Court ruling: Renting workwear is "transfer of right to use" goods; ancillary services create a "mixed supply"

The court determined that the activities/transactions of renting workwear constitute a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act. Additionally, the supply of renting workwear with ancillary services like transportation and washing is classified as a "mixed supply" under Section 2(74) of the CGST Act, as the services are not naturally bundled. Consequently, questions regarding the principal supply and applicable GST rate were not addressed, as the transaction was deemed a "mixed supply."

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Issues Involved:

1. Classification of activities/transactions of renting of workwear.
2. Nature of supply: whether it qualifies as "composite supply" or "mixed supply".
3. Principal supply and applicable GST rate if the transaction is a "composite supply".

Issue-wise Detailed Analysis:

1. Classification of Activities/Transactions of Renting of Workwear:

The key question was whether the renting of workwear qualifies as a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act or as a "transfer of right in goods" under entry 1(b) of Schedule II of the CGST Act. The judgment highlights that the applicant retains ownership of the workwear while transferring the right to use to the customer. The workwear is tailor-made and marked with logos, making it identifiable. The court referred to the case of M/s. G.S. Lamba & Sons vs. State of Andhra Pradesh, where similar conditions were held to constitute a "transfer of right to use". Based on these observations, the judgment concluded that the activities/transactions qualify as a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act.

2. Nature of Supply: Composite Supply vs. Mixed Supply:

The judgment examined whether the supply of renting workwear along with ancillary services such as transportation, weekly washing, etc., for a single consideration qualifies as a "composite supply" or a "mixed supply". The definition of "composite supply" under Section 2(30) of the CGST Act requires that the supplies be naturally bundled and supplied in conjunction with each other in the ordinary course of business. The applicant argued that these services are naturally bundled, citing the Education Guide issued by CBEC in 2012. However, the judgment found that services like washing, maintenance, and transportation are standalone services and are available separately. The applicant had also provided only "washing services" to a customer in the past, indicating that these services are not naturally bundled. Consequently, the judgment ruled that the supply does not qualify as a "composite supply" but as a "mixed supply" under Section 2(74) of the CGST Act.

3. Principal Supply and Applicable GST Rate:

Since the transaction was determined to be a "mixed supply", the judgment did not need to address the questions regarding the principal supply and the applicable GST rate. The applicable rate for mixed supplies is determined by the highest rate applicable to any of the supply's constituents.

Order:

1. The activities/transactions of renting of workwear qualify as a "transfer of right to use" goods under entry 5(f) of Schedule II of the CGST Act.
2. The supply of renting workwear along with other services such as transportation, weekly washing, etc., for a single consideration is a "mixed supply" under Section 2(74) of the CGST Act.
3. The questions regarding the principal supply and applicable GST rate were not required to be answered due to the determination that the transaction is a "mixed supply".

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