GST Ruling: Ex Works + Freight & Insurance = Composite Supplies

The Authority for Advance Ruling in Gujarat affirmed that Ex works plus freight and insurance should be treated as composite supplies under the GST Act. The ruling clarified the tax liability on such supplies, emphasizing the inclusion of freight and insurance charges in the value for GST calculation, regardless of how they are invoiced.

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Issues Involved:
Charging of GST on Freight and Insurance

Analysis:
1. Nature of Supply: The applicant, M/s. Aditya Birla Nuvo Limited, raised queries regarding the treatment of Ex works plus freight and insurance as composite supplies. They argued that as per the definition of composite supply under section 2(30) of The Central Goods and Service Tax Act, 2017, goods, packing materials, transport, and insurance form a composite supply with goods being the principal supply. The applicant contended that their product is a principal supply and freight and insurance are part of the composite supply, emphasizing that the product cannot be sold without including freight and insurance. They also mentioned that if they do not charge GST on freight, the liability would fall on the recipient to pay under the reverse charge mechanism. The applicant believed that they were providing a composite supply, including freight and insurance.

2. Contractual Terms: The applicant highlighted that their contract price includes Ex works and local transportation, insurance, and other incidental services. They argued that the consideration for their performance is exclusive of taxes and duties, which are reimbursable by the recipient, Power Grid Corporation of India Ltd. (PGCIL). However, PGCIL was not agreeing to pay GST on the freight element. The applicant suggested that PGCIL should seek clarity on the applicability of GST through an advance ruling.

3. Legal Provisions: The Central Goods and Services Tax Additional Commissioner, Vadodara-II, supported the applicant's interpretation based on the definition of composite supply under the GST Act. The judgment referred to the CBEC & C Flyer no. 4, which outlines indicators of a composite supply, such as the main service and ancillary services bundled together for better enjoyment of the main service. The ruling concluded that Ex works plus freight and insurance should be treated as composite supplies.

4. Tax Liability: The judgment clarified that showing and charging freight and insurance separately in the invoice would not change the fact that the supply is a composite supply. The ruling emphasized that different treatments for tax liability on naturally bundled goods/services are not permissible. Additionally, it was determined that the value of freight and insurance reimbursed by the buyer, whether based on actual cost or pre-contracted fixed freight per unit, should be included in the value of the composite supply for GST calculation.

In conclusion, the ruling by the Authority for Advance Ruling in Gujarat affirmed that Ex works plus freight and insurance should be treated as composite supplies under the GST Act. It clarified the tax liability on such supplies and emphasized the inclusion of freight and insurance charges in the value for GST calculation, irrespective of how they are invoiced.

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