GST UPDATE ON WHETHER SUPPLIES BY TWO DISTINCT ENTITIES BE TREATED AS COMPOSITE SUPPLY? 154/2020-21

The concept of composite supply newly introduced in GST regime is not free from doubts as there is ambiguity as to when the combination of two or more supplies is to be treated as composite supply. Recently, an interesting issue came up before the Maharashtra AAAR in the case of M/S VERTIV ENERGY PVT. LTD. wherein the finding of the AAR that the supply of UPS along with erection, commissioning and installation services is composite supply was challenged. The facts of the case were that the appellant, M/s Vertiv Energy Pvt. Ltd. is engaged in the manufacturing of various UPS systems entered into a contract with Delhi Metro Railway Corporation (DMRC) for supply, installation, testing, and commission of UPS systems since 2014. The applicant supplies goods from their Maharashtra unit whereas the installation services were supplied from their Delhi unit. The main contention of the appellant was that the as the supply of goods was from Maharashtra unit whereas the supply of installation services was from Delhi unit, which are distinct units under GST, the concept of composite supply cannot be applied in the present case. The findings of the AAAR on the issue of composite supply is the subject matter of discussion of our present update.
The AAR while considering the supply has composite supply has held in the present case that even though the applicant has bifurcated the work into supply of goods from their Maharashtra GST registered premises and supply of services from their New Delhi GST registered office and accordingly raising separate invoices on DMRC for supply of goods and supply of services, it is pertinent to mention that single contract has been entered into by the Maharashtra office with DMRC. Thus, the supply of goods and services provided under single contract to DMRC is to be treated as composite supply wherein the principal supply is that of supply of UPS.
The appellant on the other hand contended that the AAR had gone beyond the scope of ruling as the question regarding transaction to be considered as composite supply was never raised before the AAR. Furthermore, it was also contended that the supply of UPS and installation services are two separate supplies which is not necessarily to be provided in conjunction with each other. The receiver is free to avail installation services from any independent third person. Moreover, concept of composite supply cannot be applied when supply is being made by two separate distinct entities.
The AAAR accepted the submissions of the appellant and concluded that AAR based its ruling on the sole premise that the supply of the said goods as well as the services have been agreed to be provided by the appellant to the recipient under the single contract, thereby concluding the supplies under question to be the composite supply without appreciating the fact that the said supply of goods and services are made by the two distinct taxable persons, i.e. Maharashtra (GSTIN) unit and the Delhi (GSTIN) unit of the appellant. It is stated that just because some supplies of goods or services or both have been included, or made part of, the one single agreement/contract, as per the convenience of the parties entering into the said agreement, does not make those supplies as composite supply. Moreover, since it is not essential to provide installation services along with supply of UPS, the conditions for treating the two supplies as composite supply are also not satisfied. Hence, the AAAR negated the findings of the AAR that the supply is to be considered as composite supply.
The above decision is very important as it clearly rules that the concept of composite supply is not applicable in case where supplies are made from distinct entities separately registered under GST. This verdict will be far reaching effect in times to come.

This is solely for educational purpose.
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GST UPDATE ON WHETHER SUPPLIES BY TWO DISTINCT ENTITIES BE TREATED AS COMPOSITE SUPPLY? 154/2020-21

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