LEGAL OPINION
Invoicing for supply to government department - Goods and Services Tax - GST
Subject: Classification and GST Treatment of Supply of Inverters and Batteries Alongside Installation and Testing Services – Applicability of Composite Supply and Rate of Tax
1. Factual Background:
The client, pursuant to the award of a government tender, has effected the supply of inverters and batteries in conjunction with on-site installation, testing, and ancillary logistics. The terms of the bid required quoting a consolidated price for the inverter-battery unit and a separate consolidated price for installation and related services. Accordingly, the client proposes to raise a tax invoice consisting of two distinct line items:
(a) one for “inverter”; and
(b) one for installation and testing services, applying a uniform GST rate of 18% across the entire taxable value, treating the supply as a composite supply with inverter as the principal supply.
2. Legal Issue:
Whether the proposed structure—describing only "inverter" in the goods line item and applying a uniform tax rate of 18% on the entire invoice—complies with the provisions of the CGST Act, 2017, particularly with reference to composite supply classification, and whether omission of the word “battery” from the item description may give rise to a legal infirmity.
3. Analysis and Legal Position:
3.1 Composite Supply – Statutory Foundation:
As defined under Section 2(30) of the Central Goods and Services Tax Act, 2017:
“Composite supply” means 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.”
In the instant case, there exists an inherent and functional bundling between the supply of the inverter-battery unit and the execution of installation/testing. The principal character of the transaction is the delivery of the inverter system in functional condition, with all ancillary actions including installation being integral and subservient to that end.
3.2 Tax Liability – As per Section 8:
Per Section 8(a) of the CGST Act:
“The tax liability on a composite supply shall be determined by treating it as a supply of the principal supply.”
Accordingly, if the inverter (along with battery) constitutes the principal supply, and the applicable tax rate on such item is 18%, then the entire composite supply shall legally attract GST at the rate of 18%.
3.3 Need for Precise Description in Invoice:
It is however imperative to address that under the GST framework, proper classification and description of goods is a critical element in avoiding tax disputes, particularly where constituent items may attract disparate tax rates if supplied independently. It is relevant to note:
- Inverters are generally classifiable under HSN 8504, attracting 18% GST.
- Batteries, when supplied independently, typically fall under HSN 8507, which may attract 28% GST.
Hence, omission of the term “battery” in the invoice line item could potentially be construed by authorities as a deliberate attempt to conceal a higher-rated item, thereby attracting scrutiny under anti-evasion provisions, despite the substance of the transaction being a composite one.
3.4 Judicial and Administrative Support:
The position taken herein finds contextual support in:
- CBIC Circular No. 47/21/2018-GST which elaborates on identification of naturally bundled supplies;
- Ruling in ABB India Ltd. v. CCE, wherein integration of goods and services for performance of a common function was accepted as composite;
- Advance Ruling decisions in the renewable energy sector, where bundled supplies were taxed at the rate applicable to the principal item.
4. Conclusion and Recommendation:
While the characterization of the transaction as a composite supply taxable at 18%, with the inverter as the principal supply, is legally tenable, it is strongly advised that:
The goods line item in the invoice be described as “Inverter system comprising inverter and battery – as per tender specification” or a similarly accurate and neutral phraseology, to ensure transparency and consistency with the tender scope and supply documentation.
An annotation be added in the invoice footer or accompanying tax note stating:
“This supply constitutes a composite supply under Section 2(30) of the CGST Act, wherein inverter (with battery) is the principal supply. GST is accordingly charged at the rate applicable to the principal supply.”
Such documentation shall adequately support the client’s position in the event of future audit or departmental inquiry, and fortify the transaction against allegations of misclassification.
5. Final Position:
The supply qualifies as a composite supply with inverter (inclusive of battery) as the principal supply, taxable at 18%, subject to appropriate description in the invoice and records. However, the mere use of the term "inverter" to the exclusion of "battery" may give rise to legal risk, and should be avoided.
Prepared by:
[YAGAY & SUN]
(Consultant, Cyclist🚴, Environmentalist🌍, & Proud Father)
TaxTMI 
TaxTMI 
03 Jun 2025
4 Answers
648 Views 
