TaxTMI 
TaxTMI 
2018 (12) TMI 1275
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....erms of entry 5 (f) of Schedule II of Central Goods and Services Act, 2017 ('CGST Act')? • Alternatively, do these activities transactions qualify as "transfer of right in goods" in terms of entry 1 (b) of Schedule II of CGST Act? 2. What is the nature of the supply based on the facts and circumstances as mentioned in statement of facts (Annexure-I) i, e., renting of workwear along with other services such as transportation, weekly washing etc. for a single consideration? In particular, • Does this supply qualify as "composite supply" as per section 2 (30) of CGST Act? • Alternatively, does this supply constitute a "mixed supply" under section 2 (74) of CGST Act? 3. In the event the answer to question (2) above is that the transaction undertaken by the Applicant Company qualifies as 'composite supply', (i) What will be the "principle supply" for the purpose of section 2 (90) of CGST Act? (ii) What will the applicable rate of GST? (iii) Whether the conclusion (i.e. the transaction is a 'composite supply') will remain the same if in addition to the services covered in question no. 2 above Applicant Company also provides additional....
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..... 5. Broad types of activities carried out by the Applicant are as follows: Sr.No. Type of activities carried out by the Applicant Remuneration structure 1. Renting of workwear 1. Weekly rental is charged for renting of work wear and ancillary Services. 2. Additional fees is charged For any additional services performed by Lindstrom India on the work wear. 2. Services ancillary to renting of workwear such as transport of work wear, weekly cleaning, maintenance, repairs and finishing 3. Additional Services such as renting of locker(s), modification work, sales of logo(s) and badges etc. B. Nature of activities undertaken by the Applicant Company 4. The Applicant Company is primarily engaged in the business of renting of workwear to its customers. Lindstrom India along with providing the workwear on rent also provides other services which are ancillary to renting of workwear such as weekly washing, cleaning, maintenance and repair(s) and replacement of workwear due to normal wear and tear. Lindstrom India is charging a single consideration (i.e. weekly rental) for these activities. 5. Apart from the services mentioned above Lindstrom In....
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....g, inspection, finishing and minor repairs of the workwear. Lindstrom India and its customer agree to workwear to a collection point which is in agreement of both the parties at a schedule time on weekly basis. In case after servicing of the workwear they are found to be not of the quality standards of Lindstrom India, Lindstrom India replaces such workwear Note No. 1: - For the activities mentioned above in para B.1 Lindstrom India charges a single consideration from its customer on weekly basis. Note No. 2: - In some other agreements Lindstrom India may also provide additional service of renting of locker as part of the service for a single consideration. Renting of lockers has been discussed in detail in point no. 11(a) of para B.2 below. B.2 Optional services provided by the Applicant Company for separate consideration 11. Lindstrom India also provides certain optional services to its customers apart from the services mentioned in para B.I above. Lindstrom India is charging separate additional consideration for these optional services as per the price chart of Lindstrom India. The optional services provided by Lindstrom India are described as follows: ....
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....m. Reasons for reimbursement: • Product is damaged or destroyed due to negligence. • Product is taken out of use, for instance, due to permanent glue or paint stains or exceptionally quick wear. • Product is lost while in the customer's possession. • Product returned to the warehouse has undergone modifications requested by the customer, due to which it cannot be returned to its original form. • Product returned to the warehouse cannot be rented further because of its condition f. Changing number of garments: Customer may increase or decrease the number originally rented. The agreed number of workwear can be either be increased by placing additional order with the Applicant Company or decreased by returning the excess garments. In case, the service volume leased from the Applicant Company is reduced by more than 30% from the highest volume of the past 6 months, customer will be required to pay compensation to Lindstrom India in accordance with redemption policy. g. In the above para we have explained/covered different types of business activities entered by the Applicant Company for your reference and/or underst....
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....61 SC] = 2006 (3) TMI 1 - SUPREME COURT, State of Andhra Pradesh vs. Rashtriya Ispat Nigam Ltd. [Judgement date 6/2/2002 in Civil Appeal no. 31 of 1991] = 2002 (3) TMI 705 - SUPREME COURT OF INDIA and M/s. G.S. Lamba & Sons vs. State of Andhra Pradesh (Judgment date 28/01/2011] = 2011 (1) TMI 1196 - ANDHRA PRADESH HIGH COURT, 'transfer of right to use' of goods involves transfer of possession and effective control over such goods. Here, renting of workwear amounts to 'transfer of right to use' on account of transfer of right to possession and effective control in the workwear by the Applicant Company to the customers, as evidenced by the clauses of the agreement. 7. Based on above legal provisions, the Applicant Company respectful submits that the services of renting of workwear provided by it amounts to 'transfer of right to use of the workwear to respective customers, which activity / transaction is covered under entry 5 (f) of the schedule II of the CGST Act. This submission of the Applicant Company is based inter alia on following factual aspects: (a) Ownership of the workwear remains with the Applicant Company throughout the contract but effective control and possession ....
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....ch workwear are stitched as per fitting of respective employees and therefore cannot be transferred by Applicant Company to any other person. 9. We have elaborated "transfer of right to use" goods in the foregoing paragraphs to submit that the Applicant Company is fulfilling the conditions which were set as a precedent in the judgments to qualify its activities as transfer of right to use goods. This is imperative in view of the fact that the effective control and possession of the workwear is exercised by the customer even though the owner ship of the workwear until termination remains with the Lindstrom India. 10. In light of the above, the Applicant Company interprets that leasing/ renting of workwear by Lindstrom India fulfills the conditions as laid down by the Hon'ble Supreme court to determine 'transfer of right to use'. Therefore, renting of workwear qualifies as 'transfer of right to use' of goods. Without prejudice to the aforesaid. the transaction in relation to workwear amounts qualifies as "supply of services" under GST laws 11. Schedule II of the CGST Act lays down the activities to be treated as supply of goods or supply of services. Entry 1 (b) and Entry....
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....sfer of right in goods without transfer of title, which is also treated as supply of service under GST laws. "Composite supply" V. "Mixed Supply" under GST laws 16. The taxable event under GST law is the supply of goods and services. Classification of a supply is essential to charge the applicable rate of GST on a particular supply. On a few occasions, certain transactions require supply of a combination of services or combination of goods or combination of both goods and services that maybe taxed at different GST rates. 17. In view of the above, GST laws require that such supplies should be classified as either a 'composite supply' or a 'mixed supply'. Composite Supply 18. As per Section 2 (30) of CGST Act, "Composite supply" has been defined as follows: "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, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;" 19. In order to qualify as a composite supply following conditions are to be met: â€....
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....ase of the Applicant Company workwear are mainly used from industrial purpose and customer (s) expect that ancillary services provided by the Applicant Company are expected to be provided as a package since such workwear are industrial products and are required to be industrially washed, maintained etc. Lindstrom India is having the required machinery and techniques to carry out such industrial washing etc. b. Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. Lindstrom India is the market leader in providing such services and these services are provided by Lindstrom as a package to its customers therefore this condition will automatically get fulfilled, C. The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidentally or ancillary services which help in better enjoyme....
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....r customer to take workwear on rent. e. In light of above discussions, it can be concluded that services provided by Applicant Company such as renting of workwear and other ancillary services covered in para B.1 of statement of facts above are naturally bundled services as Applicant Company is providing such services in conjunction with each other in ordinary course of business as a package and is charging a single consideration for the same. Thus, in case of services provided by the Applicant Company to customers, it appears that the core service is renting of workwear gives the bundle its essential character. Intent of the arrangement between Lindstrom India and customers is renting of workwear for industrial purpose. Supplying the various heads of services that are ancillary to the renting of workwear by Lindstrom India is with the fundamental purpose of supplying the core service of providing workwear to its customers and maintain the same as per terms of the agreement. f. The main/core services provided by Lindstrom India to customers appears to be of renting and maintaining of industrial workwear to customers. In other words, the aim of customers is to receive agreed nu....
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....urally bundled in the ordinary course of business. It is further essential that the said supplies shall not qualify as a composite supply. 24. The only difference between the composite supply and the mixed supply is that in case of composite supply the supplies are naturally bundled where as in the case of mixed supply they are not naturally bundled. Therefore, if the above supplies by the Applicant Company do not form a natural bundle and are not considered as composite supply, they must be considered as mixed supply of services such as renting of workwear and other ancillary services by the Applicant Company as it involves two or more supplies of goods and services which are made in conjunction of each other and Lindstrom India is charging a single consideration for the same. Taxability of transactions of Applicant Company 25. The concept of taxability of bundled service were also covered in erstwhile regime under Section 66F (3) of the Finance Act 1994 (Service Tax Act). Relevant portion is reproduced below: The taxability of a bundled service shall be determined in the following manner: 1. if various elements of such service are naturally bundled in the ordinary ....
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....29. Keeping in mind the above section in the present case, since the primary activity of the Lindstrom India is renting of workwear which is predominant element of the services provided by Lindstrom India to its customers and other services provided along with renting of workwear for a weekly consideration (rental) are ancillary supplies. Therefore, the principal supply of the composite supply in the case of Applicant Company should be renting of workwear and the rate as applicable on renting of workwear shall apply on the services provided by the Applicant Company which has been clarified in above points i.e. the service of renting of workwear by the Applicant Company is a transfer of right to use of goods i.e. Workwear by the Applicant Company and the rate applicable on such services will be same as applicable on such workwear/ apparel keeping in mind the sales value which is less than INR 1000 in the case of Applicant Company. Therefore, the rate of tax applicable on services provided by Applicant Company should be 5% not 12%. 30. In case the above supplies by the Applicant company are not mixed supply of services, the taxability of the of such mixed supply of services is cov....
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....arried out by the applicant company as mentioned in the statement of facts (Annexure-I). In particular, i) DO these activities/ transactions of renting of work wear qualify as "transfer of right to use" of goods by applicant company to its customers in terms of entry 5(f) of Schedule II of CGST Act, ii) Alternatively do these activities/ transactions qualify as "transfer of right in goods" in terms of Entry 1 (b) of Schedule II of CGST, Act? Entry 1 (b) of Schedule II of CGST Act, 2017 states that: Transfer (b) an transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of service. Entry 5(f) of Schedule II of CGST Act, 2017 states that (f) transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. M/s. Lindstorm Services India Pvt Ltd provide workwear on rent to their customers. These work wear are tailor-made to the requirements of their customers. They also provide services of Washing, Maintenance & Repair of these workwear on a weekly basis. The period of contract is ....
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....ns two or more individual supplied of goods or services or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply." Illustration. - A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; The services provided by M/s. Lindstorm Services India Pvt Ltd. are as listed below: i. Renting of workwear ii. Wash, maintenance & repair iii. Transport of workwear including trolleys and transport of bags iv. Lockers for storage of workwear v. Modification of workwear as per specifications vi. Sale of logo/ badges/ nametags Replacement or reimbursement of old workwear against a redemption charge. From our records, it has also been observed that M/s. Lindstorm Services India Pvt Ltd provide services of Supply of Manpower (if need be) for the Management of lockers & workwear at the customer's premises. ....
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....at the transaction undertaken by the Applicant Company qualifies as "composite supply." (i) What will be the "principal supply" for the purpose of Section 2 (90) of CGST Act? (ii) What will the applicable rate of GST? (iii) Whether the conclusion (i.e the transaction is a "composite supply) will remain the same if in addition to the services covered in question no.2 above Applicant Company also provides additional service of renting of locker as part of the same consideration? Since the activities qualify as a "Mixed Supply" under the CGST Act, 2017 highest rate of tax among the supply's constituents will be applicable. 04. HEARING The case was taken up for Preliminary hearing on DT. 18.07.2018 when Sh. Ankit Shah, applicant along with Ms. Mausumi Sarkia and Ms. Anjana Varma appeared and requested for admission of application as per contentions in their ARA. Jurisdictional Officer, Ms. Arpita, Asstt. Commissioner of CGST & CE, Belapur- IV, Division appeared and stated that she does not have any objection with respect to admission and made written submissions. The application was admitted and called for final hearing on 23.08.2018, Sh. Tarun Jain, Advocate along wi....
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....od of contract for any third party, the goods as visible in use would create an immediate impression that they belong to lessee and thus finally held that the petitioner has transferred the right to use goods to Grasim (the lessee). From the above terms of the contract, it is clear that for the contractual period, the ownership of the workwear rests with the applicant and only the right to use the workwear is intended to be passed on to the customer for the period of contract. In view of above we agree with the contention of the applicant and jurisdictional officer that the activity of renting workwear qualifies as 'transfer of the right to use' any goods for any purpose (whether or not for a specialized period) for cash, deferred payment or other valuable consideration and thus would be categorized as supply of services within the meaning of entry 5(f) of Schedule II of the GST Act. Question 2: What is the nature of the supply based on the facts and circumstances as mentioned in the statement of facts i.e. renting of work wear along with other services such as transportation, weekly washing etc. for a single consideration? • Does this supply qualify as "composit....
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....d finishing of the said workwear. Thus applicant satisfies one of the conditions that is essential character of 'Bundled Service' of the composite supply. Applicant having satisfied one of the essential character of composite supply as mentioned above now examine whether these services are bundled in the ordinary course of business which is one of the essential character of supply. To answer this Question we have to refer to Object of the Agreement' at para 2 of the agreement made between M/s. Nutromode and M/s. Lindstorm Services India Pvt Ltd. 2. 'Object of the Agreement' We find that M/s. Drums Food International Pvt. Ltd. shall rent from M/s. Lindstorm Services India Pvt. Ltd. the workwear and Lindstorm engages in delivering, washing and servicing the workwear and taking care of the required replacement of the workwear in accordance with their purpose of use. Lindstorm owns the rented products and shall have the exclusive right to wash and service them. In order to understand the concept whether services are naturally bundled in the ordinary course of business we also refer to the Education Guide 2012 issued by the Board and as per the Education Guide indicators as ....
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....d separately; Thus, in order to identify, if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business then it would be mixed supply. Further we find that customer pays single price under single invoice for the package of services. We have already ruled out the possibility of the present transaction being a composite supply, and the fall out is that the transaction qualifies as a mixed supply as defined in section 2(74) of the GST Act. 06. In view of the deliberations as held hereinabove, we pass an order as under: ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-43/2018-19/B-115 Mumbai, dt. 15.09.2018 For reasons as discussed in the body of the order, the questions are answered thus - Question 1. What is the classification of the activities transactions carried out by the Applicant Company as mentioned in the statemen....