TaxTMI 
TaxTMI 
2022 (3) TMI 1204
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....rovisions. Accordingly, a 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 3. Brief facts of the case: 3.1. The Appellant is a company incorporated under the Companies Act, 1956 having its registered Office at 3, Corporate park, Sion Trombay Road, Mumbai 400071, India. The Appellant is inter-alia engaged in the sale of diagnostic reagents/kits etc. It is submitted that the business model of the Appellant inter-alia, in the State of Kerala, is that it places its owned diagnostics instruments at the premises of unrelated hospitals, labs etc. for their uses for a specified period without any consideration. To execute the aforesaid placement of instruments, the appellant inter-alia enters into reagent Supply and Instrument use Agreement ("the Agreement") with various hospitals, labs etc. A true photocopy of the sample agreement effective dated 01.06.2016 with the hospital/lab (Iqraa Hospital, Calicut) is produced. 3.2. The Appellant submits that following activities are carried out in terms of the said....
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....es a clause (clause 3.1) to the effect that if the hospital fails to purchase specified minimum quantum of the products, then the appellant is entitled to recover from the hospital, an amount equal to the deficit in the actual purchases vis-a-vis the minimum purchase required. This clause has never been acted upon by the appellant. In particular, no recoveries have been made or payment recovered from the hospital/labs. The appellant undertakes to pay GST if any recoveries would be made. In very few instances (approximately five), the appellant has raised suo-moto claim, on the hospital for payment of some amount. The same was not agreed to or accepted by the hospitals/labs. Accordingly, no amount has been paid/recovered. Thus, in effect, the clause has not been implemented by the appellant and hospitals/ labs. This business model is in place since past many years even prior to introduction of GST. Further, it is industry wide practice, even internationally, to supply instrument free of cost to the hospitals/labs. This is to prevent blockage of funds by the hospitals/labs keeping in mind the commercial and business expediency of the pharma industry. 3.5. The order dated 02.05.201....
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....on'ble Appellate Authority against the order dated 26.09.2018. The Appellant was granted a personal hearing by the Appellate Authority for Advance Ruling on 03.12.2018. At the time of hearing, the appellant submitted additional submissions. This Hon'ble appellate authority vide order dated 14.12.2018 dismissed the appeal of the Appellant holding that no new argument or fact was brought before it which would require modification of the order dated 26.09.2018. Accordingly, the Appellate Authority for Advance Ruling affirmed the order dated 14.12.2018. Aggrieved by the order dated 14.12.2018 and 26.09.2018, the Appellant filed writ petition before the Hon'ble Kerala High Court. 3.9. The Hon'ble High Court of Kerala vide order dated 07.01.2020 (reported at 2020-TIOL-40-HC-KERALA-GST) held as under: (i) The order dated 14.12.2018 and 26.09.2018 went beyond the terms of reference. it was open to the authority to decide whether the supply of instrument is a supply for consideration but its findings regarding composite supply are wholly without jurisdiction. (ii) In the facts and circumstances of the case, the authority could not have held that the plac....
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....ary or non-monetary form and also includes monetary value of any act or forbearance, in respect of, in response to, or for the inducement of supply of goods or services or both. The obligation of the hospitals/labs to purchase minimum value of reagents at the specified price and to deficit amount in case of short purchase is the motivation for the Appellant to enter into contract with hospitals/labs and thus such obligation constitutes valid consideration for supply of transfer of right to use the instrument. (3) The decision and the ruling relied by the Appellant are not applicable as language of the definition of the term "consideration" under the CGST Act is plain and unambiguous and thus there is no need to make any recourse to any other construction or interpretation. (4) The decision of the Hon'ble Bombay High Court in the case of Keshub Mahindra v. Commissioner of Gift Tax [(1968) 70 ITR 1 Bom.] relied by the Appellant is not applicable as it is out of context and the said judgement deals with the issue of "consideration" under the Gift Tax Act which is not pari materia with the definition or the term "consideration" under the CGST Act. 4. Grounds of....
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.... 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 (See 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 actual receipt of a sum of money although no money may pass" 4.4. Further, the word 'otherwise' will take colour from the preceding word 'money'. Thus, payment will mean a payment in money or through cheque, credit card, bank transfer, account settlement which is equivalent of money. Also, payment will include a payment in kind, i.e., supply of good....
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....ould bring if sold). As accountingtools.com Monetary value is the amount that would be paid in cash for an asset or service if it were to be sold to a third path). For example, tangible property, intangible property, labor, and commodities are priced at their monetary value. 4.8. The appellant argues that thus only if something has a material worth, i.e., it is capable of being sold, then it will have monetary value or be payment for supply of goods or Service. If a thing cannot bought and sold and cannot be indicated by an amount of money it would fetch if sold, it will not have a monetary value. Such a thing cannot be a "consideration" for the purposes of the CGST Act. 4.9 It is further submitted that GSTR 2001/6 on non-monetary consideration issued by Australian Tax Department explains that consideration for a supply may include acts, rights, obligations; however, such acts, rights and obligation are often disregarded as they do not have economic value and independent identity. The relevant extract of the GSTR is as under: "Economic value and independent identity 80. As stated at paragraph 68, the test for determining whether a payment is conside....
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....onetary consideration needs to have a clearly independent identity. Obligations that are essentially another wall of describing the consideration do not have a separate existence. For example, the obligation to pay money does not exist separately from the payment of money for the purposes of identifying the consideration. Also, in most cases, the use of a particular method of payment is not considerations. For example, where a supply is made for a lower price if a customer uses a credit card, the use of the credit card is not non-monetary consideration." 4.10. The above GSTR also provides an example illustrating the aforesaid proposition. The example is identical to the facts of the present case. Under the example, Supply Co. places machines free of cost at the premises of Deli Co. which agrees to purchase minimum amount of supplies from the Supply Co. In such circumstance, it is stated that the obligation to purchase minimum supplies does not have any economic value or independent identity. Thus, the same does not qualify as non-monetary consideration. The relevant portion of the said example is as under: "Example 16-promotion of a particular product ....
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....ct or abstinence or promise is called a consideration for the promise." 4.13. 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 widely defined. This definition under the Contract Act can be contrasted with the definition of the term 'consideration' in the CGST Act. The definition of 'consideration' in the CGST Act includes payment, whether in money or otherwise, and monetary value of any act or forbearance, Thus, the consideration requires passing of either money or something capable of being expressed in money, from the recipient of the supply to the supplier. In other words, any act or forbearance to which a monetary value cannot be ascribed, is not 'consideration' under the CGST Act. 4.14. The Appellant relies upon the decision of Hon'ble Bombay High Court in ....
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....as 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 to exchange for the promise may consist in 27. Now, it is undoubtedly the intention of the Gift-tax Act by the use of the words " consideration in money or money's worth " in section 2(xii) to limit the meaning of consideration to something which can be reckoned in terms of money and not to any and every obligation, e.g., a promise to marry, which would be a valid consideration under the ordinary law of contracts. It is a moot question whether " consideration in money or money's worth " is the same thing as " valuable consideration or some thing which the law deems of value " or whether it was intended by the definition to narrow down the concept of consideration. We have adverted to this distinction in order to emphasise the extent of the narrowness of the concept of consideration in the Gift-tax Act. The distinction, however need not detain us here, for we shall proceed to consider whether the consideration in the present case was as stated in the Gift-tax Ac....
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.... nexus between the placement of instrument and consideration paid by the hospitals/labs for purchase of reagents. There must be a link or nexus between the supply of goods or services by a person and the another person. This is clear from the: words in respect of, in response to, or for the inducement of. In the present case, the hospitals/labs places order for the purchase of reagents and make payment for the same. This is performance of the agreement to purchase reagent. Appropriate GST is being discharged on such supply by the distributor of the Appellant. Thus, the consideration paid by the hospital/labs is for supply of reagents. There is no nexus between the placement of instrument by the Appellant and the consideration paid (or obligation undertaken) by the hospitals/labs. Hence, the Present transaction namely placement of instrument at the premises of the hospitals/labs is without any consideration. Hence, there is no supply. The hospitals/labs have agreed to purchase a minimum quantity of reagent under the agreement with the Appellant. The agreement provides that in case, the hospitals/labs fails to meet the minimum purchase obligation, they will be liable to pay deficit a....
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....supply twice. Thus, a mere entering into contract obligation is not consideration for the purposes of the CGST Act. In the present case, the hospitals/labs have entered into a contractual obligation to purchase reagents from the distributors of the Appellant. The distributor supplies the reagents and discharge appropriate GST on the same. The act of purchase of reagents by the hospitals/labs is the performance of the contractual obligation on which GST has been discharged by the distributor. In other words, the said obligation has been subsumed in the supply made by the distributor. Thus, the said contractual obligation cannot be again treated as a consideration for the alleged supply made by the Appellant. 4.20. At the time of the hearing, the appellant has submitted the copy of the advance ruling orders issued by the authority for advance ruling in Karnataka (Advance Ruling No. KAR ADRG 118/2019 dtd.30-09-2019) in the case of M/s. Randox Laboratories India Pvt. Limited), Bangalore. wherein the Authority for Advance Ruling held as follows: "In this model, it is seen that the applicant is selling the reagents to the distributors and the distributors are selling the reag....
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....T Act. The sub-section (1) of section 7 of the CGST / SGST Act provides for the scope of supply and the same reads as under: Section 7. Scope of Supply. - For the purposes of this Act, the expression "supply" includes- (i) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (ii) import of services for a consideration whether or not in the course or furtherance of business; (iii) the activities specified in Schedule I, made or agreed to be made without a consideration; and (iv) the activities to be treated as supply of goods or supply of services as referred to in Schedule II. As per clause (a) above, the rental of goods would amount to supply transaction, of it is made or agreed to be made for a consideration in the course or furtherance of business. There is no dispute that this transaction involves delivery of goods for use and is in the course or furtherance of business. The only issue is about the consideration. Clause (31) of ....
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....vices in the nature of "an act agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" for which a consideration is received - at the time of supply of such services on the transaction value In case of PRC Model • For the supply of rental services in equipments - at the time of supply of the equipments on the amount of non-refundable payment received or invoiced. • For the supply of reagents - at the time of supply of reagents on the transaction value. • For the supply of services in the nature of an act agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act for which a consideration is received - at the time of supply of such services on the transaction value". 5. PERSONAL HEARING: The appellant was afforded an opportunity of personal hearing via virtual mode on 02/11/2021. The authorized representative of the appellant Sr. Advocate Sri V. Sridharan appeared before the authority and reiterated the contentions raised in the memorandum. They also submitted additional submission in their favour for consideration, which was also take....
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....otification, 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." 6.4. Schedule II to the CGST Act, 2017 lists a few activities or transactions which are to be treated either as supply of goods or supply of services. Vide Sl. No: 1(b) to schedule II of the Act, it is specified that any transfer of right in goods or of undivided share in goods without the transfer of title thereof is a supply of services. 6.5. The GST liability is attracted when there is a supply of goods or supply of services. In order to determine the fact in issue, the first condition to be verified is that whether the activity qualifies to be classified under the term "supply" as specified under section 7 of the Act. Further it is to be verified that whether the activity is supply of goods or Supply of services. It is noticed that the definition of the term "supply" is very wide and inclusive one. It includes all forms of supply such as sale transfer, barter, exchange, licence, rental, lease or disposal. The definition requires certain parameters for an activity / transaction to be cate....
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....lub, 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 transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities. 6.8. The definition of 'business' is inclusive and wide in its scope and amplitude. The plain reading of the section reveals that any activity carried out by the entity in the course or furtherance of business is included within the ambit of the definition, whether or not it is for a pecuniary benefit. The entre activity of providing instruments and supplying reagents of the appellant is based upon a common agreement viz. Reagent supply and instrument use Agreement. The activity o....
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....s, it reveals that they are placing the instruments / machines at the premises of the hospitals / labs for a specified period for their use. The agreement also places certain covenants regarding the usage of the instruments and purchase of reagents by the customer. The relevant clauses of the agreement are reproduced below: Recitals: Abbott Healthcare is the sole owner of the instruments 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 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. Clause 1 of the agreement provides for 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. ....
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.... opted for special prices negotiated by them which is in Annexure B based on volume given in Annexure B. If customer fails to meet specified volume as given in Annexure B then Abbott Healthcare has right to convert prices to list prices. Further the clause regarding the Supply of product specifies that Customer has to place single order to Abbott healthcare by 10th of each month to which supply will be made in 7 days. Orders placed after given date will be executed based on the inventory which may take 7-15 days. Clause 3.2 of the agreement provides for the Minimum Purchase Obligations. As per the clause, from the date of installation of the instruments at the Customer's premises, the Customer agrees to purchase every month from Abbott Healthcare products of a value not less than as mentioned in Annexure A to the agreement (such minimum purchase obligation, the "Minimum Purchase Obligation" exclusive of VAT and other applicable taxes, if any Applicable VAT/CST and other taxes would be charged additionally. If customers fail to meet the minimum purchase obligation on monthly basis then Abbott Healthcare will raise debit note equal to deficit amount which has to be paid ....
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....use 9.3 of the agreement states about the Termination for cause. Accordingly without prejudice to any other provision of this agreement Abbott Healthcare may terminated this agreement with immediate effect in the event that (i) the customer fails to meet its exclusive purchase obligation or minimum purchase obligation contemplated in section 3.1 and 3.2 of this agreement respectively (ii) the customer fails to meet any of its payment obligation under this agreement in accordance with the terms of this agreement (iii) the customer is in breach of any material term or condition of this agreement. Clause 9.4 of the agreement specifies about Automatic termination, wherein it is stated that, This agreement will stand automatically terminated in the event that the customer in any manner acquires title to the instruments including without limitation pursuant to section 5.1.2 hereof. 6.12. On a plain reading of the terms and conditions of the Agreement, it is revealed that the primary intention of the appellant is to enter into an agreement to place the instrument at the premises of those customer only where the customer in turn agrees to purchase products as defined in the Annexure ....
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.... under Section 7 of the CGST Act, 2017. 6.14. The appellant has raised an objection in the written submission as well as during personal hearing that the obligation to purchase minimum quantity of products is not a "consideration" for the purpose of the CGST Act. It was also contended by the appellant that the definition of consideration in Sec.2(31) of the CGST Act can be contrasted with the definition of consideration in Sec.2(d) of the Contract Act and it can be seen that the consideration as defined in GST in narrower in scope than that in Contract Act and hence any act or forbearance which does not have any monetary value is not consideration the CGST Act. Therefore, the obligation to purchase minimum quantity of products may be treated as a consideration in terms of the law of contracts but cannot be a consideration under the GST law. This contention was examined in the light of the definition of the Consideration provided under the GST Act. As per sub clause (b) to subsection (31) of Section 2 to the Act it is specified that Consideration in relation to the supply of goods or services includes the monetary value of any act or forbearance, in respect of, in response to, or....
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....pellant despite granted sufficient time for the same. The chances of charging extra price for the reagents etc in case of instruments placed for use cannot be ruled out as the appellants are not doing welfare activities to the hospitals otherwise. However, in absence of said information too, it is evident from the clauses of the Agreement that the conditional purchase of reagents etc is clearly linked with the right to use of the instruments by the customers. Hence, the arguments of the appellant that no consideration is involved in the transaction in terms of GST law are not tenable in view of explicit and unambiguous provisions contained in Section 7 read with section 2(31) of CGST Act. 2017. 6.15. The appellant has placed their reliance on the judgment of the Hon'ble High Court of Bombay in the case of Keshub Mahindra Vs. Commissioner of Gift Tax (1968 70 ITR 1 Bom) in support of the contention that the scope of consideration under CST law is narrow than the scope of consideration under Contract law and what is a valid consideration under Contract law will not be consideration under GST law. Further it was contended that there should be economic value and independent iden....
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....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." 6.17. The Hon'ble Supreme Court in the case of Dayal Singh Vs union of India reported in AIR 2003 SC 1140; held that; "where the language of the statute is clear and unambiguous, nothing can be read into it by implication and the intention of the legislature has to be gathered from the language used." 6.18. The Hon'ble Supreme Court in the Case of Union of India Vs Dharamendra Textile Processors reported in 2008 (231) ELT 3 (SC) held that; "It is a well settled principle in law that the court cannot read anything into a statutory provision or a stipula....
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.... a sentence in the judgment cannot be regarded as a full exposition of law." 6.21. We have gone through of the decision of the Authority for Advance ruling in Karnataka (Advance Ruling No. KAR ADRG 118/2019 dtd.30-09-2019) in the case of M/s. Randox Laboratories India Pvt. Limited), Submitted by the appellant. We decide to devlate from the decision for the following reasons: 1. As per the definition of the term consideration under subsection (31) of section 2 of the Act, it can be either monetary or non monetary. In the instant case, it reveals from the terms of agreement that there is an obligation and forbearance on the part of the customer which serves as consideration for the placement of equipments detailed above. 2. The value of the supply can be determined in accordance with provisions of section 15 of the CGST Act read with Rule 27 to 32 to the CGST Rules. Further Section 15 of the Act specifies about the value of taxable supply. Subsection (4) to section 15 specifies that where the value of the supply of goods or services or both cannot be determined under subsection (1) the same shall be determined in such manner as may be prescribed. Rule 27 to 32 of....