order as a significant factual background for highlighting the difference between the conventional offset and HP indigo printer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very sense. 16. Additionally, we wish to draw reference to Appendix C of the HP-reseller agreement, where the parties have agreed to the consideration for the supplies to be on a per-click basis depending on the nature of print generated by the customer. In this regard, Clause la of Para G on Page 4 of HP-reseller agreement provides that Click means a chargeable unit for a single colour separation transferred onto substrate, except in the case of textured effect printing .. . Therefore, both HP and reseller agree that the Electrolnk and consumables supplied shall be billed on an over-all consumption basis. This further enhances the argument that such supply of goods are naturally bundled since there is a single pre-agreed price for all the goods together and which are acceptable to both the supplier and the recipient. 17. The Appellant would also like to draw reference to the illustration on composite supply referred to under Section 2(30) of CGST Act, 2017 being, activity of supply of packaging, transportation and insurance services along with supply of goods. An argument may be placed in this regard that such services are also mandatorily/ contractually bund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The flyer provides that in order to determine whether supply of goods or services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which supply relates. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed hereunder: i. The perception of the customer As explained above, the perception of the customer is to receive (consume) the Electrolnk with consumables together in order to obtain the desired output. The same can be further understood by the fact that the customer agrees to pay the consideration on per click basis, i.e. the event when the Electrolnk along with the consumables are jointly used for effecting the print. The said understanding is common across customers in the industry, moreover to the Appellant considering the Electrolnk is specialized liquid ink designed only for HP indigo press machines. Where the perception would have been to receive these supplies separately, revenue earned by the Appellant under the A-la Carte model would be much higher as compared to the Tier program. The customer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13% 4. OMP-Other machine (miscellaneous) products Multiple 10% 5. BID - Binary ink developer 84439100 10% 6. OIL 27101980 7% 7. Blanket Web 59111000 2% 8. Other Consumables Multiple 1% a single price or the customer pays the same amount, no matter how much package they actually receive or use 26. The invoicing is done on a per click basis for all the supplies. Every customer is charged a single price for all the goods, irrespective of the fact that in achieving the final output of a print, there is different proportion of Electrolnk and other ancillaries consumed. Further, based on the said illustration, charging of a single price in relation to a supply which is naturally bundled and made in the ordinary course of business cannot be deemed as a mixed su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r requirements as well . 32. However, the impugned order has argued that the goods are capable of being supplied independently and therefore in the absence of satisfaction of one of the illustrative requirement of elements not being available separately , concluded that the supply of Electrolnk with consumable is not made in the ordinary course of business. 33. The approach adopted by the Learned Advance Ruling authority on basing its conclusion merely on the alleged non-satisfaction of a single illustrative factor without giving regard to the terms of contract, business arrangement and satisfaction of other necessary requirements. While the tests to be applied as per the flyer have been laid out in the impugned order, the satisfaction of these tests has not been specifically discussed, except for one of the tests ie elements not being available separately. The Appellant has explained the satisfaction of these tests explicitly in its submissions made before the Learned Authority, which has not been judiciously considered. 34. Further, the Appellant submits that the supply of Electrolnk with consumables is ruled as continuous supply of goods and that the transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r supply forming part of that composite supply is ancillary . Based on the terms of HP Indigo Supplier Reseller Agreement specified above, the consumption pattern and printing cycle, and the value of the supplies constituted in the consideration per click, it is evident that the predominant element in the bundle is the Electrolnk. Binary ink developer, photo imaging plate, etc. are mere support elements to ensure movement of Electrolnk from the printer to the substrate in the required manner. The essence of the output received from the indigo press machine is the superior quality image, which is caused by the Electrolnk. 38. Para 5.4 of the impugned order held that each of the supplies can be supplied separately as they are not dependent on each other and the identification of the principal supply therefore cannot be drawn from and among the supplies . The said statement is not conclusive enough to negate the fact that there is absence of a principal supply in the bundled supply of Electrolnk with consumables. 39. In this regard, the Appellant draws reference to the illustration for bundled services as provided in the para 9.2.1 of the education guide issued by CBEC i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me shall not qualify as a mixed supply as well. Condition of mixed supply requires there to be two or more individual supplies of goods. However, in the given case, Electrolnk and consumables are not individual supplies of different goods but a single supply of printing consumables. The said goods are required to be consumed together to obtain the desired print output. This can be further substantiated considering that Electrolnk and consumables are dependent on each other and capable of performing their function only when consumed together. The illustration for mixed supply provided in Section 2(74) of CGST Act, 2017 is with respect to a package of various goods capable of being supplied and procured separately. However, Electrolnk with consumables under the Tier model are available only as bundle and cannot be bifurcated. 45. The Impugned Order has erred in applying the principles laid by the Bombay High Court in the case of Mumbai Metropolitan Region Development Authority v. Unity Infra project Ltd. 2008 (5) Bom CR 196. = 2008 (2) TMI 925 - BOMBAY HIGH COURT where it was held in Para 11 that: In interpreting a contract, the Court cannot place emphas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual and legal position, it was prayed that AAR Order may suitably be modified treating the supply of Electroink along with other consumables as a composite supply as against the AAR decision of treating the said supply as mixed supply. Personal Hearing 50. A personal Hearing in the matter was conducted on 12.02.2019, wherein Shri K. Sivarajan, C.A., representative of the Appellant, reiterated their written submissions. Shri P.R. Nilewad, Deputy Commissioner of State Tax, appearing as jurisdictional officer, reiterated the submissions, which had been made earlier before the Advance Ruling Authority. Discussions and Findings 51. The main clauses of the agreement between HP sales and Reddington are as below:- The Agreement is between HP and its Reseller and as per the agreement, HP appoints Reseller as an authorized, nonexclusive Reseller for the purchase and resale of Supplies subject to the terms and conditions of the Agreement. As per SUPPLIES under Section C, the resellers have a choice to go for A la -carte or the Tier programs. In the definitions, A-La-carte Program is defined as a supplies purchase program defined in Section E. Section G of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with certain printing machine it cannot be called as a compulsory supply. The appellant states that there is no restriction imposed by the Appellant on the resellers to accept all products as a bundle but as a normal business practice and understanding, such goods are procured together. It is also argued that there is a pre-agreed price for all the goods together and therefore they are naturally bundled and are a composite supply . 56. A composite supply is defined as supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods and 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 the principal supply . 57. In the present case what immediately comes to mind is that all the products are equally important for the printing to happen. It is not that the printing can take place with only Ink and that the other products are not necessary. One of the major ingredients of a composite supply is that, one of the supplies is a principal supply and the others are subservient or incidental to it. The example giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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