Taxability of Supplies under a Single Contract by two Distinct Persons – AAAR Maharashtra
by ReinHeads Team | Oct 7, 2020
AAAR Maharashtra* – Taxability of Supplies under a Single Contract by two Distinct Persons
| Facts |
- Vertiv Energy Private Limited (“the Appellant”), having its corporate head office at Mumbai, is engaged in manufacturing of various types of UPS systems and supplying installation commission/ maintenance services to its customers
- The Appellant had entered into a contract with Delhi Metro Railway Corporation (“DMRC”) for supply of UPS, installation, testing and commissioning of UPS systems (“the Contract”), which provided detailed description and value of various goods and services to be supplied
- The UPS systems are manufactured at the Appellant’s factory at Maharashtra and accordingly goods are supplied under the Maharashtra GSTIN. However, the service portion under the Contract (i.e., erection, installation and commissioning) is executed by the New Delhi branch of the Appellant, which is separately registered under GST
- The Appellant filed an application before the Maharashtra Authority for Advance Rulings (“the AAR”) to seek clarification whether the supplies under the Contract would qualify as ‘works contract service’, wherein it was held that:
- Supply of UPS system by the Appellant to DMRC does not qualify as works contract service but a composite supply;
- The principal supply in the composite supply is supply of goods (i.e., UPS system) covered under heading 8504, which is chargeable to GST @ 18%
- Aggrieved by the ruling of the AAR, the Appellant filed an appeal before the Maharashtra Appellate Authority for Advance Ruling (“the AAAR”)
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| Issues before the AAAR |
- Whether the supply of goods and services from two different GSTINs (of the Appellant) under the Contract would qualify as “Composite Supplies”?
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| Discussion and Findings of the AAAR |
| It was held that the supplies under the Contract does not satisfy the conditions for qualifying as “Composite supply” under the CGST Act. Therefore, the observation made by the AAR is not proper and legal and liable to be set aside on account of the following reasons:
| Conditions with respect to Composite Supply |
Findings of the AAAR |
| It should be made by a taxable person |
- Supply of the UPS system is made under the Maharashtra GSTIN while the supply of services (like erection, commissioning, installation, testing etc.) is under the Delhi GSTIN
- Both the offices are ‘distinct person’ under the CGST Act and thereby would be considered as supplied by two different taxable persons
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| Supplies should be naturally bundled and supplied in conjunction with each other in the ordinary course of business |
· Supply of the goods and services under the Contract are not being made in conjunction with each other, as the supply of services are undertaken only after the supply of goods (i.e. only after the ownership/ title of the goods has been transferred)
· Hence, the said services cannot be said to be supplied in conjunction with the supply of the goods, thereby, precluding from being in the nature of a “Composite supply” |
| One of the supplies should be the Principal supply
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- Under the Contract, both the supplies (i.e., the supply of goods and the supply of services) are equally important and indispensable. It would not be proper to claim one of the supplies as the “Principal Supply” under the CGST Act. In absence of any of these two, the objective and purpose of the Contract cannot be achieved
- Thus, even this key requirement of the “Composite supply” is not satisfied under the Contract.
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