Supply of repair services along with spare parts/ accessories is taxable at separate rates of GST: AAR

Synopsis: The Hon'ble AAR, Kerala in M/s Vista Marine and Hydraulics in Advance Ruling No. KER/58/2019 decided on September 16, 2019 has held that the activity of rendering repairing services for boats/vessels along-with supply of spares and accessories cannot be considered as a composite supply as the supply of spare parts/accessories and repair service are distinct and separately identifiable supplies for which the rates are quoted differently.

Facts:

M/s Vista Marine and Hydraulics ("the Applicant") is engaged in the business of rendering repairing service of boats /vessels along with supply of spare parts and accessories. The Applicant entered into a Repair Rate Contract with customer, Naval Ship Repair Yard, Southern Naval Command, Indian Navy, Kochi, to provide service, viz, repairing of boats as per the rate mentioned in Repair Rate Contract. Based on such contract, necessary spare parts / accessories and repair service are provided by the Applicant.

Whenever, there is a requirement for repair of the Volvo Penta Engine installed boats, the Naval Ship Yard raises a Repair Work Order wherein the details of spare parts/ accessories to be supplied along with the price, service to be rendered along with rate shall be separately specified in the Work Order as per the Repair Rate Contract. On completion of the work, the Applicant raises invoice to the Naval Ship Yard indicating therein the value of spare parts / accessories and service charges separately as mentioned in the work order.

Issue involved:

Whether the supply of spare parts/ accessories and repair service can be considered as composite supply wherein the principal supply is repair service and hence the rate of tax for all the supplies, consisting of spare parts/ accessories and repair service, be taken as 18%?

Held:

The Hon'ble AAR, Kerala in the Advance Ruling No. KER/58/2019 decided on September 16, 2019 has held as under:

• In view of the fact of issue of work order separately for supply of spares/ accessories and repair service, the activity of the Applicant is covered by the clarification in Para 2.2 of CBIC Circular No.47/21/2018 - GST dated June 8, 2018("Circular No. 47") wherein it is clarified that where a supply involves supply of both goods and services and the value of such goods and services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods and services separately.

• The supply of spares parts/ accessories and repair service are distinct and separately identifiable supplies for which the rates are quoted differently and work orders are issued separately specifying the spares/ accessories to be supplied and the services to be supplied and the rates applicable thereon as per the rates quoted in the Repair Rate Contract can't be considered as a composite supply. Where a supply involves supply of both goods and services and the value of such goods and services supplied are shown separately, thegoods and services would be liable to tax at the rates as applicable to such goods and services separately.

Our Comments:

Based on the requisites of composite and mixed supply, it can be inferred that unlike the concept of mixed supply, there is no requirement of charging single price, for a composite bundle of two or more taxable supplies which are naturally bundled in the ordinary course of business (one of which is a principal supply). Following the legal basis of GST law, one may say that if bundle of supply is naturally bundled, then the same will comprise composite supply with principal supply being the tax determinant. Noticeably, even servicing of cars involving goods and services is in the nature of composite supply with services being the principal supply therein, but the CBIC in above circular, has allowed charging respective rates of goods and services, when value of different components of such composite supply are shown separately.

Thus, in cases of naturally bundled supply, where values are shown separately on invoice, the reference of Circular No. 47 may be drawn. Accordingly, the goods and/ or services would be liable to tax at the rates as applicable to such goods and/ or services separately. However, legal contours of this circular may be debated in the light of concept of composite supply as contained in Section 2(30) of the CGST Act, 2017 read with Section 8(a) thereof.

Relevant provisions:

Para 2.2 of Circular No. 47