2018 (4) TMI 810 - AAR - GST

GST Act: UPS and Battery Supply Classified as Mixed Supply

The ruling determined that the supply of UPS and Battery should be considered a Mixed Supply under the GST Act as they are supplied under a single ... Composite Supply - Mixed Supply - Principal Supply - naturally bundled - composite machine - Note 3 to Section XVI of the Tariff ActComposite Supply - composite machine - Principal Supply - naturally bundled - Tax treatment where a UPS is supplied with built in or inseparable battery as a single integrated machine. - HELD THAT: - Note 3 to Section XVI of the Tariff Act treats a composite machine consisting of two or more machines fitted together to form a whole as to be classified according to the component performing the principal function. Under the GST definitions, a composite supply requires supplies to be naturally bundled and one supply to be the principal supply. Where the battery is built into the UPS and the supply of the battery is inseparable from the supply of the UPS, the combination constitutes a composite supply (a composite machine) with UPS as the principal supply. In that eventuality the relevant tariff head is that of the UPS (Tariff Head 8504) as the predominant element of the composite supply. [Paras 9]Where the UPS is supplied with a built in/inseparable battery, the supply is a composite supply (composite machine) and is to be classified under the tariff head applicable to UPS.Mixed Supply - Composite Supply - naturally bundled - Tax treatment where UPS and battery are supplied as separate goods but invoiced/contracted together at a single price. - HELD THAT: - A supply is composite only if the component supplies are naturally bundled and the contract is indivisible so that the ancillary supplies are inseparable from the principal supply. A contract supplying UPS and battery as distinct goods (each having separate commercial value and capable of being purchased separately) is divisible and not inherently indivisible; the recipient can procure them separately. Consequently, merely charging a single combined price for separately supplyable items does not make them naturally bundled or a composite supply. Such a package, offered for a single price where the individual items remain separate and separable, falls within the definition of mixed supply under the GST Act. [Paras 11, 12, 13]Where UPS and battery are separate goods supplied under a single contract/price but are not inseparable, the supply is a mixed supply.Final Conclusion: The Authority rules that an inseparable UPS with built in battery is a composite supply to be classified as UPS, whereas a combination of UPS and battery supplied as separate, separable goods but billed at a single price constitutes a mixed supply; on the facts before it the Applicant's supply of UPS and battery together at a combined single price is a mixed supply. Issues: Classification of supply of UPS along with battery as Composite Supply or Mixed Supply under the GST Act.Analysis:1. The Applicant sought a ruling on the classification of the supply of UPS along with the battery, specifically whether it can be treated as a Composite Supply under Section 2(30) of the GST Act. The Advance Ruling Authority admitted the application as the issue was not pending or decided elsewhere.2. The classification of goods involved (UPS and battery) was determined based on the Rate Notifications on Goods. The Rules for Interpretation of the Customs Tariff Act were to be followed for interpretation of the Notifications.3. Note 3 to Section XVI of the Tariff Act defines a composite machine and its classification. However, its applicability is subject to the definitions of composite supply and taxability under Section 8(a) of the GST Act.4. Batteries and UPS were classified under specific Tariff Heads based on their functions and characteristics. UPS provides emergency power during mains power failure, while batteries store and release energy. The UPS requires the battery to function effectively.5. When a UPS is supplied with a built-in battery inseparable from it, it qualifies as a composite supply under Note 3. However, if UPS and battery are separately supplied but charged as a single contract, they constitute a Mixed Supply as per Section 2(74) of the GST Act.6. The ruling determined that the supply of UPS and Battery should be considered a Mixed Supply as they are supplied under a single contract at a combined single price. This classification is valid unless declared void under the provisions of the GST Act.Conclusion:The judgment clarified the classification of the supply of UPS along with the battery, distinguishing between Composite Supply and Mixed Supply under the GST Act based on the nature of the contract and pricing.