West Bengal Authority for Advance Ruling (AAR) in its recent ruling in the case of M/s Masterly Kolkata Facility Maintenance Private Limited has ruled that despite separate invoices being issued for ‘Gas Charges’ for consumption of gas, supply of gas through pipeline is found to be naturally bundled with facility & property management services and thus shall be treated as composite supply with principal supply being facility & management services.
This ruling is an interesting one in a way as the supply of cooking gas is normally regarded as a supply of goods however in said ruling AAR by applying the concept of supply being naturally bundled has adjudged supply of gas as facility & management services, being composite supply.
Facts of the Case:
- The Applicant is engaged in rendering maintenance services to apartment owners of “Emami City”, a residential cum shopping area situated at Jessore Road, Kolkata.
- This complex has been developed with a facility of supply of cooking gas through pipe line from gas banks installed at different places in the project premises.
- The applicant purchases cooking gas from registered taxpayer (M/s The India Trading Gas Company) @ the regular GST rate of 5% , filled the gas bank and supplies the gas to the flat-owners through well maintained pipeline.
- He raised a consolidated maintenance bill where such upkeep of gas bank, pipelines and related fittings are invariably included, to each and every flat owner of such complex. Furthermore, he raised an additional invoice to the flat owners (who opted for service of reticulated gas system) namely “gas charges bill” based on actual consumption of cooking gas.
- The applicant is discharging tax @ 18% (CGST 9% & SGST 9%) on maintenance charges and also discharging tax @ 18% (CGST 9% & SGST 9%) on cost of gas consumed by the recipients (flat owners).
Issue raised before AAR:
The applicant raised the question as to Whether supply of cooking gas as provided by the applicant should be classified as supply of goods or supply of services?
Argument of the applicant:
As per the applicant, the principal supply of maintenance service is not naturally bundled and supplied in conjunction with the supply of cooking gas in the ordinary course of business. Accordingly, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability of such multiple supplies is not required to be determined by treating the same as a supply of the principal supply namely, maintenance service.
Argument of the Revenue:
The flat –owners are not paying for the consumed cooking gas, but for the services of reticulated gas system, which is an integral part of the supply of service related to general upkeep and maintenance as narrated above.
So, the revenue was of the view, that the consideration charged for the supply of cooking gas is nothing but an additional consideration for the general upkeep & maintenance of reticulated gas system and attracts CGST @ 9% and SGST @ 9%.
Ruling of AAR: Deliberation and Ruling
- AAR noted that the applicant, provides the services to the owners of the all apartment/ flat/unit owners and issues invoices towards Common Area Maintenance (CAM, for short) Charges charging tax @ 18% leviable under the GST Act (CGST @ 9% + WBGST @ 9%). This CAM charges inter alia includes services in respect of maintenance of gas bank, repair and maintenance of gas pipeline and other services related to supply of gas through LPG Reticulated System.
- AAR observed that according to the „Agreement to sub-Lease’, each and every apartment owner, irrespective of the fact whether she/he will avail the pipeline gas supply or not, is required to pay a fixed amount against „Piped Gas Bank connection’. Further, if an apartment owner doesn’t want to avail the pipeline supply of gas, still he shall have to bear the expenses incurred towards maintenance of gas bank, repair and maintenance of pipeline through which LPG will be supplied since such expenses are included under CAM charges.
- AAR said that in view of this, it is unable to accept the submission made by the applicant that maintenance of piped gas connection has got no connection with supply of cooking gas through the said piped gas connection.
- AAR observed that the applicant is providing facility and property management services to each and every apartment owner of the project. This service includes maintenance and repair services related to supply of cooking gas through pipeline and is also applicable to the apartment owner who is not availing the pipeline gas supply. So, when an apartment owner intends to get supply of cooking gas through pipeline, she/he will be provided the same along with the services for which she/he has already been paying to the applicant. So, supply of cooking gas through pipeline is inextricably linked with facility and property management services as provided by the applicant.
- AAR accordingly concluded that in spite of issuance of separate invoices as “GAS CHARGES BILL” for consumption of gas, supply of gas through pipeline is found to be naturally bundled with facility and property management services and are supplied in conjunction with each other. The instant supply, therefore, shall be treated as “composite supply” as defined under clause (30) of section 2 of the GST Act where the principal supply is facility and management services.
In view of the above deliberations, it was held by AAR that supply of cooking gas as provided by the applicant shall be classified as supply of services.
Relevant Statutory provisions:
- Section 2(30) of the CGST Act, 2017: “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;
- Section 2(90) of the CGST Act, 2017: – “Principal Supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary.
- Section 8 of the CGST Act 2017 – Tax liability on composite and mixed supplies-
The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:
(a) 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
(b) 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.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
