Admissibility of Supply of UPS along with the Battery for a Single Price as Composite Supply.

PJ/Case Law/2018-2019/3506

Case: Switching Avo Electro Power Ltd.
Citation:04/WBAAAR/Appeal/2018 dated 10.05.2018
Issue: Admissibility of Supply of UPS along with the Battery for a Single Price as Composite Supply.
Brief Facts:The Applicant, Supplier of Power solutions, including UPS, Servo stabilizer, Batteries etc., seeks a ruling on the Classification of the supply when it supplies UPS along with the battery. More specifically, the applicant wants a ruling on whether such supplies can be treated as Composite Supply within the meaning of Section 2(30) of the CGST/WBGST Act, 2017.
Appellant Contention: The applicant stated that he supplied the battery and UPS as separate machines as well as UPS with battery. It is, therefore, obvious that the UPS and the battery have separate commercial values as goods and should be taxed under the respective tariff heads when supplied separately. Goods are naturally bundled in a supply contract if the contract is indivisible. The contract for the supply of a combination of UPS and battery, if not built as a composite machine, is not indivisible. The recipient can split it up into separate supply contracts if so desired. The goods supplied in terms of such contracts are, therefore, no longer naturally bundled and cannot be treated as a composite supply. If a combination of goods that does not amount to a composite supply is being offered at a single price, such supplies are to be treated as mixed supplies.
Respondent’s Contention and Reasoning of Judgment: The Respondent states that the classification of the goods has been determined in terms of Notification No. 01/2017-Central Tax Rate dated 28/06/2017, as amended vide Notification No. 41/2017-Central Tax Rate dated 14/11/2017. The respondent states that it is important to know that the Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975 would be applied for the interpretation of above notifications in order to determine the classification of the goods involved in the case.
Following is the table showing Classification of the relevant goods involved.

Schedule	Serial No.	Tariff Head	Description	Remarks
IV	138	8506	Primary Cells and Primary Batteries.	Omitted w.e.f 15/11/17 vide Notification No. 41/2017- Central (Rate) dated 14/11/17
IV	139	8507	Electric accumulators, including separators, whether rectangular (including square)
III	375	8504	Transformers Industrial Electronics; Electric Transformers; Static Convertors (UPS)
III	376A	8506	Primary cells and primary batteries

Note 3 to Section XVI of the Tariff Act defines a composite machine as the one consisting of two or more machines fitted together to form a whole. Such machines, as well as other machines designed for the purpose of performing two or more complementary or alternative functions, are to be classified as if consisting only of that component or as being that machine, which performs the principal function. Note 3 to Section XVI of the Tariff Act are applicable subject to the definitions of composite supply and its taxability under Section 8(a) of the GST Act.
Section 2(30) of the GST Act defines Composite Supply as “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”. Principal Supply is defined under Section 2(90) of the GST Act as “the supply of goods/services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary”. Note 3; therefore, is applicable, in this context, to composite machines. Other machines, designed for the purpose of performing two or more complementary or alternative functions, however, can be classified with the help of Note 3 only if they are naturally bundled and supplied in conjunction with one another in the ordinary course of business.
The UPS serves no purpose if the battery is not supplied or removed. It cannot function as a UPS unless the battery is attached. Section 2(30) of the GST Act refers to a supply where the ancillary supplies are inseparable from the principal supply and form an integral part of the composite supply. Note 3 also refers to a composite machine as the one consisting of two or more machines fitted together to form a whole. When a UPS is supplied with built-in batteries so that supply of the battery is inseparable from supply of the UPS, it should be treated as a composite supply and as a composite machine in terms of Note 3. The UPS being the principal supply, the relevant tariff head for the composite supply will be 8504 under serial no. 375 of Schedule III in terms of Notification No. 01/2017-Central Tax (Rate) dated 28/06/2017.
Decision: It has been decided that the Supply of UPS along with the battery would not amount to a Composite Supply.
Comment: The Gist of the case is that supply of UPS along with the battery would not amount to a Composite Supply instead it would be classified as Mixed Supply. Goods are naturally bundled in a supply contract if the contract is indivisible. The contract for the supply of a combination of UPS and battery is divisible. A standalone UPS and a battery can be separately supplied in retail set up. A person can purchase a standalone UPS and a battery from different vendors.
Thus the supply of UPS and Battery is to be considered as Mixed Supply within the meaning of Section 2(74) of the GST Act, as they are supplied under a single contract at a combined single price.
Prepared by: Adit Gupta

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PJ/Case Law/2018-2019/3506

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