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TMI Blog2021 (8) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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. Take or pay contract - HELD THAT:- Take or Pay contract is a contact which requires the buyer to either purchase and receive a minimum amount of product at a set or pay for this minimum without taking immediate Take or Pay clauses in a contract ensure compensation for the seller in the event buyer does not purchase a specified quantity of goods or services in the course of a continuous supply. The Hon ble Courts of India in a catena of cases held that Take or Pay charges are meant to compensate for breach of a contract. In the case of applicant Take or Pay Charges are evidently compensation for breach of contract and a penalty stipulated to be paid to the applicant by his buyer for not purchasing the minimum quantity specified in the agreement. Thus these charges come into existence only when there is no supply of LPG. That means supply of LPG and Take or Pay Charges are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he premises of the recipient for supply of LPG. This manifold consists of LPG cylinders, regulators, primary piping, pressure regulator systems,- etc., the ownership of the structure lies with the applicant. The purchaser pays rental charges at the rate of ₹ 5,000/- per month for this structure. Since setting up of this system involves substantial investment the customer is obliged to purchase LPG exclusively from the applicant and the conditions of the agreement specify the minimum quantity lifted from SHV. In the event of the purchaser not lifting the minimum quantity such purchaser has to pay commitment charges at the rate of ₹ 2,900/- per metric ton of such shortfall in quantity. 5. Clarification Sought: Based on the facts mentioned hereinafter, the applicant sought Advance Ruling on the following issues: a. Whether the impugned supply can be regarded as composite supply and whether the rate of tax of the principal supply could be adopted for the whole of supplies? b. The applicant hereby seeks determination in respect of the following specific questions: i. Whether sale of LPG, Collection of Take or Pay Charges for not lifting minimu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal submissions in order to buttress their contentions as follows: a. That they primarily supply LPG to industrial consumers and in order to facilitate them SGS supply system is installed in the premises of their consumers. b. That LPG is sent to the consumers premises in form of liquid and the apparatus installed by them vaporises it into gaseous form, c. That the SGS cannot be installed to any customer standalone. And that the ownership of SGS remains with the applicant and the recipient of supply pays lease rental on the same. d. That to ensure minimum quantity of purchase by their customers there is a clause in the agreement which obliges the purchaser to pay take or pay charges at specified rates. Where the recipient is unable to purchase the agreed quantity then he has to pay the said take or pay charges for the deficit quantity not purchased. e. For the reason that all the above 3 supplies are made in conjunction with each other i.e., LPG, SGS Take or Pay Charges, these are naturally bundled supplies amounting to composite supply of which LPG is the principal supply and the rate of tax applicable to LPG apply to other 2 components of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 2900/MT of such shortfall in quantity. This amount Shall be paid once in a quarter. 4. As seen from the Section 2(31) of the CGST Act, monetary value of any act or forbearance constitutes consideration of supply. Therefore the above commitment charges are taxable under GST Act. 5. Now the applicant wants a clarification as to whether the sale of LPG, lease of SGS manifold and Take or Pay Charges together form a composite supply and if they form a composite supply whether LPG is the principal supply. 6. Composite supply is defined in the GST Act in Section 2(30) 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. Illustration : Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply. 7. As seen from the definition a composite supply is essentially a natura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a statute are part of the statute and help to elucidate the principle of the Section (Dr. Mahesh Chandra Sharma Vs Smt. Raj Kumari Sharma - AIR 1996 SC 869). Therefore a composite supply should be similar to a supply mentioned in the illustration to the definition in Section 2(30), where two or more taxable goods or services are supplied along with each Other to constitute a composite Supply. Take or Pay contract is a contact which requires the buyer to either purchase and receive a minimum amount of product at a set or pay for this minimum without taking immediate Take or Pay clauses in a contract ensure compensation for the seller in the event buyer does not purchase a specified quantity of goods or services in the course of a continuous supply. The Hon ble Courts of India in a catena of cases held that Take or Pay charges are meant to compensate for breach of a contract. 8. In the case of applicant Take or Pay Charges are evidently compensation for breach of contract and a penalty stipulated to be paid to the applicant by his buyer for not purchasing the minimum quantity specified in the agreement. Thus these charges come into existence only when there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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