Classification of Composite Supply for GST: Manufacturing Services as Principal Supply

The authority determined that the applicant's activities constituted a composite supply of goods and services, with manufacturing services being the principal supply. The value for GST purposes should include labor charges and the cost of non-critical components, excluding critical components supplied free of cost. Judicial precedents supported excluding free-of-cost supplies from the taxable value. The ruling classified the transaction as the supply of manufacturing services on physical inputs owned by others, taxable at 18%, with the value of goods provided by the other party not included in the taxable value.

---

---

Issues Involved:

1. Whether the work done by the applicant qualifies as job work or a composite supply of service and goods.
2. What is the value of such supply for GST purposes.

Detailed Analysis:

Issue 1: Nature of Supply - Job Work or Composite Supply

1. Definition and Context:
- The applicant, a private limited company, is engaged in job work activities for M/s Woodward India Private Limited (WIPL). The job work involves assembly, integration, and testing of converters using components supplied free of cost by WIPL (critical components) and non-critical components procured by the applicant.
- The term "job work" as defined under Section 2(68) of the CGST Act involves any treatment or process undertaken by a person on goods belonging to another registered person.

2. Applicant's Argument:
- The applicant contends that the arrangement qualifies as a job work arrangement, and the value for GST should be based on job charges, including labor cost and the cost of ancillary components added by the applicant, excluding the value of critical components supplied by WIPL.

3. Authority's Findings:
- The activity done by the applicant is not merely a process on the goods supplied by WIPL but involves the assembly of both critical and non-critical components to form a final product.
- The supply by the applicant is classified as a composite supply of goods and services, with the manufacturing services (assembly, integration, and testing) being the principal supply.
- The supply of non-critical components is naturally bundled with the manufacturing services and does not constitute the principal supply.

Issue 2: Valuation of Supply for GST

1. Applicant's Argument:
- The applicant argues that the value of critical components supplied free of cost by WIPL should not be included in the value of supply for GST purposes. They base this on Section 15(1) of the CGST Act, which defines the transaction value as the price actually paid or payable for the supply of goods or services where the supplier and recipient are not related, and the price is the sole consideration.

2. Authority's Findings:
- The value of supply should include the transaction value, which is the price actually paid or payable. As per Section 15(2)(b) of the CGST Act, the transaction value includes any amount that the supplier is liable to pay but incurred by the recipient.
- In this case, the applicant and WIPL are unrelated persons, and the value for GST should be the job charges, which include labor charges and the cost of non-critical components procured by the applicant.
- The critical components supplied by WIPL free of cost should not be added to the value of supply by the applicant because these components are not the responsibility of the applicant to procure.

3. Supporting Judicial Precedents:
- The authority references various judicial interpretations under the erstwhile Central Excise Law and Service Tax Law, including decisions from the Supreme Court and Tribunals, which support the non-inclusion of free-of-cost supplies in the value of taxable supply.

Conclusion and Ruling:

1. The nature of supply by the applicant is a composite supply consisting of manufacturing services on physical inputs (goods) owned by others (Service Accounting Code 9988) and the supply of non-critical components, with the former being the principal supply.
2. The entire transaction is to be treated as the supply of manufacturing services on physical inputs (goods) owned by others, taxable at the rate of 18%.
3. The value of goods provided by WIPL should not form part of the value of supply and must be excluded while valuing the supply for GST purposes.

---