TaxTMI 
TaxTMI 
2020 (11) TMI 1038
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....AAR No.15/AP/GST/2020 dated 13.05.2020 issued by Authority for Advance Ruling, Andhra Pradesh. 1. Background of the Case: 1. Halliburton Offshore Services Inc. is a global service provider, engaged in providing various oilfield services to Exploration and Production companies across the globe. Presently, the applicant has contracted to provide Mud Engineering and Dr (ling Waste Management services for drilling three HPHT Exploratory Wells in KG Basin, Andhra Pradesh. 2. In the course of supplying such services the applicant also supplies various goods such as drilling mud, completion fluids and well-bore cleanup chemicals/additives or any other chemicals which are used for providing such services. 3. In 2014, the applicant was awarded a contract bearing letter of award no. OIL/KGB/CONT-6505290/ KKD-14/2014 dated 30th March 2014 by M/s. Oil India Limited (hereinafter referred to as "OIL INDIA") having its registered office at Duliajan, Assam. The Contract was awarded for providing mud engineering and other services as stated in the contract for their "Krishna-Godavari(KG) Basin Project" in the state of Andhra Pradesh. 4. Under the above Contract, the applicant has bee....
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....t qualifies as "composite supply", with supply of mud engineering services being the principal supply. B. Section 7 of the CGST Act, defines the term "Supply" very broadly which includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. C. Admittedly, as submitted in the facts above, the above contract entered into with OIL inter-alia entails both providing of mud engineering and drilling services and supply of mud chemicals and additives required for providing the aforesaid services. D. In terms of Section 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; Illustration - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply ....
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....viding mud engineering services are essential for executing the scope of services agreed with OIL in the aforesaid contract. Hence, both the supplies are incidental and inter- dependent with each other. L. The Ld. Authority has observed that a comprehensive reading of scope of work (as provided in the contract including the aspects thereof) gives an understanding that the contract is not merely for supply of additives/ chemicals/ consumables or not merely for providing of services. In the perspective of the customer or recipient i.e., OIL, the contract is a single package comprising of 'supply of services and supply of goods.' M. The Ld. Authority has observed that scope of work to be provide by the Appellant under the contract is a combination of supply of service and supply of goods which are naturally bundled and the principal supply of service (mud engineering or drilling waste management services) and supply of goods viz. mud chemicals and additives for incidentals or ancillary supply to the main supply. N. Accordingly, it is not in dispute that the aforesaid supplies made by the appellant under the contract are "naturally bundled" in the ordinary course of bu....
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....without effecting OIL's operation at their own expenses provided OIL requests for the same in writing. ii) Clause 13.1 - Section II of the Contract: The Appellant shall ensure sufficient quantity of materials and chemicals are available at the rig site and at the base, and the appellant is also under obligation for providing of actual delivery verification. iii) Clause 16.2 - Section II of the Contract refers to supply of mud chemicals and additives -which includes submission of specification of all the offered chemicals, supply of complete line of mud chemicals and additives, maintenance of adequate stocks of these items, furnishing of test reports to OIL, payment on actual consumption basis etc. iv) Clause 16.2.5 - Section II of the Contract - The recipient i.e. OIL reserves the right to terminate the contract if the chemicals and additives are found to be of substandard qUality and the contractor is unable to replace those within a reasonable time without affecting operations. S. It is submitted that by relying upon the aforesaid clause the Ld. Authority has inter-alia held as follows: i) All the activities/ events viz. procurement, del....
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....be used in the execution of the contract and the right to seek replacement of the personnel/ goods if the same are not as per the satisfaction of OIL. U. It is submitted that the interpretation of the Ld. Authority that the supplies can be considered to be made in conjunction with each other only if the same are made simultaneously or at the same time is very narrow and untenable in law. In case the said interpretation is held to be valid then any continuous supply will never qualify as composite supply. V. Reliance in this regard, is placed on the judgement of the Hon'ble Kerala High Court in the case of Abbott Healthcare Pvt. Ltd. vs. Commr. of Commercial Tax, Thrissur, 2020 (34) G.S.T.L. 579(Ker.), wherein the Hon'ble High Court has held as follows: "11. In my view, a finding as regards composite supply must be take into account supplies as effected at a given point in time on "as is where is" basis. ..In particular instances where the same taxable person effects a continuous supply of services coupled with periodic supplies of goods/ services to be used in conjunction therewith, one could possibly view the periodic supply of goods/services as composite su....
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....ud engineering services along with the supply of imported mud chemicals and additives provided on consumption basis by the appellant under the contract do not qualify and are not classifiable as 'composite supply' is untenable in law. CC. It appears that the Ld. Authority misdirected itself to reach the above conclusion based on certain observations, which, with due respect, in the opinion of the appellant are not relevant to decide whether the supply of services and goods are in conjunction with each other. For example, the Ld. Authority has observed that the services and goods are not supplied as a single package, but are separately available or can be procured independently. It is submitted that having observed and held that the appellant is obligated to provide complete services with goods and non-provision of one will affect the other, and in fact contractually the appellant is duty bound to provide both, are sufficient to hold that both goods and services are supplied in conjunction with each other and therefore constitute composite supply. DD. In view of the aforesaid, the supply of the mud chemicals and additives and the mud engineering and drilling services a....
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..... (Rate), dated 28-6-2017 "Rate of GST on intra- State supply of specific services with Service Code Tariff(SAC) In exercise of the powers conferred by sub-section (1) of section 9, sub-section (1) of section 11, sub-section (5) of section 15 and sub-section (1) of section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and or being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of services of description as specified in column (3) of the Table below, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2), shall be levied at the rate as specified in the corresponding entry in column (4), subject to the conditions as specified in the corresponding entry in column (5) of the said Table:- SI.No Chapter, Section or Heading Description of service Rate (percent) Conditions (1) (2) (3) (4) (5) 24 Heading 9986 (ii) Support services to mining, electricity, gas and water distribution 9 - Notification No.1/2018....
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....ing waste management services, being the principal supply, should apply to all the above supplies made under the contract with OIL. (ii) Grant a personal hearing and permit the appellant to produce additional documents and other materials at the time of personal hearing. (iii) For such further and other reliefs as this Hon'ble Appellate Authority may deem fit in the facts and circumstances of the case. 3. Personal Hearing: The proceedings of Hearing were conducted through video conference on 20th October 2020, for which the authorized representative, Sri Prasad Paranjape, Advocate attended and reiterated submissions already made. 4) Discussions and Findings: We have gone through the entire records of the appeal, facts of the case, and also considered the written and oral submissions made at length by the appellant as well, in light of the ruling pronounced by the AAR. The issue at hand for discussion is whether the supply of mud engineering services and supply of imported mud chemicals and additives provided on consumption basis by the applicant under the contract qualify as composite supply or not. Before embarking upon the question, it is w....
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.... "9.2.4 Manner of determining if the services are bundled in the ordinary course of business Whether 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 services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below - a) There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. b) The elements are normally advertised as a package. The different elements are not available separately. The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above." In light of the above discussion, with reference to the parameter (a) mentioned above, it is observed that both the supplies are not supplied or ....