Coal supply and handling services are separate supplies with different GST rates, not composite supply under GST law.

The AAR Tamil Nadu ruled that coal supply and coal handling/distribution services constitute separate supplies, not a composite supply. When coal is ordered first through a purchase order and handling/distribution services are subsequently ordered through a separate work order, these are independent supplies. Coal supply attracts 5% GST while handling and distribution services are taxable at 18%. The authority determined these services are not naturally bundled in ordinary business course and must be treated as distinct supplies with respective tax rates.

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Issues Involved:
1. Tax liability on coal handling and distribution charges.
2. Determination of whether coal handling and distribution services can be clubbed with the supply of coal as a composite supply.

Detailed Analysis:

Issue 1: Tax Liability on Coal Handling and Distribution Charges

The applicant, engaged in the business of trading coal, sought clarification on whether they are liable to discharge tax liability at 18% on coal handling and distribution charges collected in respect of supply of coal handling and distribution services rendered as per a work order issued by the customer subsequent to his coal (only) order. The applicant argued that these services should attract GST at 18%, while the supply of coal should attract GST at 5%.

The authority examined the applicant's business model, which includes importing coal, stockpiling it at the port, and subsequently selling it to customers. The coal handling and distribution services include loading, unloading, storage, safety, security, water sprinkling, custom clearing, and insurance. These services are provided based on separate orders from customers, who may initially place an order for coal and later a separate order for handling and distribution services.

The authority concluded that the coal handling and distribution charges collected in respect of supply of coal handling and distribution services rendered as per a work order issued subsequent to the coal order are subject to GST at 18%. This conclusion is based on the fact that the services are rendered through independent contracts and do not form part of a composite supply.

Issue 2: Composite Supply Determination

The applicant questioned whether the coal handling and distribution service ordered separately and subsequently by the customer can be clubbed with the supply of coal to be understood as a composite supply, thereby attracting GST at 5%.

The authority referred to Section 2(30) of the GST Act, 2017, which defines a composite supply as a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

The authority noted that for a supply to be considered composite, it must:
- Be made by a taxable person.
- Consist of two or more taxable supplies.
- Be naturally bundled.
- Be supplied in conjunction with each other in the ordinary course of business.
- Have one principal supply.

In this case, the authority observed that the supply of coal and the coal handling and distribution services are rendered at different times and through independent contracts. The purchase order for coal is issued first, and after the coal is sold, a separate work order for handling and transportation services is issued. Therefore, the coal handling and distribution services are rendered in respect of the buyer's goods and are not supplied in conjunction with the sale of coal. As such, these services do not form a composite supply.

Conclusion:

The authority ruled that the sale of coal and the subsequent supply of coal handling and distribution services ordered by a customer separately do not constitute a composite supply. The applicant is liable to discharge GST at the applicable rates (currently 18%) for the independent supply of coal handling and distribution services. The supply of coal remains liable for GST at 5%.

Ruling:

The sale of coal by the applicant and the subsequent supply of coal handling and distribution services ordered by a customer separately is not a composite supply. The applicant is liable to discharge GST on coal handling and distribution charges collected at the applicable rates (currently 18%) for such independent supply.

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