Composite Supply

[JAISIMHA Rao]

Dear Sir,

We have purchased Heat pump, Descaler and water tank from different suppliers with separate HSN Codes and the same has been supplied and Installed in customers place. And all these items has been billed in a single invoice. Heat Pump as 28% GST and all others had 18% GST. Now the GST Auditors contention is they are a composite supply. Request your thoughts and suggestions on this.

[Ganeshan Kalyani]

Sir, in my view, it depends upon the nature of supply that you are providing to your customer. Is it that you are doing trading of goods or you are construction a water tank for your customer. If it is only a trading activity then tax rate of individual item will apply. And if you are consturction water tank then that would become your principal supply and all other connected items will be ancilliary to that and in that case the tax rate of principal supply will apply..

[JAISIMHA Rao]

Dear Sir, Thanks for your reply. Yes we are doing basically trading activity. But the Heat Pump requires some installation activity ( Placing on top of the building and plumbing work). Heat Pump is like a big geyser. Alongwith that if the customer needs we supply water tank also This is purely buying and selling activity subject to a minor installation work. The GST Auditor's contention is that all the items were supplied in single invoice and we have billed Installation and Transportation charges in the same invoice hence it amounts to composite supply. As the principal item is HeatPump which has a GST Rate of 28% ( Aug 2017) so all items to be charged 28%. Kindly suggest if we can go for an appeal against the enquiry. Our contention is they are not naturally bundled hence does not fall under composite supply.

[KASTURI SETHI]

It is a debatable issue. Contradictory decisions of Advance Ruling Authorities are available. A single price cannot be the only basis for treating any supply as composite supply. Whether any supply is mixed supply or composite supply (naturally bundled or not) can be determined on the basis of the following factors :-

1. Whether the different elements (goods/parts/equipments etc.) are available separately ?

2. Whether all the elements involved in the supply have been advertised as a package in routine manner ?

3. Suppose there are different elements (may be two or more, four or five elements) in a supply, if one or two are removed, whether such removal will affect the nature of supply ?

In my view, you should not accept the department's contention and contest.

[JAISIMHA Rao]

Thank you Sir. I have another query. In the same audit for FY 2017-18, they have listed out some purchase invoices where we have availed input credit but not appearing in GSTR-2A. Now they have asked us to pay the same even though we have submitted copies of all lthe invoices.]

Kindly let us know your views on this.

[KASTURI SETHI]

As per Govt. instructions, you can avail ITC only in respect of those invoices which have been reflected in GSTR 2 A. Later on, Rule 36(4) has been inserted but that rule is also not in letter and spirit of Section 16 of CGST Act. As per Section 16 of CGST Act, if you have received goods or services on the strength of proper invoice and GST has been paid and the ITC availed has been utilised in the course of business or furtherance of business (taxable output) and also not blocked by Section 17(5) of CGST Act, ITC cannot be denied. It is dichotomy between the CGST Act and Common Portal System. You are to follow the Act.

In a nutshell, ITC cannot be denied, if you fulfill all the conditions laid down in Section 16 & 17 of CGST Act. Pl. note that books of account are a statutory record. Practically, you are advised to persuade your suppliers to upload the tax invoices in time in order to avoid litigation. As per Section 155 of CGST burden of proof is cast upon the person who avails ITC..

[Mr Rao]

Dear sir,

As rightly said by Shri Sethi ji, you have to persuade your suppliers to upload the tax invoices in time to avoid litigation and you have to monitor your suppliers on regular basis on this aspect.

[KASTURI SETHI]

With reference to your query at serial no.4 dated 19.9.2020 above, it is to inform you that on 14.6.19 this very issue, inter alia, was challenged in Delhi High Court by the party, namely, Tele Media Ltd. and next date of hearing was 18.9.19. The other issues challenged were Section 16(2) (c) & (d) and Section 16(4) of CGST Act.

You may trace out latest position. I could not trace out.

 

[KASTURI SETHI]

In this scenario, the buyer is not at fault at all. To penalise an innocent person (purchaser) without his/her fault is in violation of Constitution of India. The offender/culprit may go scot free but innocent person should not be punished. Tele Media Ltd. has challenged the legal validity on these grounds.

AI Summary

Composite supply treatment may require applying the principal supply rate to ancillary items rather than itemwise taxation. Whether multiple goods plus incidental installation form a composite supply hinges on whether one component is the principal supply with others merely ancillary; availability of components separately, routine packaging, and effect of removal on the supply's nature are key tests. A single invoice or single price is not conclusive. Separately, ITC entitlement should follow statutory eligibility where valid tax invoices exist and credits are not blocked, despite portal reconciliation requirements; suppliers should be urged to upload invoices and the claimant bears the burden of proof.