TaxTMI 
TaxTMI 
2022 (3) TMI 1204
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....inafter 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 agreement. Placement of specified medical in....
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....ospital 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 02.05.2017 of Deputy Commissioner (Int.), Dept. of Commercial T....
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....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 placement of instrument and the supply of reagents is a composite supply for the follow....
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.... 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 Appeal: Being aggrieved and dissatisfied by the impugned order passed by the Ld. Authority, the Appellant has filed the present a....
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....ofits 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 goods or services in towards discharge pre-agreed payment. 4.5. It is submitted that in Workmen of Rohtas Industries Ltd. v. H. K. Choudhuri. AIR 1965 Pat 127, the Hon'ble Patna High Court Supreme Court....
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....ced 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 consideration for a supply is whether there is sufficient nexus between the supply and the payment. Consideration for a supply may include acts, rights or obligations provided in connection with, in response to, or for the inducement of a supply. However, things such acts, rights ....
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....he 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 112. Deli Co, as part of an exclusive supply arrangement with supply Co, agrees to purchase a minimum amount of supplies from supply Co at a favourable price during a specified period. In return, Supply Co allows Dell Co to use some of its machines for the same period. The machines are used in connection with the supplies and are....
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....ntions, 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 the case of Keshub Mahindra v. Commissioner of Gift Tax [1968 70 ITR 1 Bom]. The issue arose under the Gift Tax Act, 1958 was that Keshub Mahindra & Mahindra Ltd (M&M). M&M was engaged in the business of supplying 'jeeps' manufactured by willys Motors Inc. (manufacturer of jeeps in USA). The jeeps were supplied by another company Willys Overland Export Corporation ('Export Co.). There was ....
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....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 Act definition in money or money's worth ". The appellant submits that the above decision states that any and every obligation will not be a consideration where the statute requires that the consideration should be either money or in money's worth (or has a monetary value). The ratio of the above decision equally applies in the present case and the interpretation of the term "consideration" under the....
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....s 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 amount to the Appellant. Such payment of deficit amount is in the nature of damages / compensation for breach of contractual obligation to buy minimum quantity of reagents and not a consideration for any supply even of reagents. 4.18. Further under the CGST Act, consideration is used in the sense of performance of the obligation and not entering into a contractual obligation. Under the Contract Law, there are two stages....
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....bligation 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 reagents to the end-customer. There may not be any supply from the applicant to the end-customers in so far as reagents are concerned. In such cases, the appellant transfers the property in goods in the form for reagents to his distributors and the distributors in turn sell it to the end customers. It may be a fact that the goods may not be available in the open market except with the distributors and the contract between the applicant and ....
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.... (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 section 2 of the CGST / SGST Act defines the term "consideration: as under: (31) "consideration" in relation to the supply of goods or services or both includes- 1. any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; 2. The monetary value of any act or forbearance, i....
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....r 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 taken on record. 6. DISCUSSION AND CONCLUSION: 6.1. We have carefully gone through the facts of the case, the orders issued by the Authority for Advance ruling; the earlier order of this Authority; the judgment of the Hon'ble High Court of Kerala, the grounds of appeal and other written and oral submission made by the appellant during personal hearing. The issue to be determined is, whether the placement of specified medical instruments by the appellant at the premises of unrelated hospitals, labs etc. in pursuance of the agreement for their use for a specific period constitute 'supply' as defined under the CGST/SGST Act, 2017. 6.2. The contentions rais....
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....ssified 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 categorized within the meaning and scope of 'supply' as detailed below:- 1. The supply shall involve goods or services; 2. The supply should be in the course furtherance of business; 3. The supply should be made for a consideration except in the case of activities specified under Schedule I to the CGST/SGST Act. 6.6. From the contention raised by the appellant, it reveals that they place their specified medical equipments to identified hospitals or laboratories as per the terms and conditions of the Reagent supply and Instrument use agreement. Accordingly, the hospitals or laboratories where the equipments are installed have the right to use the machine during the period of contract; but the title and ownership of the instrument continues....
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.... 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 of the appellant of placing of instruments at the hospitals/labs is admittedly linked with sale of reagents in terms of the agreement, whereby it is evident that the entire activity is nothing but a commercial transaction which is undoubtedly in the course or furtherance of business. 6.9. The next condition to be satisfied is that the transaction / activity should be made for a consideration. The term 'consideration' is defined in Section 2 (31) of the CGST Act, 2017 as follows; (31) "consideration" in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Govern....
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.... 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. Clause 2 of the agreement provides for rights and Covenants regarding Instruments. 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 per se during the term of this Agreement Title to Instruments. The Customer acknowledges and confirms that Abbott Healthcare owns all rights, title and interest in the Instruments and that the Customer has no right, title or interest in the Instruments other than the right to use the Instruments specifically granted pursuant to this Agreement. Customer Covenants. As per clause 2.4(iii) of the agreement it is specified that, upon the termination of this agreement (except in the event the customer acquires title pursuant to section 5.1.2 hereunder), the customer shall im....
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....igation" 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 by customer in 7 days from date of receipt. In case of additional placement of Instrument by Abbott, Minimum Purchase obligation will be revised upward proportionately for similar type of Instrument. Annexure A to the agreement states the following Architect cl 4100 - 1 unssit Monthly Minimum purchase obligation (MPO) 1) Complete RAP- Monthly minimum purchase obligation of reagents, calibrators, Controls and Accessory - * Rs. 4,00,000/Month for first 3 months * Rs. 6,00,000/ month for first 3-9 months * Rs. 7,50,000/ Month from 9 months onwards Incremental volume : 10% YoY growth Clause 5 of the Agreement states about the Damage to instruments : risk of loss Clause 5.1 of the agreement specifies about the Customer liability ; The customer Shall be liable for the cost of any repairs required in connection with any damage caused by any instrument or any part thereof due to, a. any n....
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....e 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 A of the Agreement in accordance with the terns and conditions specified in the Agreement. The terms and conditions are specified in clauses 3.1 and 3.2 of the Agreement. Accordingly to these clauses, the customer shall purchase the product exclusively from the appellant at the prices specified in Annexure B for a value not less than that is mentioned in Annexure A. In case of the monthly purchase falling short of the value agreed, the appellant has the right to raise debit note equal to the deficit amount. Further in clause 3.2 of the Agreement, it is specified that in case of additional placement of Instrument by Abbott, Minimum Purchase obligation will be revised upward proportionately for similar type of Instrument. Further the covenant of Automatic termination in the agreement also states that the agreement will stand automatically terminated in the event that the customer in any manner acquires title to the instruments. These facts itself shows that the Minimum Purcha....
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....bsection (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 for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government. Accordingly, it is clear that monetary value of any act or forbearance which causes the inducement of supply of goods or services or both is included in the definition. Thereby the act of assurance from the part of the Customer for exclusive usage of reagents, calibrators and disposable in the instruments according to the approved directions of the appellant and the obligation to purchase minimum assured quantity on the agreed price from the appellant constitutes a valid consideration for inducement of the supply of these services. Further the terms of the agreement reveals that "if the customer fails to meet the minimum purchase obligation on monthly basis the appellant will raise debit notes equal to deficit amount which has to be paid by the customer in 7 days from the date of....
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....nsideration 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 identity tor something to qualify as consideration and the obligation to purchase minimum supplies has no economic value or independent identity to constitute consideration under the GST law. They have also relied upon the advisories issue by the Tax Department of Australia and the definition of consideration in the GST law of Australia. The Hon'ble High Court of Bombay in the Keshub Mahindra case considered the scope of the term "consideration" as defined in Section 2 (d) of the Contract Act vis-à-vis the scope of the word "consideration" as used in the definition of gift in Section 2(xii) of the Gift Tax Act and came to the conclusion that the word consideration in the definition of gift is qualified by the words "in money or money-s worth" and hence it limits the meaning of consideration to something which can be reckoned in terms of money and not to any and every obligation which could be valid consideration under the law of contracts and accordingly held that the wor....
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....tile 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 stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent." 6.19. It is well settled principle that a taxing statute must be interpreted in the light of what is clearly expressed; it cannot imply anything, which is not expressed, it cannot import provisions in the statute so as to supply any assumed deficiency. Further it is pertinent to note that it is the settled legal position that a judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. 6.20. In the case of Union of India & Ors Vs Dhanwanti Devi & Ors reported in (1996) 6 SCC 44, the Apex Court while dealing with the law of precedent and the principle of ratio decidendi held that; "It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle up....
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....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 the GST rules specifies about the determination of value of supply of goods or services where the consideration is not wholly in money. From the definition of the term consideration. it revealed that it includes monetary value of an Act or forbearance i.e. any consideration received for doing something or promise to refrain from doing something is subject to GST. 3. The ruling does not disclose the terms and conditions of the agreement completely. 6.22. Moreover as per section 103 of the GST Act specifies about the applicability of advance ruling. - (1) The advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be only,- (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. The subsection (2) to Section 103 further reads that the advance ruling referred to in sub-section (1) and sub-section (1A) shall be binding unless the law, facts or circ....