Composite or Mixed Supply
Torrent Power Ltd. – Civil Application Number 5343 of 2018
The petitioner Company engaged in the business of generation, transmission, and distribution of electricity in Gujarat.
The consumers, who are need of availing services from the petitioners required to register with the Company by remitting a certain amount as registration fee. Also, the GERC Regulations empower the petitioners to recover the charges as well as fix the quantum charges for various kinds of activities, which are part of the distribution process such as registration, testing charges, disconnection charges etc.
It was contended that the petitioners are mandatorily required by law to provide all such services which are required for distribution of electricity. The petitioners contended that the services rendered by them are in the nature of composite supply.
The State, on the other hand, pleaded that the same are in the nature of mixed supply within the meaning of such expression as contemplated in section 2(74) of the CGST Act and would, therefore, fall within the ambit of clause (b) of section 8 of that Act which provides that 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.
Gujarat High Court bench noted that the liability to tax of a bundled service has to be determined in the manner provided under sub-section (3) of section 66F of the Finance Act.
If the services are naturally bundled in the ordinary course of business, the bundle of services shall be treated as provision of the single service which gives the bundle its essential character and where the services are not naturally bundled in the ordinary course of business, the same is required to be treated as provision of the single service which results in the highest liability of service tax. Accordingly, where the services are naturally bundled in the ordinary course of business and the single service which gives such bundle its essential character is exempt from tax, the entire bundle will have to be treated as provision of such single service.
The bench concluded that the services provided by the petitioner are in the nature of composite supply and therefore, in view of the provisions of clause (a) of section 8 of the CGST Act, the tax liability thereof has to be determined by treating such composite same as a supply of the principal supply of transmission and distribution of electricity. Consequently, if the principal supply of transmission and distribution of electricity is exempt from levy of service tax, the tax liability of the related services shall be determined accordingly.
Hence GST will not be applicable on such recovery of other charges.