Packing material supplied for selling live honey bee is a part of composite supply

The Madras High Court has ruled that packing material supplied for selling live honey bees should be considered part of a composite supply. This means the packing material is intrinsically linked to the sale of the exempted product, live honey bees. The court set aside the tax demand on the packing material and remanded the case for fresh consideration, acknowledging the prima facie case made by the petitioner.

The Hon'ble Madras High Court in the case of Tvl. Vibis Natural Bee Farms v. Deputy State Tax Officer-1 [Writ Petition (MD) No.s 17237 to 17240 of 2024 dated July 26, 2024] disposed of the writ petition where the Assessee was engaged in sale of live honey bees and sale of packing material for selling live honey bees was to be treated as part of composite supply with exempted product. Thus, the order passed against the Assessee treating value of packing material as a value of supply demanding tax was to be set aside and matter was to be remanded to pass fresh orders.

Facts:

M/s Tvl. Vibis Natural Bee Farms ("the Petitioner") was a small-time operator and a dealer in selling live honey bees which is exempted from tax in terms of serial no.6 to the Schedule 1 to the Central Goods and Services Tax Act, 2017 ("the CGST Act").

They were unaware of the notices that preceded the respective assessment orders ("the Impugned Order"). Thus, failed to participate in the proceedings before the Deputy State Tax Officer-1 ("the Respondent").

The Respondent had treated the value of the packing material for selling live honey bees as a value of supply and has demanded tax from the Petitioner.

Hence, aggrieved by the Impugned Order, passed for the assessment years 2018-19 to 2021-22, the Petitioner had filed the present writ petition.

Issue:

Whether packing material supplied for selling live honey bee is a part of composite supply?

Held:

The Hon'ble Madras High Court in Writ Petition (MD) No. s 17237 to 17240 of 2024 held as under:

• Observed that, the Petitioner has made out prima facie case as the live honey bees traded by the Petitioner may not be liable to GST in terms of Schedule 1 of the CGST Act. As far as the packing materials are concerned, it appears to be a part of the composite supply with the exempted product as defined in Section 2(30) of the CGST Act read with Section 8(a) of the CGST Act.
• Held that, the Petitioner has made out a prima facie case on merits and warranting interference. Further, the Petitioner has neglected in not responding to the respective notices that preceded the Impugned Orders. It is expected that the Petitioner shall file reply within a period of 30 days from the date of receipt of a copy of the order together with the pre-deposit.

Our Comments:

Section 2 of the CGST Act governs "Definitions". Section 2(30) of the CGST Act defines "composite supply", which means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.

Section 8 of the CGST Act governs "Tax liability on composite and mixed supplies". It states that the manner in which the tax liability on a composite or mixed supply shall be determined. Clause (a) of the CGST Act states that a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and clause (b) states that a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.

Basic difference in Composite and Mixed Supply

Particulars	Composite supply	Mixed Supply
Main Item	Principal item	Item with highest tax rate
Tax rate applicable	Tax rate of principal item	Highest tax rate of all the items

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