Analysis of Maharashtra AAAR ruling with Regards to Composite Supply In GST

The Maharashtra Appellate Authority for Advance Ruling (AAAR) issued a ruling on 31 August 2021 regarding the classification of a supply as a composite supply or a mixed supply under the GST regime. The case was related to the supply of “Installation and Commissioning” services along with the supply of “CCTV Cameras and Accessories” by a supplier to a customer.

The AAAR ruled that the supply of “Installation and Commissioning” services along with the supply of “CCTV Cameras and Accessories” by the supplier to the customer is a composite supply, and therefore, the tax rate applicable to the principal supply (i.e., “Installation and Commissioning” services) would be applicable to the entire supply.

The AAAR examined the definition of composite supply under Section 2(30) of the Central Goods and Services Tax (CGST) Act, 2017, which 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, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.”

The AAAR observed that the CCTV cameras and accessories supplied by the supplier to the customer were ancillary to the principal supply of installation and commissioning services, as they were necessary for the installation and commissioning of the CCTV system. The AAAR noted that the supply of CCTV cameras and accessories was not a separate supply as the supply of such goods was not the sole object of the transaction. Hence, the supply of CCTV cameras and accessories was an integral part of the principal supply of installation and commissioning services.

Therefore, the AAAR held that the supply of “Installation and Commissioning” services along with the supply of “CCTV Cameras and Accessories” by the supplier to the customer constituted a composite supply, and the tax rate applicable to the principal supply (i.e., “Installation and Commissioning” services) would be applicable to the entire supply.

This ruling provides clarity on the classification of supplies as composite supply or mixed supply under the GST regime. It highlights the importance of analyzing the nature of the supply and the objective of the transaction to determine whether it is a composite supply or a mixed supply. It also emphasizes that the principal supply must be determined based on the terms of the contract and the nature of the transaction.

Ruling by Maharashtra Authority for Advance Ruling (MAAR)

The Maharashtra Authority for Advance Ruling (MAAR) is a quasi-judicial body established under the GST regime to provide clarity on the interpretation of GST law and to address specific questions or issues related to GST raised by taxpayers.

MAAR rulings are binding on the applicant who has sought the ruling and the jurisdictional tax authorities. The rulings are not applicable to other taxpayers unless they have a similar transaction or situation.

MAAR rulings provide guidance on the interpretation of GST law and help taxpayers to comply with the GST provisions. They also help to resolve disputes and avoid litigation.

Some recent rulings by MAAR include:

Classification of Betel Nuts - In a ruling issued on 17 March 2021, MAAR held that betel nuts are classified as agricultural produce under the GST regime and are exempt from GST.

Classification of Works Contract - In a ruling issued on 22 April 2021, MAAR held that a contract for construction of residential units is a composite supply of goods and services, and the principal supply is construction services, which are taxable at the applicable GST rate.

Applicability of GST on Sale of Used Vehicles - In a ruling issued on 21 June 2021, MAAR held that GST is not applicable on the sale of used vehicles by an individual to a car dealer, as it is a transaction between two individuals and not a supply in the course of business.

MAAR rulings play an important role in ensuring the uniform application of GST law across the country and provide certainty to taxpayers regarding the GST implications of their transactions.

Definition of Composite supply

Under the Goods and Services Tax (GST) regime in India, composite supply is defined under Section 2(30) of the Central Goods and Services Tax (CGST) Act, 2017. The definition of composite supply is as follows:

"Composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

In simpler terms, a composite supply is a supply of two or more goods or services that are naturally bundled together and are supplied in conjunction with each other in the ordinary course of business, where one of the supplies is considered to be the principal supply.

The term "naturally bundled" means that the goods or services are supplied together in the ordinary course of business and are not separable. The term "principal supply" means that one of the supplies is considered to be the main or predominant supply and the other supplies are incidental or ancillary to it.

For example, if a restaurant provides a meal to a customer that includes food and beverages, the supply of food and beverages is a composite supply, where the principal supply is the supply of food, and the supply of beverages is ancillary to it.

The tax treatment of a composite supply is determined based on the tax rate applicable to the principal supply. In other words, the tax rate applicable to the entire composite supply is determined by the tax rate applicable to the principal supply.

Observation by MAAAR

MAAAR (Maharashtra Authority for Advance Ruling) is a quasi-judicial body that provides rulings on specific questions or issues related to the interpretation of the GST law. The observations made by MAAAR in its rulings provide clarity on the GST provisions and help taxpayers to comply with the GST law.

Some common observations made by MAAAR in its rulings related to composite supply under GST include:

The goods or services supplied in a composite supply should be naturally bundled and supplied in conjunction with each other in the ordinary course of business.

The determination of the principal supply in a composite supply is based on the dominance test, which involves identifying the main or predominant supply in a bundle of goods or services.

The tax rate applicable to a composite supply is determined by the tax rate applicable to the principal supply.

A works contract that involves the supply of both goods and services is a composite supply, and the principal supply is the supply of services, which are taxable at the applicable GST rate.

The supply of food and beverages in a restaurant is a composite supply, where the principal supply is the supply of food, and the supply of beverages is ancillary to it.

The supply of software along with hardware is a composite supply, where the principal supply is the supply of software, which is taxable at the applicable GST rate.

The supply of goods and transportation services by a logistics company is a composite supply, where the principal supply is the supply of transportation services, which are taxable at the applicable GST rate.

MAAAR's observations provide important guidance for taxpayers and tax authorities on the interpretation of the GST provisions related to composite supply and help to ensure consistency in the application of the GST law.