Sale of LPG, Collection of Take or Pay Charges for not Lifting Minimum Assured Quantity and Rental Charges for Supplier Gas System Installed at Customer Premises not Composite Supply: AAR

The Telangana Authority for Advance Ruling (AAR) ruled that the sale of Liquefied Petroleum Gas (LPG), collection of take or pay charges for not lifting minimum assured quantity and rental charges for supplier gas system installed at customer premises not composite supply.

M/s. SHV Energy Private Limited, the applicant are suppliers of LPG to domestic and industrial users. In the application they have submitted that they enter into LPG supply agreement with industrial users for longer period ranging from 5 to 10 years.

The applicant sought advance ruling on whether the sale of LPG, Collection of Take or Pay Charges for not lifting minimum assured quantity and rental charges for supplier gas system installed at the customer premises to store the LPG which is a condition precedent for supply of LPG be treated as composite supply under section 2(30) of GST Act, 2017.

Composite supply is defined in the GST Act in Section 2(30) as follows "Composite supply” 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.

‘Take or Pay’ contract is a contact which requires the buyer to either purchase and receive a minimum amount of product at a set price(“take”) or pay for this minimum without taking immediate delivery(“pay”). ‘Take or Pay’ clauses in a contract ensure compensation for the seller in the event buyer does not purchase a specified quantity of goods or services in the course of a continuous supply.

The Two-Member of the Authority comprising S.V. Kasi Visweshwar Rao, Additional Commissioner Sales Tax and B. Raghu Kiran, Joint Commissioner, Central Tax observed that “Sale of LPG, Collection of Take or Pay Charges for not lifting minimum assured quantity and rental charges for supplier gas system installed at the customer premises do not form a composite supply.”

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