Court quashes AAR orders on medical instruments supply

ABBOTT HEALTHCARE PRIVATE LIMITED Versus THE COMMISSIONER OF STATE TAX KERALA, THE COMMISSIONER, CGST, KERALA, UNION OF INDIA, STATE OF KERALA, THE KERALA AUTHORITY FOR ADVANCE RULING, THE KERALA APPELLATE AUTHORITY FOR ADVANCE RULING

ABBOTT HEALTHCARE PRIVATE LIMITED Versus THE COMMISSIONER OF STATE TAX KERALA, THE COMMISSIONER, CGST, KERALA, UNION OF INDIA, STATE OF KERALA, THE KERALA ... Issues Involved:
1. Jurisdiction of the Authority for Advance Ruling (AAR) and Appellate Authority.
2. Determination of 'composite supply' under the CGST/SGST Act, 2017.
3. Taxability and valuation of supplies under the agreement.

Detailed Analysis:

1. Jurisdiction of the Authority for Advance Ruling (AAR) and Appellate Authority:
The petitioner contended that the AAR and the Appellate Authority acted without jurisdiction by rendering findings on the issue of composite supply, which was not raised before them for clarification. The court observed that the AAR went beyond the terms of reference by embarking on an enquiry as to whether the supplies under the agreement constituted a composite supply. This was deemed beyond their jurisdiction, as the primary query was whether the provision of medical instruments without consideration constituted a 'supply' or 'movement of goods otherwise than by way of supply.'

2. Determination of 'Composite Supply' under the CGST/SGST Act, 2017:
The AAR held that the placement of medical instruments for use without consideration, in conjunction with an agreement containing minimum purchase obligations, constituted a 'composite supply.' The principal supply was identified as the transfer of the right to use the instruments, taxable under Notification No.11/2017 Central Tax (Rate). Consequently, the reagents, calibrators, and disposables were taxed at the higher rate applicable to the instruments. The court, however, found this determination legally untenable. It emphasized that for a supply to be considered composite, it must meet the definition under Section 2(30) of the CGST Act, which requires the supplies to be naturally bundled and supplied together in the ordinary course of business by the same taxable person. The court noted that the supplies were made by different taxable persons (the petitioner and its distributor), and there was no evidence that they were naturally bundled in the ordinary course of business.

3. Taxability and Valuation of Supplies under the Agreement:
The AAR's findings suggested that the supply of instruments was for deferred consideration, as the minimum purchase obligation ensured the overall price included the rent for the instruments. The court disagreed, stating that the concept of enhancing the utility of the instrument through the supply of reagents/calibrators/disposables is relevant for valuation but not for determining the nature of the supply as composite. The court highlighted that supplies by different taxable persons cannot be clubbed to alter their nature and must be assessed individually based on their factual existence at the time of supply.

Conclusion:
The court quashed the orders of the AAR and the Appellate Authority, remitting the matter back to the AAR for a fresh decision on the original query regarding the nature of the supply of medical instruments without consideration. The AAR was directed to pass fresh orders within six weeks, considering the observations made in this judgment. The writ petition was disposed of accordingly.