Composite or Mixed Supply

[Kaustubh Karandikar]

• Instruments viz. diagnostic kit are supplied on ‘Free of Cost’ basis to the customer under a Delivery Challan without payment of GST with an assurance of certain amount of business with regard to reagents used in these instruments. The value of such instruments is approx. ₹ 10 Lacs.
• To install the said instruments at the customer site, amount towards ‘Installation and Commissioning’ is recovered from the customer under Tax Invoice. Value of the invoice is ₹ 1.25 Lacs and GST of ₹ 0.23 Lacs is charged on the same.
• Will this be treated as ‘Composite or Mixed Supply’ and if yes, whether GST will be demanded on the free of charge instruments supplied without payment of GST?

[Charu Tyagi]

As per the query it has been mentioned that 2 separate invoices are raised 1 for the Equipment-free of Cost and other for Installation of such equipment therefore, in such case there is no point of Mixed or Composite Supply as Mixed or composite supply concept is considered for the purpose of determination of rate.

Moreover in case one invoice has to raise than equipment cost can be taken as 'Nil' & rate of GST can be taken as rate of installation services.

[ABHISHEK TRIPATHI]

Doubt with regards to 'barter' as supply and its valuation.

[Charu Tyagi]

In case of "barter' which is supply as per section 7 of CGST Act, where consideration is not wholly in money Rule 27 of CGST Rule will be applicable and the Value shall be -

1. Open Market Value (OMV) of such supply
2. If OMV not available, then sum consideration in money and such further amount equivalent to consideration not in money.
3. If value not detminable as per 1 & 2 above then value shall be the like kind and quality.
4. if Value not determinable as per 1, 2 & 3 then sum consideration in money and further amount equivalent to consideration not in money as to determined by applying Rule 30 or Rule 31 in that order.

[ABHISHEK TRIPATHI]

Now can querist argue that the instrument is FOC and not a barter hence there is no consideration.

[KASTURI SETHI]

Dear Sir,

It is neither a composite supply nor a mixed supply. Better to issue two separate invoices with an intent to avoid tax (legally) on free supply.

[KASTURI SETHI]

Well replied by Sh.Charu Tyagi Ji at the first instance.

To post correct reply at the first instance matters a lot. This is real understanding, interpretation , analysis and drafting on the issue.

However, precaution has to be taken regarding the element of 'barter' (or some other hidden understanding) as rightly advised by Sh. Abhishek Tripathi Ji.

[Charu Tyagi]

Thank u @Kasturi Sethi Sir

And, For the Purpose of barter it is required to something in exchange and if one has not availed any service or procured any goods from the recipient of equipment there's no point of barter.

[Padmanathan KV]

Though binding only on the applicant, it is worthwhile to go thru Abbott Healthcare Private Limited AAR & AAAR Kerala.

[KASTURI SETHI]

Dear Sh.Padmanathan Kollengode Ji,

As suggested by you, I have perused AAAR Kerala's Order dated 22.1.22 - 2022 (3) TMI 1204 - APPELLATE AUTHORITY FOR ADVANCE RULING, KERALA. In addition to this, AAR Kerala's Orders dated 14.12.18 - 2019 (3) TMI 833 - APPELLATE AUTHORITY FOR ADVANCE RULING, KERALA & 7.5.21 - 2021 (7) TMI 478 - AUTHORITY FOR ADVANCE RULING, KERALA are also on this very issue against the same applicant. High Court, Kerala has also passed the order dated 7.1.20 - 2020 (1) TMI 338 - KERALA HIGH COURT wherein the case was remanded back to AAR, Kerala.

Although the applicant failed to prove the factum of 'without consideration' yet these orders are very useful for enrichment of knowledge on the issue. One order has held such transaction as composite supply. Each case has different facts and circumstances.

After going through the above orders, the querist or any assessee will be very very cautious while framing terms & conditions of the agreement.

[Padmanathan KV]

Ld Kasturi Ji,

Very aptly said by you. That is why, I only cited the AAR/AAARs for reference. The Ld. querist can take various cues from the said orders and advice their client to write the agreements/documents accordingly.

[Shilpi Jain]

Can it be regarded that there is a consideration for the supply of instruments since the agreement itself mentions that the reagents will have to be procured? In such case the supply of instruments will have to be valued at OMV and GST discharged.

THe reagents supplied will be liable at the Transaction value.

These are 2 separte trasnactions happening at 2 different points of time and cannot be regarded as mixed or composite.

[Shilpi Jain]

Existence of the clause for minimum business for reagents will indicate that the consideration exists for this transaction of supply of instruments

[Kaustubh Karandikar]

thanks all the experts for their valuable advice.

AI Summary

Barter and valuation: non-monetary consideration can trigger GST based on open market value under valuation rules.
The core issue is whether free supply of instruments with a separately charged installation and contractual reagent procurement obligation constitutes composite/mixed supply or barter. Separate invoicing for free equipment and installation suggests no composite supply for rate purposes, but contractual commitments to procure reagents may constitute consideration. If non-monetary consideration exists, valuation follows Rule 27, prioritising Open Market Value or monetary consideration plus equivalent amount for non-monetary consideration, with further fallback valuation methods.