Clarification regarding type of supply where more than one service is rendered by a supplier

Facts:

• The petitioner is engaged in providing transportation & logistic services, clearing, forwarding and other allied services related to export and import of cargo.
• The Appellant charges single consolidated rate/price for entire bundle of services.

Legal Precedence

In M/s Shree Arbuda Transport – (AAAR – GUJARAT)

Query/Doubt:

• Whether the service rendered by appellant will constitute mixed supply or composite supply?
• Which HSN code will be applicable to determine the tax rate?
• Whether ITC can be availed by the appellant?
• Whether the client of appellant i.e. the exporter is eligible to claim refund of GST paid by the appellant?

Clarification:

• Type of Supply:
  • t was observed that as per classification of services, GTA services of transportation attracts Nil rate whereas all other services rendered in connection with the core activity attracts 18% GST.
  • Now let’s first understand what is composite supply? Composite supply means a supply of two or more taxable supplies of goods or services or both which are naturally bundled, supplied in conjunction with each other in the ordinary course of business & one of which is a principal supply.
  • How is mixed supply different from composite supply? Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other for a single price where supply does not constitute composite supply.
  • It was noticed that all the requirements of ‘mixed supply’ are fulfilled in the appellant’s case

• GST Rate & HSN Code:
  • A mixed supply comprising two or more supplies shall be treated as supply of that particular supply which attracts the highest rate of tax.
  • In the present case, there are few services which are exempt from GST as the export of rice, and few services are taxable
  • Among all the services in the bundled service, highest rate of tax is applicable on clearing and forwarding services i.e.18%.
  • Therefore, the entire bundle will be taxed at 18%.
  • As the bundled service in question is a combination of services, it will be classified under HSN 999799 bearing description ‘Other Services nowhere else classified’.

• Availment of ITC:
  • Regarding next question of allowing ITC, it was held that the appellant had submitted that they fulfill all the conditions of Section 16(2) of the CGST Act, 2017 & they are eligible to claim ITC with regards to the inward supplies procured for making the subject outward supply.
  • However, as per the provision of Sec 17(2) of CGST Act, 2017, the ITC attributable to exempt supplies must be reversed by the taxpayer.
  • But the appellant is engaged in business activities which constitute as a mixed supply, thus the entire bundle is being discharged at 18%, hence the supplies which would have enjoyed exemption (transportation of rice by GTA as a separate supply) is also being taxed at 18% (under mixed supply). Therefore not rendering any exempt supplies & eligible to claim ITC on the same.
  • So, there should be no question of denying ITC merely on the ground that one of the constituent service of mixed supply attracts Nil rate of tax (if provided separately).

• Eligibility of exporter client with regard to claiming refund of GST:
  • AAR find that this question is not related to appellant, but is related to the exporter, who has not filed the application for Advanced Ruling before GAAR.
  • AAR was of the view that appellant is not entitled to raise this question as to whether their exporter client shall be eligible to claim refund of GST paid by them or not.

Judgement:

It was ruled that that the activity conducted by appellant which includes more than one type of service, which is not naturally bundled in nature, will be classified as Mixed supply attracting the highest tax rate i.e.18%. Also stated that appellant is eligible to claim ITC as taxes are paid on all the inward services. However, AAR was silent on the last question regarding the eligibility of exporter client’s claim for refund of GST.