In a significant ruling, the Authority for Advance Ruling (AAR), Maharashtra has held that the supply under annual maintenance contracts (AMCs) are a “composite supply” and classified them as service.
The applicant, Cummins India, approached the authority asking for a clarification on applicability GST on the AMCs for diesel and natural gas engines sold by it.
The ruling will help get clarity on the tax rate for goods that may be supplied under the contract.
Under GST law, multiple supplies qualify as a composite supply, as only one price is being recovered and tax rate of the “principal supply” should be applied. In this case, the AAR said that “principal supply” was a service. “It is submitted that the main object of the contract is to supply services and making available of parts/ components is ancillary to the same. Consequently, the principal supply of the transaction is ‘service’,” it said.
The authority found that the principal supply in the transaction before us is supply of service, then the place of supply is required to be determine. The place of supply would be determined in terms of the default Section 12(2) of the IGST Act which states that the location of the recipient would be the place of supply.
“Since the supply of maintenance service in the present case is for a single price with supply of spare parts/goods as and when required, the supply of both, goods and services are made in conjunction with each other in the ordinary course of business and therefore considering the provisions of the GST Laws we find that supply of services/goods in the present case is naturally bundled, with the supply of goods being incidental to the supply of services and therefore such contract are to be considered as a composite supply of service where the principal supply is service and the supply of goods is incidental to such supply of service,” the authority said.
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