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TMI Blog2020 (11) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... ply' or not - the two taxable supplies under discussion are to be examined in light of the two primary conditions i.e., whether they are 'naturally bundled' and are 'supplied in conjunction' with each other. In the absence of the clear cut explanation in the Act, regarding the concept of 'naturally bundled' the reliance is placed on Education Guide issued by CBEC (now CBIC) in the year 2012. Thus, it is observed that both the supplies are not supplied or provided as a complete package 'at a single price'. The tax invoices filed by the appellant reveal that different invoices are raised for both the supplies separately and individually. With reference to the parameter (b) mentioned above, the supplies of chemicals and additives and mud engineering services are two different supplies and separately available. Section 3 of the contract no.6205290 projects the schedule of rates distinctly for both the supplies. Moreover, in the instant case the supply of chemical and additives and mud engineering services can be procured in a piecemeal approach up to the satisfaction of the service recipient. It is a fact, as admitted by the appellant that it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r referred to as OIL INDIA ) having its registered office at Duliajan, Assam. The Contract was awarded for providing mud engineering and other services as stated in the contract for their Krishna-Godavari(KG) Basin Project in the state of Andhra Pradesh. 4. Under the above Contract, the applicant has been contracted to provide mud engineering and drilling waste management services for the three (3) High Pressure High Temperature (HPHT) exploratory wells situated within 12 Nautical Miles (NM) at the KG Basin so as to enable smooth extraction of oil. 5. The appellant approached the Advance Ruling Authority, Andhra Pradesh for Ruling on the following queries: a) Whether the supply of mud engineering services along with supply of imported mud chemicals and additives provided on consumption basis by the applicant under the Contract qualify as composite supply. b) If answer to Para (a) is yes, then whether the supplies made under the Contract merits classification under Entry 9986 (ii) - Service of exploration, mining or drilling of petroleum crude or natural gas or both and subject to GST at the rate of 12%/18% as the case may be. c) If the answer to Para (a) is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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; E. Upon the perusal of the above definition, it appears that the key conditions of supplies to qualify as composite supplies are as follows: i) Supplies should be made by a taxable person to a recipient i.e. there is 1 common supplier and 1 recipient for both the supplies; ii) The two or more taxable supplies are naturally bundled and supplied in conjunction with each other in the ordinary course of business. F. In the present case, we understand that both, the mud engineering service and the mud chemicals and additives used in providing such services are supplied by the appellant to OIL under the aforesaid Contract. Both the supplies are taxable supplies. IT further needs to be evaluated whether the services are naturally bundled and supplied in conjunction with one another . Whether the mud engineering services p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illing waste management services) and supply of goods viz. mud chemicals and additives for incidentals or ancillary supply to the main supply. N. Accordingly, it is not in dispute that the aforesaid supplies made by the appellant under the contract are naturally bundled in the ordinary course of business, and the supply of mud engineering or drilling management services is the principal supply. Thus, the supplies made by the appellant being naturally bundled, is an accepted and unchallenged position in the impugned order. The appellant does not have any grievance on this part of the finding in the impugned order. O. Whether mud engineering services and mud chemicals and additives are supp lied in conjunction with each other. It is submitted that the term conjunction or the phrase in conjunction with is not defined under the CGST Act/IGST Act and the allied Rules. Therefore, reference is made to the definition of the term conjunction as defined under various dictionaries. Oxford English Dictionary (online Version) The action or an instance of two or more events or things occurring at the sortie point in time or space. Merriam Webster Dictionary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the contractor is unable to replace those within a reasonable time without affecting operations. S. It is submitted that by relying upon the aforesaid clause the Ld. Authority has inter-alia held as follows: i) All the activities/ events viz. procurement, delivery, usage, rejection or replacement, demobilization and receipt of consideration - relating to mud chemicals and additives can be done independently and separately. ii) All the activities or events relating to goods (chemicals/ additives/ consumables) are not necessarily procured, delivered, replaced or demobilized simultaneously with those of other services and goods namely 'technical personnel or technical equipment or lab equipment etc. iii) Though the items mud chemicals and additives are both essential and integral part of work of the appellant under the contract, it is found that the supply of these items is not necessarily in conjunction with supply of other events namely services technical personnel and other goods on rental basis. iv) It is further observed that there are independent qualitative, and logistic (mobilization, delivery, replacement of deficient or sub-standard materials, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In particular instances where the same taxable person effects a continuous supply of services coupled with periodic supplies of goods/ services to be used in conjunction therewith, one could possibly view the periodic supply of goods/services as composite supplies along with the service that is continuously supplied over a period of time. W. The aforesaid findings of the Hon'ble High Court are squarely applicable to the facts of the present case, which has not been considered by the Ld. Authority while issuing the impugned Ruling. Admittedly, in case of continuous supplies like those in the present case, the services are provided continuously during the period for execution of the contract of service and the goods will be supplied / used as and when required for providing the services. X. It is submitted that once the Ld. Authority has observed that the mud chemicals and mud additives are essential and integral part of the work undertaken by the Appellant under the contract entered into with OIL, the same has to be treated as supplied in conjunction with the services provided under the said contract. Y. The finding that there are independent qualitative, quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e both, are sufficient to hold that both goods and services are supplied in conjunction with each other and therefore constitute composite supply. DD. In view of the aforesaid, the supply of the mud chemicals and additives and the mud engineering and drilling services are composite supply in terms of Section 2 (30) of the CGST Act. Rate of applicable GST EE. Section 8 of the CGST Act inter-alia provides that a compos ite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply i.e. the rate of tax applicable will be that of the principal supply. FF. Section 2 (90) of the CGST defines principal supply as under: (90) principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply is ancillary. GG. In the present case, undoubtedly, the predominant element of the supply made to OIL under the above contract is the supply of mud engineering services and the supply of mud chemicals and additives supplied in the execution of the said contract are ancillary to the above supply. HH. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Table:- SI.No Chapter, Section or Heading Description of service Rate (percent) Conditions (1) (2) (3) (4) (5) 24 Heading 9986 (ii) Support services to mining , electricity, gas and water distribution 9 - Notification No.1/2018- C.T. (Rate), dated 25.01.2018 CGST Rates on intra-State supply of specific services- Amendment to Jumbo Notification No.11/2017 - C.T.(Rate) In exercise of the powers conferred by sub-section (1) of section 9, sub section (1) of section 11, sub-section (5) of section 15 and sub-section (1) of section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorized representative, Sri Prasad Paranjape, Advocate attended and reiterated submissions already made. 4) Discussions and Findings: We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant as well, in light of the ruling pronounced by the AAR. The issue at hand for discussion is whether the supply of mud engineering services and supply of imported mud chemicals and additives provided on consumption basis by the applicant under the contract qualify as composite supply or not. Before embarking upon the question, it is worthwhile to examine the intricacies of the subject matter with reference to the two taxable supplies involved in the question. 1. Supply of Mud Engineering service: Mud Engineering is the service rendered (Drilling Fluids engineering, often referred to as Mud Man service) on a drilling rig to ensure the properties of the Drilling Mud are within the designed Specifications. The Drilling Mud is created using the local as well as imported ingredients and supplied to the service recipient. 2. Supply of Chemicals and addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 would be affected. No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above. In light of the above discussion, with reference to the parameter (a) mentioned above, it is observed that both the supplies are not supplied or provided as a complete package 'at a single price'. The tax invoices filed by the appellant reveal that different invoices are raised for both the supplies separately and individually. With reference to the parameter (b) mentioned above, the supplies of chemicals and additives and mud engineering services are two different supplies and separately available. Section 3 of the contract no.6205290 projects the schedule of rates distinctly for both the supplies. Moreover, in the instant case the supply of chemical and additives and mud engineering services can be procured in a piecemeal approach up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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