2026 (2) TMI 659 - HC - GST

Supply of mud engineering services with mud chemicals found composite supply, separate invoices not determinative, prior rulings set aside

Whether the supply of mud engineering expertise together with provision and injection of formulated drilling fluids and chemicals constitutes a composite ... Scope and ambit of “composite supply” - naturally bundled - supplied in conjunction with each other - principal supply - essential and intertwined part of the contract - supply of services and supply of goods under the contract - HELD THAT:- The appellate authority for advance ruling appears to have ignored this aspect of the contract. A comprehensive reading of the contract, in the light of clause-10, set out above, would show that the contract is for the purposes of managing the drilling activities of M/s. Oil India Limited, which requires the petitioner to monitor the drilling operations and to inject necessary material, as required from time to time. In this process, the petitioner is entitled to charge, for the material which gets consumed, while maintaining the necessary conditions for safe and efficient drilling. The fact that separate bills are being issued, against the supply of goods, would not make any difference for ascertaining the nature of the transaction/contract. Some of the criteria for determining whether a contract is a composite supply, is to see whether supply of both services and goods are necessary for execution of the contract and whether they are in conjunction with each other. In the present case, the contract is to ensure that the drilling activity of Oil India Limited, is done in a safe and efficient manner. This object is achieved, by the petitioner, by supplying services to monitor the drilling activity and by injecting, into the oil well, chemicals and other substances, whenever injection of such substances are necessary to maintain optimal conditions for drilling. It may also be noted that the chemicals and other substances, supplied by the petitioner, are not off the shelf goods, but compounds, prepared by the petitioner, to suit the peculiar requirements of the drilling site. In the circumstances, the supply of mud engineering services and the supply of chemicals etc would have to be treated as a composite supply. In that view of the matter, the findings of the authority for advance ruling as well as the appellate authority for advance ruling have erred in holding that the supply of services and goods, by the petitioner, to M/s Oil India Limited, is not a composite supply. The petitioner had also sought a direction for fixation of the applicable rate of tax. This Court does not propose to go into the said question inasmuch as the said issue was not decided by the authority for advance ruling or the appellate authority for advance ruling. The said issue is left open. In view of the above findings, this Writ Petition is allowed, setting aside the impugned order of the authority for advance ruling, date 13.05.2020, as well as the impugned order of the appellate authority for advance ruling, dated 09.11.2020, leaving it open to the petitioner to approach the appropriate authority for fixation of the appropriate rate of tax, for such composite supply. There shall be no order as to costs. Issues: Whether the contract for mud engineering services together with supply of mud chemicals/additives (consumed in execution) qualifies as a composite supply under Section 2(30) of the Goods and Services Tax Act, 2017.Analysis: Section 2(30) defines composite supply as two or more taxable supplies that are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one being a principal supply. The enquiry requires examining whether the supply of services and the supply of chemicals are mutually essential and intertwined parts of a single contractual obligation such that the goods are supplied in conjunction with the services and are necessary for execution of the contract. The contractual scope requires provision of mud engineering expertise together with provision and injection of formulated drilling fluids and chemicals tailored to the drilling activity; the chemicals are not off the shelf items but are prepared/used as part of the engineering service to maintain drilling parameters. The separate billing or issuance of distinct invoices does not by itself render the supplies separate if the goods and services are integral to achieving the contractual objective and are supplied in conjunction with each other.Conclusion: The supply of mud engineering services together with the associated mud chemicals/additives consumed during execution constitutes a composite supply under Section 2(30) of the Goods and Services Tax Act, 2017; the impugned advance ruling and appellate advance ruling holding otherwise are set aside.