2021 (7) TMI 478 - AAR - GST

Court rules placement of medical instruments for hospitals/labs with consideration is taxable supply

The case involved determining whether the placement of medical instruments to hospitals and labs without direct monetary consideration constitutes a ... Scope of supply - consideration - monetary value of any act or forbearance - Schedule I activities treated as supply - transfer of right to use goods - supply of services by transfer of right in goodsScope of supply - consideration - monetary value of any act or forbearance - Placement of medical instruments at customers' premises in pursuance of the Agreement constitutes a 'supply' under the CGST Act, 2017. - HELD THAT: - The Authority analysed Section 7 and Section 2(31) of the CGST Act and applied the statutory ingredients of supply: (i) involvement of goods or services, (ii) transaction in the course or furtherance of business, and (iii) made for a consideration. The instruments are movable property (goods) and the grant of a right to use them falls within the scope of 'transfer' in clause (a) of Section 7(1). The contractual model shows that the applicant placed instruments to induce and secure an exclusive and minimum purchase obligation for reagents and related products by the customer. Section 2(31) includes within 'consideration' the monetary value of any act or forbearance in respect of, in response to, or for the inducement of a supply. The minimum purchase obligation, together with the right to raise a debit note for any shortfall, constitutes a monetary act/forbearance in inducement of the right to use the instrument and therefore qualifies as consideration under the CGST Act. Neither Schedule I nor other clauses relied upon by the applicant bring the transaction outside the scope of supply. The Authority rejected the applicant's contention that contractual obligations lacking separate independent identity cannot constitute consideration, holding that the plain statutory definition governs and no external authorities are needed where the statute is unambiguous. [Paras 13, 14, 15, 16]Yes - the placement of specified medical instruments as per the Agreement constitutes a 'supply' under Section 7 of the CGST Act, 2017.Transfer of right to use goods - supply of services by transfer of right in goods - Schedule I activities treated as supply - Nature of the supply - whether the placement is supply of goods or supply of services. - HELD THAT: - Having held the transaction to be a supply, the Authority applied sub-section (1A) of Section 7 and Schedule II. Paragraph 1(b) of Schedule II treats transfer of right in goods without transfer of title as a supply of services. The Agreement grants a non-transferable right to use the instruments while ownership/title remains with the applicant. Consequently, the placement qualifies as a supply of services rather than a supply of goods. The Authority noted that the transaction does not fall within Schedule I exceptions (permanent transfer, related/distinct persons, principal-agent, or import of services). [Paras 13, 17]The placement of instruments is a supply of services (transfer of right to use goods without transfer of title).Schedule I activities treated as supply - delivery challan - Whether movement of instruments qualifies as movement of goods otherwise than by way of supply and may be effected by delivery challan. - HELD THAT: - The Authority observed that because the placement constitutes a supply, the movement is not 'otherwise than by way of supply' for all transactions; however, where movement is for reasons other than by way of supply, Rule 55 permits issuance of a delivery challan. The Authority recorded that, on the facts, movement could be effected under delivery challan where legitimately for reasons other than supply, but the primary finding remains that the placement transaction itself is a taxable supply. [Paras 11, 18]No - the placement does not constitute movement otherwise than by way of supply; movement may be covered by delivery challan only where genuinely for reasons other than supply.Final Conclusion: The Authority rules that the placement of specified medical instruments at unrelated hospitals/laboratories pursuant to the Agreement constitutes a 'supply' under Section 7 of the CGST Act, 2017 and is to be treated as a supply of services (transfer of right to use goods without transfer of title); movement of instruments is not treated as movement otherwise than by way of supply, save that bona fide movements for reasons other than supply may be documented by delivery challan in accordance with the Rules. Issues Involved:1. Whether the placement of specified medical instruments to unrelated customers like hospitals and labs for their use without any consideration for a specific period constitutes a 'supply' under the CGST Act, 2017.2. Whether such movement of goods constitutes otherwise than by way of supply under GST.Issue-wise Detailed Analysis:1. Whether the placement of specified medical instruments to unrelated customers like hospitals and labs for their use without any consideration for a specific period constitutes a 'supply' under the CGST Act, 2017:The definition of 'supply' under Section 7 of the CGST Act, 2017 includes all forms of supply of goods or services made for a consideration in the course or furtherance of business. The term 'consideration' as defined in Section 2(31) of the CGST Act includes any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services.The applicant places medical instruments at the premises of hospitals/labs without any direct monetary consideration. However, the agreement mandates the hospitals/labs to purchase specified quantities of reagents and related products exclusively from the applicant. This obligation to purchase constitutes a non-monetary consideration as it has economic value and is directly linked to the placement of the instruments.The High Court of Kerala had earlier quashed the ruling of the Authority for Advance Ruling and the Appellate Authority, stating that the AAR went beyond its jurisdiction by considering the transaction as a composite supply. The court emphasized that the real issue was whether the placement of instruments per se constituted a taxable supply under the CGST Act.Upon re-evaluation, it was determined that the obligation to purchase products as per the agreement constitutes a valid consideration under Section 2(31) of the CGST Act. Therefore, the placement of instruments is indeed a supply as it satisfies the essential ingredients of a supply: involvement of goods, in the course or furtherance of business, and made for a consideration.2. Whether such movement of goods constitutes otherwise than by way of supply under GST:The movement of goods under the agreement is not considered as 'otherwise than by way of supply' because the placement of instruments is made for a valid consideration. The instruments are placed at the premises of hospitals/labs with the expectation that they will purchase reagents and other products from the applicant, which constitutes a supply under the CGST Act.Conclusion:The placement of specified medical instruments to unrelated customers like hospitals and labs for their use without any direct monetary consideration for a specific period constitutes a 'supply' under Section 7 of the CGST Act, 2017. The transaction is made for a valid consideration, which is the obligation to purchase products from the applicant. Consequently, such movement of goods does not constitute otherwise than by way of supply under GST.Ruling:1. The placement of specified medical instruments to unrelated customers like hospitals, labs, etc., for their use without any consideration for a specific period constitutes a 'supply' under Section 7 of the CGST Act, 2017.2. Such movement of goods does not constitute otherwise than by way of supply under GST.