TaxTMI 
TaxTMI 
2021 (7) TMI 478
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.... reference hereinafter to the provisions of the CGST Act, Rules and the notifications issued there under shall include a reference to the corresponding provisions of the KSGST Act, Rules and the notifications issued there under. BRIEF FACTS OF THE CASE: 3. The Applicant is engaged inter alia in the sale of pharmaceutical products, diagnostic kits, diagnostic instruments etc. As part of its business activity the applicant places specified medical instruments to unrelated hospitals, labs etc for their use for a specified period without any consideration. In order to execute the placement of instruments, the applicant enters into Reagent Supply and Instrument Use Agreement (hereinafter referred to as "Agreement") with various hospitals, labs etc. The copy of the sample agreement is produced as Annexure - 2 to the application. The Applicant by application dated 28.05.2018 sought for advance ruling on following; Whether the placement of specified medical instruments to unrelated customers like hospitals, labs etc for their use without any consideration for a specific period constitute a "supply" or whether it constitutes movement of goods otherwise than by way of supply a....
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....he AAR did not go into the real issue of whether the supply of instruments per se constituted a taxable supply under the CGST Act. For a supply to be seen as composite supply, it must answer to the definition of the term composite supply at the time of its supply. As per sec 2(30) of the CGST Act 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". Many aspects of the transactions envisaged under the agreement entered into between the petitioner and its customer hospitals / laboratories militate against viewing them as a composite supply as defined above. Firstly, the supplies are made by two different taxable persons; the supply of instrument being by the petitioner and the supply of the reagents, calibrators and disposables being by his distributor, who purchases it from him on principal to principal basis. Although it could be argued that there is a relationship between the said persons that influences the valu....
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....nts at the premises of unrelated hospitals, labs etc for their use for a specified period without any consideration. To execute the aforesaid placement of instruments, they inter-alia enters into the Agreement with various hospitals, labs etc. The photocopy of the sample agreement effective from 01.06.2016 with IQRAA International Hospital, Calicut is produced as Annexure -2. In terms of the Agreement, two streams of transactions are undertaken; i. Placement of specified medical instruments to unrelated hospitals, labs for their use, without any consideration, for a specified period to the identified unrelated hospitals, labs etc for their use The ownership in the instruments continues to be with them and all rights, title and interest in the instruments are owned and vested in them at all times during the period of use. The hospital only possesses a non-transferable right to use the said instruments without any consideration. The said instruments are provided to the hospitals for a specified period and are returnable at the end of the specified period or on earlier termination of the Agreement. The instruments are centrally stocked by them at their warehouse located in Ah....
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....ce, even internationally, to supply instrument free of cost to the hospitals / labs to prevent blockage of funds by the hospitals/labs keeping in mind the commercial and business expediency of the pharma industry. 8.3. The Order dated 02.05.2017 of Deputy Commissioner (Intelligence), Dept, of Commercial Taxes, Ernakulam, in the VAT regime, in the case of M/s Prompt Enterprises (distributor of Applicant), in respect of detention of instrument belonging to the Applicant on 04.03.2016, demonstrates that they were following the same business model even in the erstwhile VAT regime. This demonstrates that the model adopted by them even in the past was not a tax planning devise from Tax/VAT angle but was necessary due to commercial and business expediencies. A copy of the Order dated 02.05.2017 of Deputy Commissioner (Intelligence), Dept, of Commercial Taxes, Emakulam is produced as Annexure - 7. 8.4. On the basis of the Judgment dated 07.01.2020 of the Hon'ble High Court of Kerala, the only question that arises for determination in the present proceeding is whether the placement of the instrument at the premises of the hospitals/ labs is a supply in terms of the CGST Act. The f....
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....other valuable thing accepted in partial or full discharge of an obligation; (2) The money or other valuable thing so delivered in satisfaction of an obligation. 9.3. Palkhivala in his treatise on Income Tax Act (Eight Edition) in the context of Actual or Constructive receipt of income under Section 5 explained that income may be received in money or in money's worth as by way of adjustment, settlement of accounts, negotiable instrument, etc. The relevant extract is as under: "Actual and constructive receipt. - Income, profits and gains may be received in the form of money's worth as well as money, in kind as well as in cash (Sec under s. 4 "Income in money's worth or equivalent of cash", p.124) A sum of money may be received in more ways than one, for example, by the transfer of a coin or a negotiable instrument or the acceptance of a cheque or other document which represents and produces money: what amongst businessmen might be equivalent to receipt of a sum of money would be receipt within the meaning of the statute. Adjustment of cross-claims, a settlement of account, an exchange effected by a book entry, or a set-off would be equivalent to actu....
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....and independent identity for something to qualify as consideration. Section 2(d) of the Contract Act defines 'consideration' as follows; "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise." The definition of the term 'consideration' under the Contract Act is very wide and includes any act, abstinence or promise from the promisee in exchange of the promise by the promisor. Any benefit to the promisor or detriment to the promisee will be a sufficient consideration under the Contract Act. Under the Contract Act, consideration is a vital element of the contract. An agreement made without consideration is void and unenforceable. This is to ensure that the parties are serious while entering into contract and that they have taken active part in the bargain. However, to ensure that frivolous contentions, that the contract is without consideration, are not raised even in genuine contracts, the definition of the term 'consideration' has been wi....
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....term 'contract' in the Indian Contract Act, 1872 observed that "The second thing that has to be noted, so far as the definition of "consideration" in section 2(d) of the Contract Act is concerned, is the express modification made to that definition by the use of the words "consideration in money or money's worth" in the definition of "gift". Under the Contract Act, consideration must of course be something which the law can deem of some value but it need not necessarily be "money or money's worth". Sir Dinshaw Mulla puts it thus at page 15 of his commentary on the Contract Act: "Apart from the peculiar case of a promise made by deed, English law will not enforce a promise unless it was given for value, that is, not necessarily for an adequate value, but for something which the law can deem of some value, and the parties treat as such by making it a subject of bargain. The value so received in exchange for the promise may consist in present performance, for example, the delivery of goods, or it may itself be the promise of a performance to come. These elements are embodied in the definition of consideration by clause (d) of our section." Now, it is undoubtedly the in....
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....dependent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value. 82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearance) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply. 83. Many transactions involve exchanging various rights and obligations between the parties to the transaction. In particular, the true character of the transaction may characterise the payment as a condition of the contract rather than the provision of non-monetary consideration. For example, in many cases, agreein....
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.... consideration. It does not have an independent identity separate from the supply arrangement. The obligation merely defines the supply of the equipment and product by Supply Co for the monetary consideration provided by the customer. 114. The consideration that Supply Co receives for its supplies of the product and equipment is the money paid by Deli Co each time it purchases supplies from Supply Co, under the terms of the agreement . ...emphasis supplied. 10.3. The definition of 'consideration' in the GST Act of Australia is similar to the definition of the term in the CGST Act. The relevant extract of the definition is as under: 9-15 Consideration: - (1) Consideration includes: (a) any payment, or any act or forbearance, in connection with a supply of anything; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. (2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply. 10.4. In view of the above, the obligation of the hospitals/labs to purchase minimum quantity of products is not a cons....
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....is is evident on the perusal of the Agreement. Therefore, the transaction does not come within the ambit of supply under Clause (a) of Schedule I the CGST Act. 10.7. Clause (b) of Schedule I provide that supply of goods and/or services made between related or distinct persons as specified in Section 25 of the CGST Act in the course or furtherance of business and without consideration is a supply under the CGST Act. The Explanation to Section 15 of the CGST Act provides the definition and scope of 'related persons'. The hospitals I labs in which the instruments are placed are independent entities and do not fall under any of the categories specified under the definition of related person. Thus, the Applicant and hospitals are not 'related persons'. 10.8. As regards' distinct persons', the meaning of the said term is provided under Sub section (4) and (5) of Section 25 of the CGST Act. The Applicant and the hospitals / labs are independent and distinct legal entities and do not fall under the ambit of 'distinct persons' as provided under Section 25. Consequently, the Clause (b) of Schedule I is not applicable to the facts of their case. 10.9. ....
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.... (1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II. (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. (3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods." 13.1. A plain reading of the definition of the term, "supply" as above would indicate that the meaning attributed to the term is that of wide amplitude, but, yet is an inclu....
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.... (17) "business" includes - (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) admission, for a consideration, of persons to any premises; (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; and (i) any activity or transac....
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....t clauses of the agreement are reproduced below; Recitals: Abbott Healthcare is the sole owner of the instruments as defined in Annexure - A Whereas, Abbott Healthcare agrees to provide the Instruments, more specifically described in Annexure - A, to the customer to use the Instruments and (b) the Customer agrees to purchase certain Products as defined below in Annexure B from Abbott Healthcare in accordance with the terms and conditions specified in this Agreement. 1. Definitions: "Instruments" means the diagnostic instruments specified in Annexure - A hereto, as amended or modified from time to time by the Parties in accordance with the terms of this Agreement; and "Products" means the reagents and related diagnostic products specified in Annexure - B hereto, as amended or modified from time to time by the Parties in accordance with the terms of this Agreement. 2. Instruments. 2.1. Right to use the Instruments. Abbott Healthcare hereby grants, subject to the terms and conditions specified in this Agreement, to the Customer a non-transferable right to use the Instruments without any consideration for the use p....
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....g of the preamble of the Agreement itself it is evident that the primary motivation for the applicant to enter into the Agreement to place the instrument at the premises of the customer is the agreement of the customer to purchase Products as defined in the Annexure B of the Agreement in accordance with the terms and conditions specified in the Agreement. The terms and conditions are specified in clauses 3.1 and 3.2 of the Agreement. According to the above clauses the customer shall purchase the product exclusively from the applicant at the prices specified in Annexure B for a value not less than that as mentioned in Annexure A. In case of the monthly purchase falling short of the value agreed the applicant has the right to raise debit note equal to the deficit amount. 13.9. The definition of the term consideration under the CGST Act as reproduced above clearly encompasses the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both. Hence the agreement of the customer to purchase the reagents, calibrators and disposables for use in the instrument exclusively from the applicant for a minimum value ....
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....(31) of the CGST Act, 2017 and there is no need for recourse to any construction interpretation to understand the meaning of the term. The meaning of the term consideration is clear from the plain language used in the definition. Hence there is no need for reference to the definition of consideration under Australian Law or the advisories issued there under. In the case of Bhavnagar University Vs Palitana Sugar Mill (P) Ltd reported in AIR 2003 SC 511 the Hon'ble Supreme Court held; "that recourse to construction or interpretation of the statute arises only when there is ambiguity, obscurity or inconsistency therein or otherwise. The basic principle of construction of statutes is that it should be read as a whole, then chapter by chapter, then section by section and then word by word. True meaning of a provision of law has to be determined on the basis of clear language with due regard to the scheme of the law. No words shall be added, altered or modified unless it becomes necessary to do so to prevent the provision becoming unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute." In the case of Dayal Singh Vs Union o....
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....ge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment." It was further held that - "The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding." It was also held that - "In order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law." The Hon'ble H....