Whether supply of power packs along with installation services for separate consideration treated as composite supply?

PJ/Case Law/2020-2021/3565

M/S SAN ENGINEERING & LOCOMOTIVE COMPANY LIMITED -KAR ADRG 21/2020 DATED 23.04.2020
BRIEF FACTS:-The applicant is engaged in the business of manufacturing power packs and also provides installation and commissioning service. In the present advance ruling, it was asked that whether the supply of powerpacks, freight and insurance service and commissioning/installation services as per the purchase order along with freight, insurance and commissioning/installation are to be considered as independent supply or composite supply wherein separate consideration is being mentioned for both the supplies and it is not necessary for the buyer to avail commissioning/installation services along with the supply of goods.
ISSUE:-Whether supply of power packs along with installation services for separate consideration treated as composite supply?
APPLICANT’S CONTENTIONS:-It was submitted that since the value for the ‘supply of goods’ and ‘supply of services’ are separately provided in the purchase orders and the same is not being naturally bundled and not supplied in conjunction with each other in the ordinary course of business, the concept of composite supply should not be applied in the present transaction. Moreover, separate invoices have been raised for “freight & insurance charges” and “commissioning/installation charges”. It was also submitted that the services of installation/commissioning can be availed from any other supplier by the buyer.
REASONING OF JUDGMENT:-The AAR agreed with the submission of the applicant that the commissioning/installation services are independent services and the GST rate applicable for the said service needs to be charged by the applicant. However, it was held that on verifying the terms and conditions of the purchase order, it is found that the terms of delivery is “freight pre-paid door delivery basis” thereby meaning that the freight and insurance services are naturally bundled with the principal supply of powerpacks. Therefore, it was concluded that the applicant is required to discharge GST by treating the supply of goods along with freight and insurance as composite supply and the GST rate applicable for powerpacks would be applied for the said composite transaction.
COMMENT:-There is always confusion in the minds of the assessee regarding treating the supply of two or more goods or services as composite supply. The thumb rule for determining whether the supply of two or more goods or services is composite supply is that if the said combination is usually provided in normal course by similar businesses, then such supply is to be considered as composite supply. However, if the supply of each of the goods/services is independent and is not naturally bundled, then respective tax rates as applicable to the respective transactions would be applicable.
Prepared by- CA Neetu Sukhwani

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PJ/Case Law/2020-2021/3565

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