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A note on Foreign Jurisprudence on Concept of Composite Supply

A note on Foreign Jurisprudence on Concept of Composite Supply (Section 2(30) of GST Act)

Foreign Jurisprudence on Concept of Composite Supply.As we may be aware that the Goods and Services Tax law contains in it various facets which are adopted (or adapted) from the erstwhile Services Tax Law (Finance Act, 1994) or ‘foreign legislations & jurisprudence’. One such facet is the concept of ‘Composite Supply’. Composite supply as a concept under GST law has been adapted from the erstwhile concept of Bundled Supply as defined in Explanation to Section 66F of Finance Act, 1994 and foreign jurisprudence.

As per Section 2(30) of CGST Act, “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.

As per Section 2(90) of CGST Act, “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.

Keeping into background these definitions, provided below is relevant extracts from jurisprudence of various countries regarding the concept of Composite Supply which is very relevant to interpret Section 30 of CGST Act legitimately or while making submissions in the Court of Law or at the time of assessments

 

Australia

In terms of Goods and Services Tax Ruling 2001/8 issued under Australia, Composite Supply means a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. Composite Supply is treated as supply of one thing.

There have been various precedents in which the courts have defined a composite supply. Few are highlighted below:

  • The Full Federal Court in the case of Luxottica found that while ‘supply’ is widely defined, it is nevertheless invites a commonsense, practical approach to characterisation. An automobile has many parts which are fitted together to make a single vehicle. Although, for instance, the motor, or indeed the tyres, might be purchased separately there can be little doubt that the sale of completed vehicle is a single supply. Like a motor vehicle, spectacles are customarily bought as a completed article and in such circumstances are treated as such by the purchaser. The fact that either the frame or the lenses may be purchased separately is not the point. Similarly the fact that one component, the lenses, is GST-free or that one component is subject to a discount does not alter the characterization.
  • In case of Saga Holidays, Stone J focused on the ‘social and economic reality’ of the supply and found that there was a single supply of accommodation and the adjuncts to the supply (including the use of the furniture and facilities within each room, cleaning and linen services, access to common areas and facilities such as pools and gymnasiums and various other hotel services such as porterage and concierge) were incidental and ancillary to the accommodation part of the supply.

 

European Union

Per the European Union Directive, a composite supply is a transaction where supplies with different VAT treatments are sold together as one. The supplies with a composite supply may consist of parts that, if assessed separately, have different tax rates. Some have standard rates, reduced rates or are exempt from VAT.

The European Court of Justice (‘ECJ’) has delivered several judgments on the aspect of composite supply under European Union Value Added Tax laws (EU-VAT).

In the case of Card Protection Plan Ltd. v. C & E Commrs (1994) BVC 20, the ECJ held that ‘a service must be regarded as ancillary to a principal service if it does not constitute for customer an aim in itself, but a means of better enjoying the principal service supplied’.

 

United Kingdom

Under the UK VAT laws, a multiple supply (also known as a combined or composite supply) involves the supply of a number of goods or services. The supplies may or may not be liable to the same VAT rate.

If a supply is seen as insignificant or incidental to the main supply, then for the purposes of VAT it is usually ignored – the liability is fixed by the VAT rate applicable to the main supply (or supplies).

In the case of Tumble tots (UK) Ltd. v. R & C Commrs (2007) BVC 179. Members of a playground received a T-shirt (children’s clothing is potentially zero rated) and a magazine (potentially zero rated) as well as the right to attend classes which would be standard rated. The court decided that there was a single standard rated supply of the right to belong to the playground and the T-shirt and magazine were incidental to the main supply. No one who was not in the playground would have bought the T-shirt or magazine separately.

 

Per the above, it is clear that globally composite supply means a supply of more than one goods/services wherein one supply qualifies as principle supply. Therefore, taxes as applicable on the principal supply are applied on the whole of composite supply.

Foreign Jurisprudence on Concept of Composite Supply 

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