TaxTMI 
TaxTMI 
2023 (1) TMI 85
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....nation with other products which are liable to GST rate @ 5% and 12%. The applicant is supplying following products in which Pencil Sharpener and Scales are sold as accessories: (1) Doms A1 Pencil (2) Doms Smart Kit (3) Doms My first Pencil Kit 3. The applicant has submitted the Product description as under: (1) Doms A1 Pencil: The product contains 10 pieces of pencils made of wood with pencils' leads made of graphite. This pack of 10 pencils sold along with a Sharpener and eraser included in the pack as accessories. This product is marketed as a Pack of Pencils and sold for a single price. The value of eraser and Sharpener provided in this pack is minimal when compared to overall price of pack. The applicant is of the view that the principal products in the above packs are pencils. The applicant submits that the eraser and sharpener are integral to the use and performance of the principal product that is pencil. The pencil cannot be used without sharpening and erasers are specifically used for erasing of writings done with pencils. The sharpener and eraser do not have any utility by itself. The applicant submits that it has always been trade practice in the Indian Sta....
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....urance is a composite supply and supply of goods is a principal supply; 4.1 The applicant submits that to qualify as a "composite supply", the following conditions must be satisfied:- * There must be two or more taxable supplies of goods or services or any combination thereof; * Such supplies of goods or services must be naturally bundled; * Such supplies of goods or services are made in conjunction with each other in an ordinary course of business; and * One of such combination of supplies of goods or services is principal/ predominant supply to others which are ancillary to such principal element. 5. Mixed Supply is defined under Section 2(74) of CGST Act, 2017,- (74) "mixed supply" means two or more individual supplies of goods or services, or any combination thereof made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It....
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....ing books, 2 packs of pencils, 1 Pack of colour pencil, 1 Pack of oil pastels, 1 Pack of wax crayons, 1 eraser, 1 scale and 1 sharpener * The product in the kit are bundled in a way to enable kids to draw * Along with drawing book, pencils, different types of colours, scale, eraser and sharpener are bundled together so that a consumer can buy a single kit for the purpose of drawing and colouring. As the objective of the kit is to enable writing/drawing, the drawing book and colouring tools provide the essential character to the entire package. This also evident considering the role of drawing book and colours in the entire set and even its value of compared to other constituent materials. 3. Doms My First Pencil Kit 1 Pencil, 1 eraser, 1 scale And 1 sharpener * Similar to the product specified in Sr. No. 1 above, this kit facilities use of pencil by providing an eraser, sharpener and a scale along in the set. * Hence, the set is sold to perform a specific activity of writing / drawing. As the object of the box is to enable writing/drawing, the pencil provide all the components of the box the essential character. 10. The applicant has submitted that four critical con....
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....on on which Advance Ruling is sought and is as follows : 1. Whether the supply of Pencils Sharpener along with Pencils being the Principal supply will be considered as the "Composite Supply" or "Mixed Supply". Section 8 of CGST Act, 2017 has defined the tax liability on a composite and mixed supply in the following manner : (a) a composite supply comprising two or more supplies, sone of which is a principal supply, shall be treated as a supply of such principal supply; and (b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. 1. In the case of Doms Al Pencils, the applicant has submitted that in India, traditionally, a pack of 10 pieces of Pencils is sold along with the sharpener and eraser in the Pack as Accessories. 1.1 First of all, the items which is to be included in the application have specific classification in the Tariff and so far as the "Accessories" is concern-an extra item that is added to something and is useful or attractive but not of great importance. Thus, the packing as referred in the application cannot establish the sharpener and eraser as integral part or necessit....
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...., the present case is similar to illustration mentioned in Section 2(74) (definition of Mixed Supply) which mentions supply of package consisting of canned foods, sweets, chocolates etc. which are sold for single price. These items can be supplied separately, independent of each other and are not naturally bundled. Therefore, when sold together for a single price, these products appear to be correctly categorized as Mixed Supply and not Composite Supply. What will be HSN code to be used by us for the supply of pencils in above case? In case of mixed supply as per section 8 of the CGST Act, 2017 which specify that mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. Therefore the HSN code under mixed supply may be HSN of the goods having highest rate of tax. Whether supply of sharpener having a nominal value along with the kit will have an impact on rate of tax of the kits? If yes, what will be rate of tax and HSN code to be used by us? As per Section 8 of the CGST Act, 2017 and definition as per section 2(74) of the CGST Act 2017 "mixed supply" means two or more individual supplies of good....
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....umber of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business. b) Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. c) Nature of the services offered is such that one is the main service and the other services combined with such a service are ancillary. d) Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are - * There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. * The elements are normally advertised as a package. * The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. 4. Hence, the above indicators specify the basis for determining if a bundle of goods or services are natural in ordinary course of business. Sr.No. Product Constituents Remarks 1. ....
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....lary or incidental" to a thing, trade or business when it is not necessary thereof or a primary part thereof. 5. Further, the Hon'ble Supreme Court in the case of Vareed Jacob vs Sosamma Geevarghese [AIR 1984 SC 744] has accepted the meaning assigned to the word "¦ancillary" as stated in the Law Lexicon. 'The expression 'ancillary' means aiding, auxiliary subordinate; attendant upon; that which aids or promotes a proceeding as a principal. 6. Therefore, given the aforementioned definition specified in Stroud's Legal Dictionary, a supply could be regarded as ancillary if it is not necessary for a combination. Also, as per the definition in Law Lexicon, for a supply to be ancillary to another, it should be aiding or supporting or promoting the principal supply. 7. Further it has been always a Trade Practice in the Indian Stationery industry to sell a pack of pencils containing one sharpener & one eraser together. Also, it has been the perception of consumer to reasonably expect sharpener & eraser along with a pack of pencils. The eraser & sharpener are integral to the use and performance of the principal product, that is, pencil. The pencil cannot be ....
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.... 1 pack of oil pastels, 1 pack of plastic crayons, 1 pack of wax crayon, 1 eraser, 1 sharpener an 1 scale * The kit contain a paper activity book (to color, draw, design and decorate) * The other constituents i.e. pencils, color pencils, oil pastel and crayons are used for the purpose of colouring, drawing in the activity book. * The above constituents cannot be used as such unless the same is sharpened. Thus, a sharpener is also provided in the box. * Further, the eraser enables mistaken marks to be eliminated. * Hence, these components are sold in combination to perform a specific activity drawing or colouring or designing or decorating. As the object of the product is to enable drawing / colouring/designing and decorating, the activity book provides all the components of the product the essential character and other products are ancillary to activity book. Further the value of ancillary product namely sharpener is Rs. 10/-which is minimal (2%) as compared to MRP of overall product. This further highlights that the objective is to sell a pack of drawing/ colouring essentials to the end consumer and not sharpener. C. Without prejudice to above we would like state ....
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.... of GIR. composite goods consisting of different materials/ made up of different components and goods put up in sets for retail sale which cannot be classified under Rule 3(a), shall be classified as if they consisted of the material or component which gives them their essential character. * As per Rule 3(c) of GIR, when goods cannot be classified under Rule 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which merit equal consideration. 5. Here it is relevant to note that Rule 3 is applied when goods are capable of being classifiable under two or more heading. In such cases, the classification of goods which are put up in sets for retail sale is to be undertaken basis the product providing essential character to the complete set. 6. Considering the industry in which the company operates the goods sold by them shall fall under the ambit of term 'goods put up in sets for retail sale'. The Indian Customs law does not provide any explanation/ guidance on the said term. Hence, reliance can be placed on the guidance provided by World Customs Organisation (WCO) considering that the entire scheme of customs tariff and cla....
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.... done as per Rule 3(b) of GIR. 12. In case above criteria is not met, Rule 3(c) of GIR shall be applicable i.e. the classification needs to be done under heading which occurs last in numerical order under the tariff. As specified earlier, since the rules/ interpretation as applicable under Customs law are applicable for interpretation of GST tariff, the above principles are very well applicable for determination of GST rate leviable on goods. 13. As apparent from the above discussion, since all the three conditions are satisfied for all the multiproduct packs, they shall qualify as 'goods put in sets for retail sale'. Further the product providing essential can also be identified in relation to all the above specified products, the classification of these products shall be undertaken in terms of Rule 3(b). 14. To support the above view, reference can be made to the below rulings passed under the U.S. Customs Law on classification of stationery sets, considering the scheme of classification and rules for interpretation being are common across various countries. Copy of the same are attached herewith for your ready reference. Sr.No. Kit Contents Judgment Pronounced ....
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....Mixed Supply". 2. What will be the HSN code to be used by us in above case. 3. Whether supply of Sharpener along with the kit having a nominal value will have an impact on rate of tax. If yes, what will be rate of tax and HSN code to be used by us. Personal Hearing: 15. Shri Rahul Bhupendra Shah.(CFO), Chintan Shah (C.A.), Devam Sheth (CA), Manish Shah (Advocate) appeared for the hearing and reiterated the contents of the application. FINDINGS: 16. We have considered the submissions made by the Applicant in their application for advance ruling as well as the additional submissions made by the applicant before this authority. We also considered the issue involved, on which advance ruling is sought by the applicant, relevant facts & the applicant's interpretation of law. 17. At the outset we would like to make it clear that the provisions of CGST Act and GGST Act are in pari-materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the GGST A....
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....ful to that product. The meaning of 'accessory' as defined in dictionary is as follows: (a) Definition as per Merriam- Webster (https://www.merriam-webster.com/): (a) an object or device that is not essential in itself but adds to the beauty, convenience, or effectiveness of something else (b) Definition as per Collins (https://www.collinsdictionary.com/dictionary/english): Accessories are items of equipment that are not usually essential, but which can be used with or added to something else in order to make it more efficient, useful, or decorative. (c) Definition as per Dictionary.com : an extra item that is added to something and is useful or attractive but not of great importance * The above dictionary meaning of accessory suggests that Pencil sharpener and eraser supplied with pack is not an integral part of the Pencil but it is useful for the Pencil. The main thing is that Pencil sharpener and eraser are also supplied independently in the open market. Thus the pencil, pencil sharpener and eraser are not naturally bundled but are distinct to each other. Hence second condition is not satisfied. (iii) As already discussed pencil sharpener and eraser supp....
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....ade promotion to increase the sale of different goods. Such types of pack in single price look attractive and potential customer easily purchase as a gift item and Applicant Company fulfil their objective to convince the potential customer to purchase such gift kit. Thus all such products are not naturally bundles but are distinct to each other and are supplied independently. This is a one type of trade promotion activity to increase supply of all the goods by the applicant. Also all nine goods are not supplied in conjunction with each other in ordinary course of business as such drawing books, wax colours, pastel colours, oil colour, pencil, sharpener, scale and eraser do not have interlink with each other and usually supplied separately and independently. To supply all such nine products together is not an activity which is followed in ordinary course of business. The applicant has his own admitted in his submission that some of the products in the gift pack are complimentary to drawing. Thus the products which are supplied in a pack as complimentary cannot be considered as naturally bundled and also cannot say supplied in conjunction with each other in an ordinary course of busi....
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....ce fourth condition is not satisfied. 19.3 We hold that the applicant supplies Doms Al Pencil. Doms Smart Kit and Doms My First Pencil Kit in view of the above discussion do not cover under the category of 'composite supply'. 19.4 Now, we refer to Mix supply defined under Section 2 (74) of CGST Act, 2017 and read as under:- (74) "mixed supply" means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration.- A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately; 19.5 We find that to qualify any supply under mix supply the following conditions are to be satisfied:- (i) there should be two or more individual supplies of goods or services or in any combination thereof. (ii) Such supply should be made in conjunction with each other fo....
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....on given under the definition of Mix supply is similar to all types of the supplies of applicant. Therefore, we hold that all the three types of supply covers under the category of 'mixed supply' as defined under Section 2(74) of CGST Act, 2017. 20. The Tax rate of mix supply is governed by Section 8(b) of CGST Act, 2017 and is as follows :- Section 8. Tax liability on composite and mixed supplies.- The tax liability on a composite or a mixed supply shall be determined in the following manner, namely (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and (b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax. 21.1 The above provision specify that a mixed supply containing more than two supplies shall be treated as a supply of that particular supply which attracts the higher rate of tax in the mix supply. We hold that the applicant is required to use the HSN code of the particular supply which attracts higher rate of tax among all the taxable supplies containing in a pack/box. 21.2....