Comprehensive Annual Maintenance Contract (AMC) is a composite part of supply and can be taxed accordingly under the Goods and Services Tax (GST) regime, a ruling by the Uttar Pradesh Bench of Authority Advance Ruling (AAR) has clarified.
The ruling was made on an application filed by GE Diesel Locomotive Pvt Ltd. The company is engaged in the business of import and manufacture of rail locomotive engines for supply to the Indian Railways. The company was awarded a contract for setting up a factory at Bihar for assembly/manufacture of locomotives for supply to Indian Railways and comprehensive maintenance of rail locomotives.
The company made an application before AAR in which questions with regard to classification of the comprehensive annual maintenance service were raised. After detailed hearing from the legal representatives of the company and the tax authorities, AAR gave its ruling in the form of question and answers.
The first question was whether supply of comprehensive annual maintenance service, which may also involve incidental supply of spare parts/goods, should be classified as a composite supply or mixed supply? Here AAR ruled that since the supply of maintenance service is for a one and fixed price with or without supply of spare parts/goods and supply of service and goods is made in conjunction with each other in ordinary course as per maintenance contracts, “this maintenance service to the extent of presence of all the necessary ingredients cited in the legal provisions quoted supra, is naturally bundled with the incidental supply of goods, it is case of composite supply of service”.
The second question was in case the said contract is considered as composite supply, what is the principal supply between goods or services? Here the AAR said the said contract merits to be considered to be a composite supply of service and principal supply is service inasmuch as the supply of goods is merely incidental to the maintenance contract in the given facts and circumstances. The Bench also mentioned that in case of services being considered as principal supply, rate of GST would be 18 per cent in this matter.
Place of supply
Now, the issue was that in the case of the said contract, what is the relevant place of supply and type of tax which needs to be discharged (i.e CGST & SGST or IGST). If the supply of services is not made on board a train, the location of a registered service recipient will be the place of supply of service. If the location of the supplier and place of service are not in the same State or Union Territory, it will be treated as inter-State supply of services and IGST shall be levied, otherwise CGST & SGST will be levied.
Commenting on the ruling, Anita Rastogi, Indirect Tax Partner at PwC, said this is an important ruling in the context of comprehensive AMC where industry has been adopting different positions. “Treatment as a composite service is likely to eliminate credit loss, ease compliance procedures and documentation,” she said and added that the ruling is binding only on the applicant and his jurisdictional officers.
The AAR helps the taxpayer by giving an advance decision in relation to the supply of goods and/or services proposed to be undertaken or being undertaken by the assessee. Though such a decision does not have precedent value like that of a High Court or Supreme Court judgment, it can be used as persuasive tool in future cases.