ORDER

1. M/s. Medha Servo Drives Private Limited, Sy No.780,781, Jodimetla X Roads, Chowdaryguda Village, Ghatkeshar, Korremula, Medchal – Malkajgiri, Telangana- 500088 (GSTIN No. 36AABCM3917A1ZY) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules.

2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further, for the purposes of this Advance Ruling, the expression ‘GST Act’ would be a common reference to both CGST Act and TGST Act.

3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT. The Applicant enclosed copies of challans as proof of payment of ₹ 5,000/- for SGST and ₹ 5,000/- for CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided by nor are pending before any authority under any provisions of the GST Act.

4. Brief facts of the case:

The applicant Medha Servo Drives are manufacturers of electronics equipments for locomotives and coaches for Indian Railways and Metro Railways. They have submitted that they were issued purchase order from Integrated coach factory Chennai for supply of multiple items. Some of these items are manufactured by the applicant and some of them are procured for supply to the coach factory. In the opinion of the applicant majority of the items supplied are taxable at the rate of 18%. The relevant terms of the contract are:

a. The invoice would contain HSN code for each item indicating GST rates separately (point 9 of the purchase order).

b. The payment will be released for complete rake set and not for part supplies (Annexure – D)

The applicant is desirous of ascertaining whether their supplies made for the above purchase order amounts to composite supply or mixed supply.

Further they have also entered into a contract with Krishna Bhagya Jala Nigam Limited for Design, manufacturing, supply, installation, operation and maintenance of Phase-II of SCADA and GIS based automation, for NLBC, SBC, JBC, MBC & IBC canal network systems including maintenance of the system for 5 years after commissioning of the scheme on turnkey basis. The applicant is desirous of clarification as to whether the scope of work can be treated as supply of goods or works contract services and also request for the applicable rate of tax for the same.

Hence this application Dt.28-05-2018.

5. Questions raised:

1. That based on the above facts they need clarification regarding their supplies as to whether they comes under composite supply or mixed supply or normal individual supply under provisions of GST Act as per purchase order.

2. Further they sought clarification as to whether all these items which are related to Locomotive parts can be classified under a single HSN Code of 8607 as Locomotive parts considering the end usage of the product irrespective of product / item description. They raised a 3rd question at the time of hearing regarding a contract entered by them with Irrigation department of State Government of Karnataka on 12-10-2018 vide reference no. KBJNL/DDN/PB-1/TND/SCADA P-2/481.

3. That they are executing a contract for M/s. KBJNL for design, manufacturing, supply, installation, operation and maintenance of phase 2 of SCADA and GIS based automation. They request clarification as to whether the scope of work can be treated as supply of goods or works contract services and also request for the applicable rate of tax for the same.

This being the case Consequent upon receipt of the application filed by M/s. Medha Servo Drives Private Limited, the jurisdictional officer i.e. Superintendent (Central Tax) Uppal Range, was requested vide this office letter CCT’s Ref No.A.R.Com/50/2018 dated: 12.12.2018 inform, whether the questions raised in the application is already pending or decided in any proceedings in the case of the applicant and inform any issue pending before with them within a week lest it would be construed that these issues are not pending before them and the application would be processed under any of the provisions of the GST Act, 2017 and also requested to offer his/he comments on the points raised in the application, However case was admitted even though Officer have not replied by the grounds of the draft letter, Therefore, Personnel hearing given to the applicant.

6. Personal Hearing:

The Authorized representatives of the unit namely Sri K. Lokesh, CA & AR attended the personal hearing held on 06-08-2021. The authorized representatives reiterated their averments in the application submitted and contended as follows:

1. That they are making supplies to integrate at Integral Coach Factory, Chennai by way of design, development, manufacture, supply, testing and commissioning of 25 KV AV microprocessor controlled IGBT.

2. That as per the terms of the agreement the payment is to be released for complete rake set and not for part supplies. Therefore they seek clarification as to whether their supply comes under composite supply or mixed supply or supply of individual component parts.

3. Further that all these components relate to locomotive parts, a clarification may be issued as to whether all these goods fall under a single HSN code 8607 as locomotive parts by applying the end user test irrespective of the product/item description.

4. That a clarification is requested on the rate of tax applicable for these types of contracts from Indian Railways / Other type of contracts.

5. That they are executing a contract for M/s. KBJNL for design, manufacturing, supply, installation, operation and maintenance of phase 2 of SCADA and GIS based automation. They request clarification as to whether the scope of work can be treated as supply of goods or works contract services and also request for the applicable rate of tax for the same.

7. Discussion & Findings:

The applicant is seeking clarification on two different supplies made by them. These are discussed separately as follows:

A. Queries related to Railways and Metros:

As seen from the purchase orders Integrated Coach Factory, Chennai the purchase order is for set of goods enumerated in the Schedule-I / Schedule-II. The price is all inclusive and at Annexure-B HSN codes and applicable GST rates are also given. The terms of payment in Annexure-D are for supply of all the items treated as “complete rake sets” and not for part supplies. Further as per Annexure-F the applicant has to give warranty for every equipment supplied under this purchase order and also repair or replace faulty supplies within the warranty period. At Annexure-H the applicant is also obliged to give performance guarantee bond for all the supplies made under the “complete rake sets”. The invoices raised by the purchase order no. 08/17/1119/1101/F, Dt.19-01-2018 based on which the facts are presented before the AAR clearly stipulates a GST of 28% (IGST) for the total value of the contract.

As seen from the above facts of the case the contract between the applicant and the Integrated Coach Factory is for a bundled supply of goods. The question is whether these are composite supplies where the goods and / or services supplied are naturally bundled or mixed supplies where they are naturally bundled.

Section 2(74) of the CGST Act defines mixed supply as follows:

“Mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for single price where such supply does not constitute a composite supply.

Illustration: A supply of package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependant of any other. It shall not be a mixed supply if these items are supplied separately;

Similarly Composite supply is defined in the CGST 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.

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.

As seen from the above definitions a composite supply is essentially a naturally bundled supply where two or more different supplies invariably exist along with each other. As against this a mixed supply is a bundled supply is not a bundled supply where the goods / services though supplied together are distinct and separately identifiable. However a supply can be a mixed supply only if it is a single price.

The Hon’ble High Court of Kerala in the case of Abott Health Care Pvt. Ltd., (2020) 74 GSTR 37 (Kerala) held that a composite supply must take into account supplies as affected at a given point in time on “as is where is” basis.

Therefore a naturally bundled supply should possess the following attributes (as mentioned in Education Guide on Taxation of Services published by CBE & C on 20.06.2012 at Para 9.2.4 ):

a. There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

b. The elements are normally advertised as a package.

c. The different elements are not available separately

d. The different elements are integral to one overall supply – if one or more is removed, the nature of supply would be affected.

Further the illustration in the definition clarifies the context of composite supply. As seen from the illustration the supply of service i.e., insurance and goods go alongside each other. As against this the illustration given in the context of mixed supply clearly indicates that each of the items therein can be supplied separately and are not dependant of any other.

The Hon’ble Supreme court of India in a catena of case law has ruled that illustrations in a statute are part of the statute and help to elucidate the principle of the Section (Dr. Mahesh Chandra Sharma Vs Smt. Raj Kumari Sharma – AIR 1996 SC 869). Therefore a composite supply should be similar to a supply mentioned in the illustration to the definition in Section 2(30), where two or more taxable goods or services are supplied along with each other to constitute a composite supply.

Therefore in view of the above discussions the supply made by the applicant against the purchase order of the Integrated Coach Factory is a mixed supply and the rate of tax applicable is the highest rate of tax applicable to the particular goods constituting the mixed supply.

Further it was requested to clarify if these supplies can be treated as locomotive parts by applying the end user test irrespective of the product/item description falling under HSN code 8607. In this connection it is observed notification 05/2017 Dt.28-06-2017 has enumerated “parts of Railway or Tramway Locomotives or rolling stock; such as Bogies, bissel-Bogies, Axles & Wheels, and parts thereof” under tariff heading 8607.

The rules of interpretation of the 1st Schedule to the Customs Tariff Act 1975 apply to the interpretation of this notification. Thus classification of parts is subject to notes in the Chapters of HSN. The Hon’ble Supreme Court of India in CCE Vs Insulation Electricals (2008) 224 ELT 512 has held that a part is an essential component of the whole without which the whole cannot function.

Thus if the goods supplied by the applicant in the purchase order have to be treated as “parts of Railway or Tramway” they should qualify for all the above conditions

Applying principle of Noscitur a sociis it is seen from the purchase order none of the goods supply fall under this entry. They are also not essential component without which the whole cannot function. Therefore the supplies made under the referred purchase order to Integrated Coach Factory, Chennai do not fall under entry 8607.

B. Query relating to M/s. KBJNL:

The applicant has entered into a contract with Krishna Bhagya Jala Nigam Limited, Narayanpur Division, Hunasagi Taluk, Yadgir District in the State of Karnataka. Whereas the application is dated.28-05-2018 the contract is much later to the application i.e., 12-10-2018. Further the place of supply falls outside the State of Telangana and hence this authority cannot decide the matter.

8. In view of the above discussion, the questions raised by the applicant are clarified as below:

Advance Ruling

Question Raised	Advance Ruling Issued
1. That based on the above facts they need clarification regarding their supplies as to whether they comes under composite supply or mixed supply or normal individual supply under provisions of GST Act as per purchase order.	Mixed supply.
2. Further they sought clarification as to whether all these items which are related to Locomotive parts can be classified under a single HSN Code of 8607 as Locomotive parts considering the end usage of the product irrespective of product / item description. They raised a 3rd question at the time of hearing regarding a contract entered by them with Irrigation department of State Government of Karnataka on 12-10-2018 vide reference no. KBJNL/DDN/PB-1/TND/SCADA P-2/481.	Do not fall under HSN code 8607
3. That they are executing a contract for M/s. KBJNL for design, manufacturing, supply, installation, operation and maintenance of phase 2 of SCADA and GIS based automation. They request clarification as to whether the scope of work can be treated as supply of goods or works contract services and also request for the applicable rate of tax for the same.	The clarification can’t be issued on supplies made in Karnataka.