Composite Supply Tax Ruling: Medical Instrument Placement & Minimum Purchase Obligation

The court ruled that the placement of medical instruments without consideration, coupled with a minimum purchase obligation for products, constitutes a composite supply. The principal supply is deemed to be the transfer of the right to use goods, subject to GST under the relevant notification. The attempt to split the supply through independent transactions to avoid higher tax rates applicable to composite supplies was considered a colorable business model.

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Issues Involved:
1. Whether the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., without consideration, for a specific period constitutes supplyRs.
2. Whether the movement of goods constitutes otherwise than by way of supply under GSTRs.

Analysis:

Issue 1: Placement of Medical Instruments as Composite Supply
The applicant places medical instruments at hospitals or labs without consideration, with the customer having the right to use the equipment during the contract period. The agreement binds the customer to procure specified products from the applicant. The agreement is for the supply of both the instrument and the products, making it an indivisible contract. The supply of the instrument and products is naturally bundled, constituting a composite supply. The applicable tax rate is determined by the principal supply, which is the instrument, taxed at 18% GST. The applicant's attempt to split the supply through independent transactions is considered a colorable business model to avoid higher tax rates applicable to composite supplies.

Issue 2: Transfer of Right to Use Goods
The agreement establishes that the supply of the instrument and products is interdependent, forming a composite supply. The consideration charged for the products is linked with the right to use the instrument. The transaction is deemed as the transfer of the right to use goods for consideration, falling under Heading 9973 of the GST Act. The entire transaction, including the supply of products, is liable to GST under this provision.

Conclusion:
The ruling states that the placement of medical instruments without consideration, along with a minimum purchase obligation for products, constitutes a composite supply. The principal supply is the transfer of the right to use goods, subject to GST under the relevant notification.

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