2021 (11) TMI 265 - AAR - GST

Tax classification for supplies to Integrated Coach Factory: mixed supply, highest applicable rate. Items not locomotive parts under HSN Code 8607.

The supplies made by the applicant to the Integrated Coach Factory were classified as a mixed supply, with the goods and services being distinct and ... Classification of supply and services - Locomotive parts - supply of multiple items, some of these items are manufactured by the applicant and some of them are procured for supply to the coach factory - supply of goods or works contract services - composite supply or mixed supply or normal individual supply? - contract with Krishna Bhagya Jala Nigam Limited for Design, manufacturing, supply, installation, operation and maintenance of Phase-II of SCADA and GIS based automation, for NLBC, SBC, JBC, MBC & IBC canal network systems including maintenance of the system for 5 years after commissioning of the scheme on turnkey basis - naturally bundled services or not. HELD THAT:- The Hon'ble Supreme court of India in a catena of case law has ruled that illustrations in a statute are part of the statute and help to elucidate the principle of the Section. Therefore a composite supply should be similar to a supply mentioned in the illustration to the definition in Section 2(30), where two or more taxable goods or services are supplied along with each other to constitute a composite supply - the supply made by the applicant against the purchase order of the Integrated Coach Factory is a mixed supply and the rate of tax applicable is the highest rate of tax applicable to the particular goods constituting the mixed supply. Applying principle of Noscitur a sociis it is seen from the purchase order none of the goods supply fall under this entry. They are also not essential component without which the whole cannot function. Therefore the supplies made under the referred purchase order to Integrated Coach Factory, Chennai do not fall under entry 8607. Contract with Krishna Bhagya Jala Nigam Limited, Narayanpur Division, Hunasagi Taluk, Yadgir District in the State of Karnataka - HELD THAT:- The applicant has entered into a contract with Krishna Bhagya Jala Nigam Limited, Narayanpur Division, Hunasagi Taluk, Yadgir District in the State of Karnataka. Whereas the application is dated.28-05-2018 the contract is much later to the application i.e., 12-10-2018. Further the place of supply falls outside the State of Telangana and hence this authority cannot decide the matter. Request for clarification as to whether the scope of work can be treated as supply of goods or works contract services and also request for the applicable rate of tax for the same - HELD THAT:- The clarification can’t be issued on supplies made in Karnataka. Issues Involved:1. Classification of supplies under composite supply, mixed supply, or individual supply.2. Classification of locomotive parts under HSN Code 8607.3. Classification and tax rate for a contract with Krishna Bhagya Jala Nigam Limited (KBJNL).Detailed Analysis:A. Queries Related to Railways and Metros:Issue 1: Classification of SuppliesThe applicant, Medha Servo Drives, sought clarification on whether their supplies to the Integrated Coach Factory, Chennai, should be classified as composite supply, mixed supply, or individual supply. The purchase orders indicated bundled supplies, with payment terms specifying that the payment is for the complete rake set and not for part supplies. The contract included various obligations such as warranty and performance guarantees.Legal Definitions:- Mixed Supply (Section 2(74) of CGST Act): 'Mixed supply' means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.- Composite Supply (Section 2(30) of CGST Act): 'Composite supply' means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.Discussion:The contract between the applicant and the Integrated Coach Factory was examined to determine if it constituted a composite or mixed supply. The key attributes of a naturally bundled supply were considered, such as single pricing, package advertisement, non-availability of separate elements, and integral nature of the supply. The Hon'ble High Court of Kerala's ruling in Abott Health Care Pvt. Ltd. (2020) and the principles elucidated in the Education Guide on Taxation of Services were referenced.Ruling:The supply made by the applicant was determined to be a mixed supply, as the goods and services, though supplied together, were distinct and separately identifiable. The rate of tax applicable is the highest rate of tax applicable to the particular goods constituting the mixed supply.Issue 2: Classification Under HSN Code 8607The applicant requested clarification on whether the items supplied could be classified under HSN Code 8607 as locomotive parts, considering their end usage.Legal Interpretation:Notification 05/2017 and the Customs Tariff Act 1975 were referenced for classification. The Hon'ble Supreme Court's ruling in CCE Vs Insulation Electricals (2008) was considered, which defined a part as an essential component without which the whole cannot function.Ruling:The goods supplied did not qualify as parts of Railway or Tramway under HSN Code 8607, as they were not essential components without which the whole cannot function.B. Query Relating to M/s. KBJNL:Issue 3: Classification and Tax Rate for Contract with KBJNLThe applicant sought clarification on whether the scope of work for the contract with Krishna Bhagya Jala Nigam Limited (KBJNL) could be treated as a supply of goods or works contract services and the applicable tax rate.Jurisdictional Limitation:The contract with KBJNL was entered into after the application date and the place of supply falls outside the State of Telangana.Ruling:The authority could not issue a clarification on supplies made in Karnataka, as it falls outside their jurisdiction.Conclusion:1. Mixed Supply: The supplies to the Integrated Coach Factory, Chennai, are classified as mixed supply.2. HSN Code 8607: The items supplied do not fall under HSN Code 8607.3. KBJNL Contract: The authority cannot issue a clarification on the supplies made to KBJNL in Karnataka.