Inclusion of Free Scraping Tool in Apsara Oil Pastel Pack Is Separate Supply, Attracts 18% GST: AAR [Read Order]

Consequently, the entire pack, labelled “Apsara Oil Pastels with Free Scraping Tool,” has been held to be a mixed supply, not a composite one, and thus classifiable under HSN 3926, attracting GST at the higher rate of 18%.

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The applicant, Hindustan Pencils Pvt. Ltd., submitted that it manufactures Apsara Oil Pastels and intended to include a small, tailor-made plastic scraping tool shaped like birds or ducks to enrich the art experience by allowing users to scratch coloured surfaces for design effects.

A Personal hearing was granted on 03.01.2025 wherein Parind Mehta, CA along with Sanjay Gupta, CFO appeared on behalf of the applicant and reiterated the facts as stated in the application.

The company argued that the tool was provided free of cost, without separate consideration, and therefore should not be treated as a distinct supply. Alternatively, it contended that even if it were treated as a supply, the entire pack should qualify as a “composite supply” with the oil pastels being the principal supply and the tool merely ancillary.

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However, the AAR rejected both arguments and it held that even though the scraping tool was provided free, the entire kit oil pastels along with the tool was being sold for a single consolidated price, and therefore constituted a supply in the course of business.

The authority stated that there was no legal basis to isolate the scraping tool from the consideration charged for the entire pack. On the classification issue, the AAR analyzed whether the bundle could be deemed a composite supply.

It also found that although the oil pastels and scraping tool were sold together, the two products were not naturally bundled, nor was the scraping tool essential for the primary use of oil pastels. The authority noted that customers could use oil pastels without the tool, and the scraping tool merely enhanced aesthetics but lacked standalone utility.

The authority, relying on Circular No. 92/11/2019-GST and the definitions under Section 2(74) of the CGST Act, the AAR concluded that the pack met the criteria of a mixed supply, i.e., two or more individual supplies packaged for a single price that are not naturally bundled.

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As per Section 8(b) of the Act, a mixed supply must be taxed at the highest applicable rate among the items in the bundle. Since the scraping tool, classified under HSN 3926, attracts 18% GST (as per Entry No. 111 of Schedule III), the entire oil pastel pack is taxable at this higher rate, despite oil pastels themselves falling under HSN 9609 and typically attracting 12% GST.

The bench of Kamal Shukla (SGST Member ) and P.B. Meena ( CGST Member ), while answering the applicant ruled that “Inclusion of a free 'Scraping Tool' in the pack of Apsara Oil Pastels amounts to independent'supply'of the scrapping tool under Section 7 of the CGST Act, 2017 and 'Apsara Oil Pastels with free Scraping Tool' is classifiable under HSN 3926 and is leviable to GST @ l8%.”

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