The Kerala high court has cleared the issue of composite supplies under the Goods and Services Tax (GST) which can become guiding principles to decide further cases in future.
If more than one good or service are supplied by a company, it can be considered as composite or mixed supply under GST. If the supply is composite, the GST rate on principal supply applies to the entire supply, otherwise different rates are applicable as per the goods or services involved in transaction.
This issue is explained in the present case where Niraj Bagri, partner at Dhruva Advisors said that Abbott Health Care gives medical equipment to hospitals and labs to be used without consideration. For this, Abbott has signed an agreement with these hospitals and labs.
Now, here the issue was, how much GST rate would be applicable to the goods supplied?
Under GST, medical equipment charged @18%, while products such as medicines and drugs attract 5%.
The matter went into Kerala based Authority of Advance Ruling (AAR) which ruled that the supply of both equipment and products are composite. It said equipment is the principal supply and products are just incidental and hence higher rate of 18% would apply. Niraj Bagri said the tax department chose the supply which attracts higher rate as a principal supply in the composite supply and apply that rate.
The appellate authority in the state upheld the ruling. Against this, the company went to the Kerala high court against the judgement.
The high court said that there are two suppliers and one supplier is not making both the supplies. Besides, it was not even concluded that the supply of equipment without consideration is a taxable supply.In this case, it was to be figured out whether value of equipment is included in the value of reagent to classify it as a composite supply.
In case where two supplies is in question of valuation, it has to figure out whether value of equipment is included in the value of reagent to classify it as a composite supply. One has to look at historic pattern of the company, how it is doing the transaction and then only one can come to the conclusion that one transaction is incidental to the other.
With these observations, the high court referred the case back to AAR.