2019 (3) TMI 833 - AAAR - GST

Medical instrument supply agreement deemed composite supply subject to 18% GST under Heading 9973

The appellate authority upheld the original order, determining that the placement of specified medical instruments to unrelated customers like hospitals ... Composite supply - principal supply - transfer of the right to use any goods for any purpose - naturally bundled supplies - movement of goods otherwise than by way of supply - application of Section 8 of the GST Acts - Heading 9973 - Transfer of the right to use any goods - colourable business modelMovement of goods otherwise than by way of supply - composite supply - Whether the Advance Ruling Authority exceeded the questions posed by the applicant in its advance ruling application. - HELD THAT: - The Appellate Authority examined the advance ruling application and the ruling and found that the original authority directly answered the applicant's question on whether placement of instruments without consideration for a period constitutes a supply by holding that such placement is a supply and, more specifically, a composite supply. The Authority observed that once the nature of the transaction as a taxable supply was categorically determined, the query as to movement otherwise than by way of supply became irrelevant. The appellate authority therefore concluded that the original authority did not go beyond the questions raised but addressed and resolved the material question of supply by characterising the transaction as a composite supply. [Paras 17]The Advance Ruling Authority did not exceed the questions raised; it lawfully answered that the placement constitutes a supply and thereby rendered the separate question on movement otherwise than by way of supply unnecessary.Composite supply - principal supply - naturally bundled supplies - transfer of the right to use any goods for any purpose - Whether the characterization of the transaction as a composite supply with the principal supply being the transfer of the right to use the instrument was legally correct. - HELD THAT: - The Authority analysed the agreement and facts: the instrument and reagents are supplied as interdependent components; the instrument is usable only with the consumables; the contract imposes a minimum procurement obligation for consumables and contains recovery provisions for shortfall. These features demonstrate that the instrument and consumables are naturally bundled and constitute a composite supply. The Authority further held that the essential nature of the overall supply is the transfer of the right to use the instrument, with the consumables being ancillary, bringing the composite supply within Heading 9973 as the principal supply. The appellate authority found the original authority's reasoning legally sound and did not accept the appellant's contention that separate structuring (free placement plus separate invoicing for consumables) altered the true character of the transaction. [Paras 6, 9, 11, 12, 13]The original finding that the transaction is a composite supply whose principal supply is the transfer of the right to use the instrument is legally correct; the receipts under the agreement are liable to GST under Heading 9973.Colourable business model - application of Section 8 of the GST Acts - composite supply - Whether there was any new material or arguable legal ground warranting remand or modification of the original advance ruling. - HELD THAT: - The Appellate Authority considered the appellant's submissions and reliance on a Supreme Court decision, and reviewed the documents and arguments placed before the original authority. It concluded that the appellant did not produce any fresh cogent arguments or new evidence at the appellate stage that would justify remanding the matter or altering the ruling. The Authority also rejected the contention that the original authority breached natural justice by deciding composite supply without hearing, noting that the merits and the contractual arrangements were already considered by the original authority. The appellate authority found the original authority's conclusion- including the observation that the structuring was a contrivance to avoid higher taxation-was supported by the agreement and factual matrix. [Paras 19, 20]No new material or valid legal ground was shown to warrant remand or modification; the appeal is dismissed and the original advance ruling is upheld.Final Conclusion: The Appellate Authority for Advance Ruling upholds the AAR's conclusion that placement of specified medical instruments with a minimum consumable-purchase obligation constitutes a composite supply, the principal supply being the transfer of the right to use the instrument, and that the receipts under the agreement are taxable under Heading 9973; the appeal is dismissed. Issues Involved:1. Whether the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., for use without any consideration, constitutes supply under GST.2. Whether such movement of goods constitutes otherwise than by way of supply under GST.3. Whether the Advance Ruling Authority had gone beyond the questions raised by the appellant.4. If the original authority had gone beyond the questions raised, should the issue be remanded back to the said authority.5. If the original authority had passed a proper order, is there sufficient new material before the appellate authority to set aside the original order.Issue-wise Detailed Analysis:1. Whether the placement of specified medical instruments to unrelated customers like hospitals, labs, etc., for use without any consideration, constitutes supply under GST:The appellant, Abbott Healthcare Private Limited, places its medical instruments at hospitals or laboratories without any consideration for a specific period. The hospitals or laboratories are required to procure specified quantities of reagents, calibrators, disposals, etc., from the appellant. The Advance Ruling Authority concluded that the placement of instruments and mandatory procurement of products constitutes a composite supply. The principal supply is the transfer of the right to use the instrument, which is taxable at 18% GST under Heading 9973.2. Whether such movement of goods constitutes otherwise than by way of supply under GST:The Advance Ruling Authority determined that the placement of instruments under the agreement constitutes a supply since it involves a composite supply where the principal supply is the right to use the instrument. Hence, the movement of goods does not fall under 'otherwise than by way of supply' as it is part of a taxable supply.3. Whether the Advance Ruling Authority had gone beyond the questions raised by the appellant:The appellant argued that the Advance Ruling Authority went beyond the questions raised by addressing the issue of composite supply. However, the authority clarified that determining the nature of the supply was essential to answer whether the placement of instruments constitutes a supply. Thus, the authority did not go beyond the questions raised.4. If the original authority had gone beyond the questions raised, should the issue be remanded back to the said authority:Since the original authority appropriately addressed the questions raised by the appellant, there is no relevance to remanding the issue back. The authority's discussion on composite supply was necessary to address the appellant's queries.5. If the original authority had passed a proper order, is there sufficient new material before the appellate authority to set aside the original order:The appellant did not present any new cogent arguments or evidence that would necessitate modifying the original order. The appellate authority found that the original order was legally correct and proper. The reliance on the Supreme Court's decision in Devi Das Gopal Krishnan vs. State of Punjab was deemed not applicable to the current case.Conclusion:The appellate authority upheld the original order, confirming that the placement of specified medical instruments to unrelated customers like hospitals and labs for their use without any consideration, against an agreement containing a minimum purchase obligation of products, constitutes a composite supply. The principal supply is the transfer of the right to use the instruments, which is liable to GST at 18% under Heading 9973. Therefore, the appeal was disallowed.