Page 74 - GSTL_26th March 2020_Vol 34_Part 4

584 GST LAW TIMES [ Vol. 34
posite supply. It is therefore that I deem it appropriate to offer my view on the
said finding of the AAR, while relegating the matter back to the AAR for a fresh
consideration of the query referred to it, for its clarification.
8. When I examine the order of the AAR, in the backdrop of the query
that was raised before it for its clarification, I find that there was no occasion for
the AAR to go into the issue of whether the supply effected was a composite
supply or not. I also find that its findings on the said issue are at any rate legally
untenable. The concept of enhancement of utility of the instrument through the
supply of reagents/calibrators/disposables, while relevant for the purposes of
valuation of the supply of instruments, cannot be imported into the concept of
composite supply under the GST Act. A distinction has to be drawn between the
nature of a supply and the valuation thereof. While clubbing of two independent
supplies may be resorted to for the purposes of valuation of each of those sup-
plies, there is no scope of clubbing of two independent supplies so as to notional-
ly alter the very nature of each of those supplies as they existed in fact, at the rel-
evant point in time. For a supply to be seen as a composite supply it must answer
to the definition of the term “composite supply” at the time of its supply. As per
Section 2(30) of the 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.”
9. Many aspects of the transactions envisaged under the agreement en-
tered into between the petitioner and its customer hospitals/laboratories militate
against viewing them as a composite supply as defined above. Firstly, the sup-
plies are made by two different taxable persons; the supply of instrument being
by the petitioner and the supply of the reagents, calibrators and disposables be-
ing by his distributor, who purchases it from him on principal to principal basis.
Although it could be argued that there is a relationship between the said persons
that influences the valuation of the supply, the same does not take away from the
fact that the supplies are, in reality, made by two different taxable persons. A
reference can usefully be made to the decision in Nell Gwynn House Maintenance
Fund Trustees v. Customs and Excise Commissioners [(1999) Simon’s Tax Cases 79
(HL)] as also to the decision in Telewest Communications PLC v. Customs and Excise
Commissioners [(2005) Simon’s Tax Cases 481 (CA)]. In the last mentioned case,
while reiterating that the concept of a composite supply would not be attracted
in cases where there was more than one supplier, the Court of Appeal observed
as follows :
“xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx
(3) There were limits to the extent to which transactions could be re-
characterised in VAT law and taxable persons denied the exemptions on
which they sought to rely. Moreover, there was no authority for the propo-
sition that the concept of principal and ancillary contracts could apply
where there was more than one supplier, nor that where one supply could
be said to be ancillary to another, even though they were made by separate
suppliers, both suppliers had to share the same tax treatment. Indeed, sup-
plies by two separate suppliers could not be treated as principal and ancil-
lary supplies. Furthermore, there was an objection in principle to and
strong policy reasons against taxing transactions according to their econom-
ic reality. The economic reality of a transaction was antithetical to legal cer-
tainty. The mere fact that the court sought to find the commercial reality of
the situation did not mean that it would seek to apply VAT to the economic
GST LAW TIMES  26th March 2020  170