AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 30
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....08.06.2018 = 2018 (10) TMI 1515 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA. BRIEF FACTS OF THE CASE A. HP India Sales Private Limited (hereinafter referred to as "the Appellant"), being taxable person registered under Section 22 of the Maharashtra State Goods and Services Tax Act, 2017 (referred as "MSGST Act") read with Rule 24 of the Maharashtra Goods and Services tax Rules, 2017 (referred as "MSGST Rules"), having GSTIN 27AAACC9862F1Z1,are engaged inter alia in providing printing supplies to be used in HP's Indigo press machines supplied to customers. B. The HP Indigo digital printing press (hereinafter referred to as "HP Indigo") is a printing press specifically designed for ensuring best quality prints in the industry along with wide colour gamut, substrate versatility, speed, productivity and with the ability to vary every printed copy. C. The HP Indigo machine is based on a unique digital offset colour technology specially designed to cater to the printing requirements of large scale print service providers. The HP Indigo printers are significantly different from other office and industrial use printers due to the specialized liquid ink (hereinafter referred as....
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....print performed. N. The resellers also have entered into agreements with the end customers for onward sales of such printing supplies. Sample agreement between the reseller and the end customer has been enclosed herewith. O. To illustrate, assuming a customer uses the printer to take 100 prints in a month and each print costs Rs. 10/-, then the customer shall be billed Rs. 1,000 for the Electrolnk along with the consumables used for the month. P. Accordingly, when the running statement of accounts are collated for the respective end customers, the Appellant raises a consolidated invoice for the click charges on the reseller. Sample copy of the invoice raised by the Appellant on the reseller is enclosed herewith. Q. Also the reseller raises an invoice on each of the end customers based on the contractual arrangement between the reseller and the end customer. Sample copy of the invoice raised by the reseller on the end customer is enclosed herewith. The terms of the agreement between the reseller and customer are the same as between Appellant and reseller. R. With regard to the above background and submissions, the Appellant had filed an application before the Maharash....
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....nk@, photo imaging plates, binary ink developer (BIDS), printing blankets, recycled agent, imaging agent and imaging oil". However, the impugned order has concluded that clause (ii) and (iv) above for qualifying as a composite supply, namely naturally bundled and supplied in the ordinary course of business, one of the supplies being a principal supply, do not stand satisfied. Accordingly, the supply of Electrolnk with consumables has been held to be a mixed supply. Aggrieved by the above ruling, the Appellant prefers this appeal to the extent such supply of Electrolnk with consumables is held as a mixed supply, not being naturally bundled in the ordinary course of business, without specific identification of a principal supply. II. Determination of time and value of supply of Electrolnk with consumables under the Indigo press contract. Held in Para 5.6, "... We find that the supply of goods in the present case fulfil the basic tenets of 'continuous supply' and therefore we find from the above deliberation that the impugned supply is 'continuous supply of goods' as defined in clause 32 of section 2 of the GST Act". Held in Para 5.7, "... ....
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....her. 4. Therefore, there is no dispute against the fact that supply of Electrolnk with consumables is a bundled supply. 5. However, for the purpose of determining whether such supplies are naturally bundled, the impugned order has adopted a blindfold approach and termed the same as a 'compulsory supply" without analysing the essence of the arrangement between the Appellant and the reseller. 6. Firstly, we wish to submit that the term "compulsory supply" is not derived from the provisions of CGST Act, 2017 and is therefore not a valid ground for denial of condition of being naturally bundled, without complete analysis of the terms of contract. 7. The Appellant referred to the following clauses of the HP-reseller agreement: Clause 3 of Para C on Page 3 provides that "Purchase of Supplies by Reseller shall be subject to either the Tier or A-la-Carte programs set forth in Sections G and H below, and their respective terms and conditions. Reseller may elect to purchase supplies for the different Indigo Press Product Lines under different programs, provided that Reseller shall purchase all of the supplies required by it for each Indigo Press Product Line under the same Suppli....
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.... this regard, we wish to submit that the terms of HP-reseller agreement and the business practice clearly indicate that such supply of Electrolnk with consumables is made in the usual course of business. Further, the end customer also expects such supplies made by the reseller to be received as a bundle, without any artificial aid. Therefore, such supply of Electrolnk with consumable satisfies the definition of being naturally supplied. 15. Accordingly, the impugned order has wrongfully concluded the supply of Electrolnk with consumables as compulsory supply, whereas it is significantly evident that such supply is made "naturally" considering that it satisfies the meaning of the term in every sense. 16. Additionally, we wish to draw reference to Appendix C of the HP-reseller agreement, where the parties have agreed to the consideration for the supplies to be on a "per-click basis" depending on the nature of print generated by the customer. In this regard, Clause la of Para G on Page 4 of HP-reseller agreement provides that "Click means a chargeable unit for a single colour separation transferred onto substrate, except in the case of textured effect printing..............". Th....
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....usiness supply of Electrolnk with consumables is naturally bundled. 23. Further, the same is a generally accepted business standard considering that most of the resellers have opted for the Tier program as against the A-la Carte model. 24. The term "ordinary course of business" has not been specifically defined under the CGST Act, 2017. However, reference can be drawn to the Goods and Service Tax Flyer ("Flyer") on Composite supply and Mixed Supply issued by the Central Board of Indirect Taxes (CBIC). The said flyer has also been relied upon in the impugned order in Para 5.4 for the purpose of determining tests to satisfy supply being made in the "ordinary course of business" 25. The flyer provides that in order to determine whether supply of goods or services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which supply relates. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed hereunder: i. The perception of the customer As explained above, the perception of the customer is to receive (consume) t....
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....nd suppliers the Electrolnk is the main component of the supply. The same can further be substantiated based on the consumption pattern of various goods supplied in the bundle, where Electrolnk is the most consumed product. Sl.No. Nature of product HSN Consumption (%) (by volume and amount) 1. Printing Ink (Electrolnk) 32151190 41% 2. Blanket 59111000 16% 3. PIP - Photo imaging plate 59119090/84439100 13% 4. OMP-Other machine (miscellaneous) products Multiple 10% 5. BID - Binary ink developer 84439100 10% 6. OIL 27101980 7% 7. Blanket Web 59111000 2% 8. Other Consumables Multiple 1% a single price or the customer pays the same amount, no matter how much package they actually receive or use 26. The invoicing is done on a "per click basis" for all the supplies. Every customer is charged a single price for all the goods, irrespective of the fact that in achieving the final output of a print, there is different proportion of Electrolnk and other ancillaries consumed. Further, based on the said illustration, charging of a single price in relation to ....
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....s alone it would not be conclusive whether the supply is composite supply until it fulfils other requirements as well". 32. However, the impugned order has argued that the goods are capable of being supplied independently and therefore in the absence of satisfaction of one of the illustrative requirement of "elements not being available separately", concluded that the supply of Electrolnk with consumable is not made in the ordinary course of business. 33. The approach adopted by the Learned Advance Ruling authority on basing its conclusion merely on the alleged non-satisfaction of a single illustrative factor without giving regard to the terms of contract, business arrangement and satisfaction of other necessary requirements. While the tests to be applied as per the flyer have been laid out in the impugned order, the satisfaction of these tests has not been specifically discussed, except for one of the tests ie elements not being available separately. The Appellant has explained the satisfaction of these tests explicitly in its submissions made before the Learned Authority, which has not been judiciously considered. 34. Further, the Appellant submits that the supply of Ele....
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....s the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary". Based on the terms of HP Indigo Supplier Reseller Agreement specified above, the consumption pattern and printing cycle, and the value of the supplies constituted in the consideration per click, it is evident that the predominant element in the bundle is the Electrolnk. Binary ink developer, photo imaging plate, etc. are mere support elements to ensure movement of Electrolnk from the printer to the substrate in the required manner. The essence of the output received from the indigo press machine is the superior quality image, which is caused by the Electrolnk. 38. Para 5.4 of the impugned order held that "each of the supplies can be supplied separately as they are not dependent on each other and the identification of the principal supply therefore cannot be drawn from and among the supplies". The said statement is not conclusive enough to negate the fact that there is absence of a principal supply in the bundled supply of Electrolnk with consumables. 39. In this regard, the Appellant draws reference to the illustration for bundled services as p....
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.... held that the said supply is not made in conjunction to each other, the same shall not qualify as a mixed supply as well. • Condition of mixed supply requires there to be two or more individual supplies of goods. However, in the given case, Electrolnk and consumables are not individual supplies of different goods but a single supply of printing consumables. The said goods are required to be consumed together to obtain the desired print output. This can be further substantiated considering that Electrolnk and consumables are dependent on each other and capable of performing their function only when consumed together. • The illustration for mixed supply provided in Section 2(74) of CGST Act, 2017 is with respect to a package of various goods capable of being supplied and procured separately. However, Electrolnk with consumables under the Tier model are available only as bundle and cannot be bifurcated. 45. The Impugned Order has erred in applying the principles laid by the Bombay High Court in the case of Mumbai Metropolitan Region Development Authority v. Unity Infra project Ltd. 2008 (5) Bom CR 196. = 2008 (2) TMI 925 - BOMBAY HIGH COURT where it was h....
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....he industry practice adopted in this regard. 49. In view of the above factual and legal position, it was prayed that AAR Order may suitably be modified treating the supply of Electroink along with other consumables as a composite supply as against the AAR decision of treating the said supply as mixed supply. Personal Hearing 50. A personal Hearing in the matter was conducted on 12.02.2019, wherein Shri K. Sivarajan, C.A., representative of the Appellant, reiterated their written submissions. Shri P.R. Nilewad, Deputy Commissioner of State Tax, appearing as jurisdictional officer, reiterated the submissions, which had been made earlier before the Advance Ruling Authority. Discussions and Findings 51. The main clauses of the agreement between HP sales and Reddington are as below:- The Agreement is between HP and its Reseller and as per the agreement, HP appoints Reseller as an authorized, nonexclusive Reseller for the purchase and resale of Supplies subject to the terms and conditions of the Agreement. As per 'SUPPLIES' under Section C, the resellers have a choice to go for 'A la -carte or the Tier programs. In the definitions, 'A-La-carte Program' is defined as a s....
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....id to be compulsory. Just because there is a restriction to use it with certain printing machine it cannot be called as a compulsory supply. • The appellant states that there is no restriction imposed by the Appellant on the resellers to accept all products as a bundle but as a normal business practice and understanding, such goods are procured together. • It is also argued that there is a pre-agreed price for all the goods together and therefore they are naturally bundled and are a 'composite supply'. 56. A composite supply is defined as supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods and 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 the principal supply". 57. In the present case what immediately comes to mind is that all the products are equally important for the printing to happen. It is not that the printing can take place with only Ink and that the other products are not necessary. One of the major ingredients of a composite supply is that, one of the supplies is a 'princi....