2022 (3) TMI 1145 - AAAR - GST

Bundled container services classified as mixed supply under GST law, attracting highest 18% rate despite nil-rated transportation component

The AAAR Gujarat ruled that bundled services provided by an appellant for a single consolidated rate per container constitutes mixed supply under GST law, ... Classification of supply - composite supply of services or mixed supply - services for a “Single consolidated Rate” as a package - naturally bundled services or not - applicable HSN code and corresponding GST Rate for such bundle of services - eligibility of Input Tax Credit - GST paid on Commercial vehicles and Repair & maintenance cost of such vehicles used for transportation of goods/containers - ITC on inward supply from CFS/Port/Labour contractor etc. related to such packaged outward supply - refund of GST on outward supply invoices. Whether the bundle of services to be provided by the appellant for a single consolidated price would amount to provision of ‘Composite Supply’ or ‘Mixed Supply’ under the provisions of the CGST Act, 2017 and GGST Act, 2017? - HELD THAT:- The appellant intends to provide bundle of services in conjunction with each other for a single rate i.e. per container rate. The rate would vary depending upon the locations and price of diesel. However, it is not the case that the appellant would charge separately for different constituent services included in the bundle - It can be seen that the services provided by a Goods Transport Agency (GTA) by way of transport of Rice in goods carriage attracts Nil rate of GST; whereas, all other services like Clearing & Forwarding, Labour Supply for loading & unloading, obtaining Customs related certificates and allied/support services attract 18% GST. As the appellant intends to supply all these services as a bundle for a single consolidated rate, supply of such bundled services would be either ‘composite supply’ or ‘mixed supply’, as defined under the provisions of Section 2(30) and Section 2(74), respectively, of the CGST Act, 2017. To consider any supply of service as mixed supply, there should be two or more individual supplies or any combination thereof, made in conjunction with each other for a single price where such supply does not constitute a composite supply. It is found that all the requirements of ‘mixed supply’ fulfil in this case. It is clear that there is two or more individual supply of services in this case, which can be supplied separately, but the appellant intends to make such supplies as a combination or in conjunction with each other for a single price. This supply does not constitute a composite supply - thus, the proposed supply of bundled services for a single price would be treated as ‘mixed supply’ under the provisions of CGST/GGST Acts. Rate of GST on such mixed supply - HELD THAT:- It is very clear that such mixed supply would be treated as supply of that particular supply which attracts the highest rate of tax and thus, would attract the highest rate on the value i.e. single price of the entire bundle of mixed supply. In the present case, the highest rate attracted is 18% IGST or 9% CGST & 9% SGST for all services other than the service of transportation of Rice by a Goods Transport Agency, which attracts Nil rate of GST. Therefore, we are of the view that the entire bundle of services provided as a mixed supply would attract 18% rate. The appellant is also of the view that the entire bundle of services would be taxed at 18%. Classification / HSN of the mixed supply - HELD THAT:- In view of provisions of Section 8(b), the mixed supply would be treated as supply of that particular supply which attracts the highest rate of tax. In this case, there is no single supply which attracts the highest rate of 18%; but there are more than one supplies which attract the highest rate of 18%. In order to determine a particular supply for the purpose of classification of mixed supply in present case, we felt that the predominant supply among the supplies attracting the highest rate can be considered - the mixed supply intended to be provided by the appellant would be classifiable under HSN / Service Code (Tariff) 996719 with description as ‘Other cargo and baggage handling services’, which attracts 18% rate. Whether the appellant would be able to avail Input Tax Credit (ITC)? - HELD THAT:- In this case, the appellant has chosen to provide various services in conjunction of each other for a single price and such services are to be treated as mixed supply, as held by us. The single price to be charged by the appellant attracts the highest rate of 18% and the said single price includes the value of transportation of rice. So, there should be no question of denying ITC merely on the ground that one of the constituent service of mixed supply attracts Nil rate of tax, if provided separately. Whether the exporter client would be eligible to claim refund of GST paid by appellant on their outward supply? - HELD THAT:- This question is not related to appellant, but it is related to the exporter, who has not filed the application for Advance Ruling before GAAR or appeal. The appellant is not entitled to raise this question as to whether their exporter client shall be eligible to claim refund of GST paid by them or not. Issues Involved:1. Classification of bundled services as 'Mixed Supply' or 'Composite Supply' under CGST Act, 2017.2. Applicable HSN code and GST rate for the bundled services.3. Eligibility of the firm to avail Input Tax Credit (ITC).4. Eligibility of the exporter client to claim a refund of GST paid by the appellant.Detailed Analysis:Issue 1: Classification as 'Mixed Supply' or 'Composite Supply'The appellant, a transport and logistics service provider, proposed to offer a bundle of services at a single consolidated rate. These services include clearing and forwarding, transportation of cargo, labor for loading, transportation of empty containers, and obtaining customs-related certificates. The primary question was whether this bundle should be classified as a 'Mixed Supply' or 'Composite Supply' under Section 2(74) and Section 2(30) of the CGST Act, 2017, respectively.The definition of 'Composite Supply' requires that the services be naturally bundled and supplied in conjunction with each other in the ordinary course of business, with one service being the principal supply. However, it was observed that the services in question are generally not bundled in the ordinary course of business and are typically provided separately. Therefore, the bundle does not qualify as a 'Composite Supply.'Conversely, 'Mixed Supply' is defined as two or more individual supplies made in conjunction with each other for a single price, which do not constitute a composite supply. Since the appellant intended to supply various services together for a single price, the bundle fits the definition of 'Mixed Supply.' Hence, the services will be treated as 'Mixed Supply.'Issue 2: Applicable HSN Code and GST RateAccording to Section 8(b) of the CGST Act, 2017, a mixed supply is taxed at the highest rate applicable to any of the constituent services. In this case, the highest rate of GST among the bundled services is 18%, applicable to clearing and forwarding services. Therefore, the entire bundle will be taxed at 18%.For classification, the appellant suggested HSN 999799, 'Other Services nowhere else classified.' However, the authority determined that the mixed supply should be classified under HSN 996719, 'Other cargo and baggage handling services,' which also attracts an 18% GST rate.Issue 3: Eligibility to Avail Input Tax Credit (ITC)The appellant sought to claim ITC on GST paid for commercial vehicles, repair and maintenance of such vehicles, and inward supplies related to the bundled services. The authority held that ITC cannot be denied merely because one of the constituent services (transportation of rice) attracts a Nil rate of GST if provided separately. Since the entire bundle is taxed at 18% under mixed supply, the appellant is eligible to claim ITC on inputs, input services, and capital goods.Issue 4: Eligibility of Exporter Client to Claim RefundThe appellant also questioned whether their exporter client could claim a refund of the GST paid on the appellant's outward supply invoices. The authority ruled that this question pertains to the exporter, not the appellant, and thus, the appellant is not entitled to raise this question.Conclusion:The appeal was allowed, modifying the original ruling. The bundled services provided by the appellant were classified as 'Mixed Supply' under Section 2(74) of the CGST Act, 2017, with an applicable HSN code of 996719 and a GST rate of 18%. The appellant is eligible to claim ITC, and the question regarding the exporter's refund eligibility was deemed outside the appellant's purview.