Supply

Concept, place, time and value

Kanishka Sewak
Composite or mixed supply
Origin
• GST is levied on supply of goods and services at a rate prescribed by the government for each goods/services. The problem arises when different
goods or services are combined together under single supply. Eg. supplier of TV providing installation services. Is it two separate supplies or one?

• In pre-GST system - it was complex when a singular transaction involved multiple supplies. This problem was prevalent under VAT, Customs and
Service taxes as well.

• There was no separate legislation for service tax and was covered under Chapter V of the Finance Act, 1994.
• In 2012, 1994 Act was amended and an Explanation to Section 66F of Finance Act, 1994 was inserted- defined “bundled services” to mean bundle
of provision of various services wherein element of provision of one service is combined with element or elements of provision of any other service
or services. Eg. in a air travel, transportation was an element of one service combined with element of service of food and beverages bundled
together.

• Essential characteristic test under 66F(3) - the taxability of a bundled service shall be determined in the following manner, namely:--
(a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single
service which gives such bundle its essential character; Eg. “package tour” to include pickup, travel, guide etc.
(b) if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single
service which results in highest liability of service tax. Eg. renting of house for commercial + residential purposes. Residential is tax exempt but
commercial is liable for tax. The entire letting out will be taxable as commercial tenancy.
• Composite transaction under Service Tax where service + sale of goods is there - Dominant Nature Test - Finance Act, 2012
proposed this test If the dominant nature of such a transaction is provision of a service then such transaction would be treated
as a service and taxed as such even if the transaction involves an element of sale of goods. Eg. if for the recipient of services,
no separate rights arise out of serving of food and sale of food, then it is composite transaction of service and service tax
maybe levied. This was based on certain rules -
a) Perception of consumers - if majority treats it as a bundle, shall be a bundle
b) Majority of service providers’ practice - majority airlines provide bundled transport + food experience
c) Ordinary course of business - hotel providing free laundry. Accomodation is main service and laundry is ancillary service.
• The GST law has retained the bundled service from the 1994 Act and termed it as principal supply and ancillary supply. Eg.
the above air travel example, principal supply is air travel and ancillary supply is food and beverages onboard (borrowing
from essential service test).
• Under GST law, there is another supply - mixed supply - based on 66(5)(3)(b) of the Finance Act, 1994 - wherein the
supplies cannot be classified as principal supply and ancillary supply but are independent supplies bundled together. Eg. a
Holi gift basket with sweets, spa services, colors etc. are all packed together for a single price invoiced together, however,
each may be sold separately at different rates of GST.
• Owing to there similarities with pre-GST structure, the rules of interpretation for the service tax determination will be
applicable for GST too.
Composite Supply

Section 2(30) "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) "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;
According to the Education Guide of Central Board of Excise and Customs on Service
Tax as GST does not define these terms -
• The expressions “naturally bundled” are not defined in the guide. Bundled service -
bundle of provision of various services wherein an element of provision of one service
is combined with an element or elements of provision of any other service or services”
• “Ordinary course of business” - the normal or frequent practices followed in the area of
business to which the services relate Eg. airline business’ practice w.r.t. providing food
.

onboard. Also relevant is - perception of the consumer or the service receiver and
majority of service providers in a particular area of business provide similar bundle of
services.
Mixed Supply

Section 2 (74) "mixed supply" means two or more individual supplies of goods or
services, or any combination thereof, made in conjunction with each other by a taxable
person for a single price where such supply does not constitute a composite supply.
Illustration. A supply of a package consisting of canned foods, sweets, chocolates,
cakes, dryfruits, aerated drinks and fruit juices when supplied for a single price is a
mixed supply. Each of these items can be supplied separately and is not dependent on
any other. It shall not be a mixed supply if these items are supplied separately;
Tax liability on composite and mixed supplies

Section 8. 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.
Difference

Composite Supply Mixed Supply

Two or more taxable supplies Two or more taxable supplies

Naturally bundled in conjunction with each other Individually taxable

Rate - the rate of principal supply Rate - the rate of the highest supply
Union of India & Anr v. Mohit Minerals Pvt. Ltd (2022) 10 SCC 700

Meaning of important term/provisions used in facts -

• CIF Contracts: In international trade, the contract may vary in liability between supplier and recipient. From delivery
(including cost of goods, insurance, freight charges) + duty paid (DDP) by the supplier to all the charges paid by
recipient (Ex works - pickup from manufacturer), CIF lies somewhere in between. Wherein, seller is responsible for
Cost of the goods, Insurance and Freight charges till the port of the importing nation. After that the liability to pay
import duty, transportation, warehouse etc. is liability of the buyer.
Eg. supplier of beer in Belgium through CIF contract agrees on paying cost+insurance+ freight from the manufacturing
plant in Antwerp, Belgium to Kochi Port, India. After that, the importer has to pay customs duty at the port and bear all
the charges after that.
• Section 5 of IGST Act, 2017: Levy and Collection - it is the charging section. Section 5(1) of the IGST Act authorises
the levy of an integrated tax on all inter-state supplies of goods and services or both. The integrated tax can also be
levied on goods imported into India on the value determined Under Section 3 of the Customs Tariff Act 1975.
.
Facts
• Mohit Minerals imports non-coking coal from Indonesia, South Africa and the U.S.by ocean transport on a ‘Cost-Insurance-
Freight’ basis which is supplied to domestic industries. The goods are transported from a place outside India, up-to the
customs station in India. The Respondent pays customs duties on the import of coal, which includes the value of ocean
freight. In the case of a CIF contract, the freight invoice is issued by the foreign shipping line to the foreign exporter, without
the involvement of the importer.
• Respondent challenges 2 notifications:
1. Prior to GST, service tax was exempt on ocean freight. After the passing of GST, through Notification No. 8/2017-
Integrated Tax (Rate), tax at the rate of 5 per cent on the supply of specified services, including transportation of goods, in
a vessel from a place outside India up to the customs station of clearance in India was levied.

2. And, Notification 10/2017 Integrated Tax (Rate) - This notification provides tax on Reverse Charge Mechanism under
IGST and entry 10 includes - supplier as a person located in non-taxable territory. Recipient as - Importer, as defined in
clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory. Which means that for the
Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place
outside India up to the customs station of clearance in India, even if such services are provided by a non-resident to another
non-resident, the tax on RCM basis is to be paid by importer. Eg. supplier of beer in Antwerp contracts with a German cargo
to supply beer to port in Kochi. Here, the imported in Kochi will have to pay tax on RCM on behalf of German cargo as
German in not registered, even if contract was independently entered between Belgian supplier and German cargo.
Issues before the Gujarat HC - The Respondent filed a writ petition before the Gujarat High
Court challenging Notification 8/2017 and Notification 10/2017 on the grounds that:
(I) the notifications are ultra vires the IGST Act and CGST Act;
(II) customs duty is levied on the component of ocean freight and the levy of IGST on the freight
element in the course of transportation would amount to double taxation;
(III)in the case of a CIF contract, the supply of service of transport of goods in a vessel is by a
foreign shipping line located in a non-taxable territory to an exporter located in a non-taxable
territory by a vessel outside the territory of India which cannot be subject to tax under the IGST
Act;
(IV)Notification 10/2017 transgresses the provisions of Section 5(3) of the IGST Act as instead of
the "recipient" mentioned therein, the "importer" as defined in Section 2(26) of the Customs
Act, is made liable to pay tax; and (vi)
(V)Entry 9(ii) and para 2 of Notification 8/2017 read with Notification 10/2017 creates a deeming
fiction and a separate taxable event which is not permissible in law.
Ruling of DB of Gujarat HC - the notifications are unconstitutional for exceeding the powers
conferred by the IGST Act and the CGST Act.
(I) The importer of goods on a CIF basis is not the recipient of the transport services as Section 2(93)
of the CGST Act defines a recipient of services to mean someone who pays consideration for the
service, which is the foreign exporter in this case;
(II) There is no territorial nexus for taxation since the supply of service of transportation of goods is by
a person in a non-taxable territory to another person in a non-taxable territory from a place outside
India up to the Indian customs clearance station and this is neither an inter-state nor an intra-state
supply;
(III)Section 2(11) of the IGST Act defines "import of service" to mean the supply of service where the
supplier of service is located outside India, the recipient of service is located in India and the place
of supply of service is in India
(IV)In this case, since the goods are transported on a CIF basis, the recipient of service is the foreign
exporter who is outside India;
(V)Since the importer pays customs duties on the goods which include the value of ocean freight, the
impugned notifications impose double taxation through a delegated legislation, which is
impermissible.
Before the SC
Para 10 - UOI Arguments:
On Charging Section:
• Section 5(1) fulfils the fundamental principles of taxation:
A. Taxable event - "There shall be levied a tax called integrated goods and services tax on all inter-State supplies of goods or services
or both except on the supply of alcoholic liquor for human consumption.”
B. Taxable value - "On the value determined Under Section 15 of the CGST Act”
C. Taxable rate - "At such rates not exceeding 40% as may be notified by the Government on the recommendations of the Council and
collected in such manner as may be prescribed”
D. Taxable person - "Shall be paid by the taxable person

On Composite Supply:

• The CIF transaction and IGST on ocean freight are two independent transactions, entitled to suffer independent levies and do not
qualify as a composite supply Under Section 2(30) of the CGST
• GST and customs duties are not exclusive means of taxation. GST is a destination-based tax. The integrated tax is being sought to be
imposed on the supply of service and not on the goods. Separate aspects are being taxed, hence it cannot be termed as overlapping.
Moreover, the tax is on the value of goods, and not the freight. Tax paid at an anterior stage is not double taxation if it is included in
the overall value;
Para 12 - Mohit Minerals’ Arguments
• In case of CIF contracts, the customer contracts for a supply of delivered goods at the port of
destination. The contract for transportation of goods is entered into by the foreign exporter with the
foreign shipper. Thus, the person liable to pay consideration to the foreign shipper is the foreign
exporter. The importer of goods in India is not the person liable to pay the consideration, and is thus,
not the 'recipient' of the service;
• The contract of the Indian importer with the foreign exporter is for supply of delivered goods. The
service of transportation is a component of the supply of goods similar to raw material, manufacturing
cost or employee cost of the supplier. To contend that the purchaser has received the supply of raw
material or the services of an employee is illogical. Similarly, the argument that the Indian importer has
received transportation services is irrational; and
• Serial No. 9(ii) of Notification 8/2017 read with Para 4 and Serial No. 10 of Notification No. 9 of 2017-
Integrated Tax (Rate) dated 28 June 2019 describe the services as provided by a person located in a
non-taxable territory to a person located in a non-taxable territory. These notifications recognise the
exporter as the recipient of the service of ocean freight;
• Para 13 - Harish Salve’s points -
(i) A CIF contract is an inclusive price covering cost of goods, insurance and freight payable for carriage of goods to the
destination specified in the contract. The essence of the contract is that a seller having shipped the goods in accordance with the
contract, can fulfil his part of the bargain by tendering to the buyer the proper shipping documents. If he does this, he is not in
breach even if the goods are lost before such tender. In the event of a loss, the buyer must pay the price on tender of documents
and his remedies lie against the carrier but not the seller;
(ii) A CIF contract has two components: (i) price is paid for the freight, and (ii) the buyer is never obligated to pay it. The owner of
the vessel who enters into a contract of affreightment has a privity of contract with the supplier of goodsand is rendering a
service to the supplier. If the service is not received, then the question of reverse charge does not arise;
(iii)There must be a taxable event in the CIF contract of the kind contemplated under the IGST Act. In case there is no such event,
it cannot be created through delegated legislation by the GST Council. There is an absence of a statutory fiction by which a CIF
contract can be split into a contract for supply of goods and services, and creating a second layer of fiction by which the shipper
is rendering a service to the supplier of goods. Thus, the question of levy of tax by the GST Council does not arise;
(iv)In the transaction of import of coal on CIF basis in the present case, the recipient will fall under Clause (a) of Section2(93) of
the CGST Act as consideration is payable for the service of shipping. The mere fact that an Indian is the recipient will not lead
to the Indian recipient making the payment separately under the contract of affreightment. The Indian recipient is only a
recipient of goods, not of service;
(v) The law recognises and maintains the integrity of a CIF contract Under Section 2(30) read with Section
2(93), and Section 8. These Sections maintain the integrity of a composite contract by providing that where
the goods come with insurance and freight, the tax is imposed only on supply of goods
• Para 15 - Mr. Arvind Datar’s arguments:
(i) For a levy to be imposed under the IGST Act, the service must be a 'supply' under the provisions of IGST Act
read with Section 7 of the CGST Act. However, Section 1 of the CGST Act and IGST Act are limited to the
territory of India. Thus, any service received outside the territory of India cannot be considered to be 'supply'
under the IGST Act or the CGST Act;
(ii) To impose a levy on a service that is extra-territorial, there has to be a deeming fiction in the form of a
statutory provision which deems the supply of transportation by a vessel to a non-resident exporter. In this
case, such a deeming fiction does not exist. Thus, the transportation service cannot be deemed as a 'supply'
under the IGST Act;
(iii)Only once the service provided outside the territory of India is deemed as a 'supply' by way of statute, can
there be a determination of the supplier and the recipient
• The value of a CIF contract is indivisible, making the computation of tax on such a contract
impossible:
(i) The only way to artificially dissect the value of a CIF contract is by way of statute, which is
absent in this case;
(ii) If such a division is allowed, then the Government will be able to tax not just ocean freight, but
also insurance services; and
(iii)Levy on contracts on a CIF basis will lead to hardships for the Indian recipients. The advantage
of entering into CIF contracts is to ensure that the foreign supplier is responsible for arranging
transportation and insurance. However, if a CIF contract is made subject to GST, then the
Indian importers will have to make their own arrangements to transport the goods, book an
insurance policy and arrange for shipping;
• Mr. Uchit Sheth, counsel appearing on behalf of the Respondents submitted: 22

(i) The importers in a CIF contract do not have any privity of contract with the supplier of the
transportation service since they neither make payment of consideration to the service provider,
nor avail any service. The importers only purchase and import goods;
Court’s findings
• Para 67 - Both the impugned notifications, Notification 8/2017 and Notification 10/2017 have been challenged as
ultra vires the IGST Act. Before adverting to the challenges raised by the parties, it becomes necessary to advert to
some of the key provisions contained in the CGST Act, IGST Act and Customs Act. These provisions are necessary
to respond to several contentions raised by the Respondents, including: (i) whether the taxable event stipulated by
the impugned notifications constitutes a 'supply' under the IGST Act; (ii) whether the importer of goods on a CIF
basis can be deemed to be the 'recipient' of shipping services when they do not pay the consideration; and (iii)
whether the import of goods constitutes a composite supply, among others.
• Para 133 - The transaction at hand involves three parties-the foreign exporter, the Indian importer and the shipping
line. The first leg of the transaction involves a CIF contract, wherein the foreign exporter sells the goods to the
Indian importer and the cost of insurance and freight are the responsibility of the foreign exporter. In other words,
the foreign exporter is liable to ensure that the goods reach their place of destination and the Indian importer pays
the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign
exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the
destination, i.e., in the territory of India.
• Para 134 - On the first leg of the transaction, between the foreign exporter and the Indian importer, the latter is liable
to pay IGST on the transaction value of goods Under Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of
the Customs Tariff Act. Although this transaction involves the provision of services such as insurance and freight it
falls under the ambit of 'composite supply'.
• Para 136- Section 2(30) of the CGST Act clearly provides that a transaction may have two or more taxable supplies, where one of them
is a principal supply. The illustration to Section 2(30) further clarifies that a transaction such as the CIF contract for supply of goods
reflects a composite supply under the CGST Act, where the principal supply is the supply of goods.
• Para 137 - …Section 8 of the CGST Act provides that the tax liability on a composite supply which comprises of two or more supplies,
will only be levied on the 'principal supply'. In a CIF transaction, the principal supply, according to Section 2(30), is supply of goods.
Thus, the tax would be levied as if the transaction was one of supply of goods.
• Para 139 - The Respondents have urged before this Court that the impugned levy which seeks to impose IGST on the 'service' aspect of
the transaction would be in violation of the principle of 'composite supply' incorporated Under Section 2(30) read with Section 8 of the
CGST Act, which applies equally to the imposition of IGST Under Section 20 of the IGST Act. In contrast, the Union Government has
submitted that the impugned levy is on the second leg of the transaction, which is a standalone contract between the foreign exporter
and the foreign shipping line. Thus, the Unionhas urged that the contract between the foreign exporter and the foreign shipping line-of
which the Indian importer is not a party-cannot be deemed to be a part of 'composite supply'. While the first leg of the transaction,
between the foreign exporter and Indian importer, is (according to the submission) a composite supply, the second leg is an
independent transaction.
• Para 142 - In the present case, the question is whether the imposition of IGST on supply of services can be sustained when there is a concomitant
imposition of IGST onsupply of goods. However, we must first analyse the context in which the IGST is levied on the import of goods in this
case.

• Para 143 - The provisions of composite supply in the CGST Act (and the IGST Act) play a specific role in the levy of GST. The idea of
introducing 'composite supply' was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of
supplies altogether. This finds specific mention in the illustration provided Under Section 2(30) of CGST Act, where the principal supply is that of
goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are
naturally bundled together, must be taxed as a composite supply.

• Para 145 - This Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply. It would not be permissible
to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements. In a CIF contract, the supply of goods is
accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this
case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the
Indian importer, on which the IGST is payable Under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section
2(30) of the CGST Act. To levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in
Section 8 and be in violation of the scheme of the GST legislation. Based on this reason, we are of the opinion that while the impugned
notifications are validly issued Under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the
overall scheme of the GST legislation.

• Para 148 - Based on the above discussion, we have reached the following conclusion: The impugned levy imposed on the 'service' aspect of the
transaction is in violation of the principle of 'composite supply' enshrined Under Section 2(30) read with Section 8 of the CGST Act. Since the
Indian importer is liable to pay IGST on the 'composite supply', comprising of supply of goods and supply of services of transportation, insurance,
etc. in a CIF contract, a separate levy on the Indian importer for the 'supply of services' by the shipping line would be in violation of Section 8 of
the CGST Act.

• Para 149 - For the reasons stated above, the appeals are accordingly dismissed.
Re: M/s CMC Vellore Association (2019, TN AAR)

Facts
• M/s. Christian Medical College (CMC), Vellore (hereinafter referred to as the 'Applicant'or 'CMC') is engaged in provision
of Health Care services to both inpatients and out-patients.
• CMC has a multi-specialty tertiary care hospital providing health care services under their Governance. They are rendering
medical services with professionals like doctors, nursing staff, lab technicians, etc. Medicines, Drugs, implants and stents,
etc are supplied through pharmacy to in-patients under the prescription of the doctors which are incidental to the health
care services rendered in the hospital.
• The in-patients are provided with stay facilities, medicines, consumables, implants, dietary food and other
surgeries/procedures required for the treatment.
• The Central store of the hospital procures stocks of medicines, implants, consumables etc from various suppliers and
distribr.rte to its outlets such as in-patient pharmacy, operation theatre pharmacy and out-patient pharmacy based on the
indent issued. The in-patient pharmacy and operation theatre pharmacy supplies medicines, implants and consumables only
to in- patients, whereas the out-patient pharmacy attached to the hospital entertain the medical prescription of out-patients.
Questions for the ruling

1. Whether the medicines, drugs, stents, consumables and implants used in the course of
providing health care services to in-patients admitted to the hospital for diagnosis, or
medical treatment or procedures would be considered as " Composite Supply" of
health care services under GST and consequently can exemption under Notification
No.I2/2OI7 read with Section B(a) of GST be claimed?

2. Tax liability on medicines supplied to in-patients through pharmacy?

Applicant’s arguments:
• Para 2.3 - The applicant has contended that the medicines, consumables and implants used in the course of
providing health care services to the patients admitted for diagnosis or treatment in the hospital or clinical
establishment is naturally bundled in ordinary course of business.
• Para 2.3 - The patients expected to receive health care services includes receiving the appropriate medicine,
relevant consumables, or implants required to make sure that appropriate diagnosis or the best possible treatment of
the health issues are conducted. If there is no supply of medicines, consumables or implants, it would be difficult to
render the health care service which will ultimately have an impact in the survival of the patients. The healthcare
service cannot be provided without the drugs/consumables/stents.
• Para 2.3 - This being a composite supply the principal supply is predominant which is health care and therefore
the same is to be considered for tax ability under GST. The ancillary supplies such as room rent and dietary food
provided to in-patients also shall be exempt and beyond the ambit of taxation.
• Para 2.4- CMC have further stated that Health care services provided by a clinical
establishment, an authorised medical practitioner or para medics have been exempted
vide SI. No.74, of Notification no. 12/2017-Central Tax (Rate)

• Para 2.4. - Vide clarifications issued based on the approval of 25th GST Council
Meeting held on 18.01.2018 circular No.32l06/2018-GST, (F.No.354l17 /2OI8- TRU
Dt. I2.A2.2OIB), it was clarified that food supplied to the inpatients as advised by the
doctor/nutritionist is a part of composite supply of health care and not separately
taxable.
Observations by the AAR
• Para 6.2. - In the case at hand, the applicant being a hospital/polyclinic undertakes services of diagnosis, treatment which
comprises of providing bed/lCU, room, nursing care, diagnostics including lab investigations and treatment surgical or
otherwise under the directions of the Doctors. The hospital provides medicines, consumables, implants, etc. to the In-
patients in the course of treatment on the directions of medical doctor for which the In-patient is billed together by the
hospital.
• Para 6.2. - The hospital cannot provide health services including diagnostic, treatment surgery etc. without the help
of medicines to be taken during treatment, implants and consumables used during their stay in the hospital. Only on
using these medicines, consumable and implants as required and prescribed by the doctors and administered during their
stay will the treatment be complete. Hence, supply of medicines, implants and consumables are natural bundled with the
supply of health services. In this case, supply of health services is the principal supply as that is the reason the in-patients
get admitted to hospital instead of buying the medicines or consumables and using on themselves. Therefore, supply of
medicines, consumables and implants to in patients in the course of their treatment is a composite supply of health
services.
• Para 6.4. - Inpatient services means services provided by hospitals to inpatients under the direction of medical doctors
aimed at curing, restoring and or maintaining the health of a patient and the service comprises of medical. Pharmaceutical
and paramedical services, rehabilitation services, nursing services and laboratory and technical services. A complete gamut
of activities required for well-being of a patient and provided by a hospital under the direction of medical doctors is a
composite supply of service and is covered under 'Inpatient services'
• Para 6.5. - Health care services provided by a clinical establishment or an authorised medical practitioner or para medics are
exempted vide Sl. No. 74 of Notification no 12/2O17-C.T.(Rate) dated 28.06.2017

"Clinical establishment" is defined in the said notification under 2(s), which states that
"Clinical Establishment" means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that
offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any
recognized system of medicines in India or a place established as an independent entity or a part of an establishment to carry out
diagnostic or investigative services of diseases.

And 'health care services" is defined under 2(zg) as: (zg) “health care services” means any service by way of diagnosis or treatment or
care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes
services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or
cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to
congenital defects, developmental abnormalities, injury or trauma;
• Para 6.5. - From a joint reading of the 'Explanation of service 'pertaining to 'Inpatient services' and the exemption above, it is evident
that the exemption is applicable to a "Clinical Establishment", when services by way of diagnosis or treatment or care for illness, etc.
are undertaken by such establishment under the directions of a medical doctor. The applicant hospital is a Clinical Establishment and
for the health care services as defined in the Notification above provided including the supply of medicines, implants and
consumables, they are exempt under Sl No 74 of Notification no 12/2OI7-C.T. (rate) dated 28.06.2077 as amended.
Final Ruling
• Para 7 - In view of the foregoing, we rule as under:
1. Medicines, drugs, stents, consumables and implants used in the course of providing health
care services to in-patients admitted to the hospital for diagnosis, or medical treatment or
procedures is a composite supply of In Patient Healthcare Service.
2. Supply of inpatient health care services by the applicant hospital as defined in Para 2(zg) of
Notification no |2/2O17-C.T. (rate) dated 28.06.2017 as amended and Notification No.II (21 /
CfR/ 532(d- l5l / 2OI7 vide G.,C. (Ms) No. 73 dated 29.06.2017 as amended is exempted from
CGST and SGST as per Sl No 74 of the above notifications respectively.
Re: Bharatiyar University, Tamil Nadu AAR, Order Date 19.11.2020

Facts
• The applicant is a University established under the Bharathiyar University Act. They undertake activities related to affiliation of
colleges as affiliated, professional or post graduate colleges under conditions prescribed and to withdraw affiliation from colleges; to
approve colleges providing course of study for admission to the examinations for titles and diplomas of the University under
conditions prescribed and to withdraw such approval; to designate any college as ah autonomous college with the concurrence of the
Government in the manner and under conditions prescribed and to cancel such designation and collect various fees in this regard from
the institutions.

Issue
• Whether the services provided by the University to its constituent colleges (viz.) self-financing and management colleges relating to
admission to, or conduct of examination by such institution by way of affiliation fee, registration fee such as: Application form fees,
Application fees (Application * Registration fee) (each course/section), Inspection fees (each course/section), Affiliation fee for each
course, Affiliation fee for each additional section, Initial affiliation fee to start an institution, Permanent Affiliation fee to the College,
Continuation of affiliation fee for each course, increase in intake for each course for permanent basis processing fee, Penal fee for
receipt of late application are exempted vide Sl. No. 66 of Notification No. 12/2017-C.T. (Rate)?
Applicant’s arguments
• Para 7.1. - It is the contention of the applicant that "affiliation" is the principal supply and
the above other activities are naturally bundled with the principal activity of affiliation of
the colleges to the university and the purpose of affiliation of the colleges to the university
is admission of students and/or conduct of examinations for the purpose of getting a degree
and therefore the exemption provided under Sl. No. 66(b)(iv) of Notification No. 12/2017-
C.T. (Rate) as amended by Notification No. 2/2018 with effect from 25-1-2018 is
applicable to the said supply made by the applicant to the Self-financing and Management
Colleges.
Observations by the AAR
• Para 7.3. - Applying the above to the case at hand, it is seen that the sale of application, registration,
inspection are all supplies which are naturally bundled and supplied in conjunction in the course of the
activity of extending affiliation. Thus, all the fees in question collected by them and the supplies thereto
results in the activity of affiliation of the institution, upgradation, increase in the capacity/course, etc.
and are governed by the UGC regulation discussed in Para 7.2 above. Therefore, we agree with the
claim of the applicant that the entire gamut of activities for which the fees in questions are collected is a
'composite supply' with extending 'affiliation' to an institution of higher education being the 'Principal
Supply’.

• Para 7.4. - It is their contention that the fees collected & the activities undertaken towards affiliation of
the institution, course, extension of course, etc. are services provided to 'educational institutions', 'in
relation to' admission & conduct of examination inasmuch as the institution cannot admit a student
without affiliation and the student cannot take the examination unless he is registered with the
university through the college as per Section 39/Section 40 of the Bharathiyar University Act, 1982.
• Para 7.6. - As per the definition of affiliation under Regulation 2.1 above, affiliation in relation to a college is an activity to recognise such
college to the privileges of the university to which the institution is affiliated. In other words, the activity of affiliation is to monitor
whether the institution possess the required infrastructure in terms of Space, Technical prowess, financial liquidity, faculty strength, etc and
thereby eligible for the privileges to conduct the course/programme of study for the degree/title extended by the University to the students
enrolled in such institutions. In the case at hand, it is evident that the affiliation services provided by the applicant enables the said
institution to conduct the course/programme and do not relate to admission of students to such course/programme in the said institutions or
conduct of examination for such admission in the said institution. Also, the exempted services on the conduct of examination is that
related to the admission to such institution and not related to the examination based on which degree/title, etc. are conferred to the
students, as is being claimed by the applicant, though we do not part any opinion on the claim of the applicant that they extend such
services to the institutions by extending the affiliation. Therefore, we hold that the composite supply of sale of application, registration,
inspection, etc. with 'affiliation' of the said institution/course as the 'Principal supply' are not exempted under the entry Sl. No. 66 of
Notification No. 12/2017-C.T. (Rate) dated 28-6-2017 as amended.

Final Ruling
• The composite supply of sale of application, registration of course, inspection, etc. with 'he 'Principal Supply' of "affiliation" provided by
the Bharathiar University to its constituent colleges (viz.) Self-financing and management colleges for which they collect 1. Application
Form fees; 2. Application Fees (Application * Registration fee (each course/section)); 3. Inspection fees (each course/Section); 4.
Affiliation Fee for each course; 5. Affiliation Fee for each additional section; 6. Initial Affiliation fee to start an institution; 7. Permanent
Affiliation fee to the College; 8. Continuation of affiliation for each course; 9. Increase in intake for each course for permanent basis
processing fee & 10. Penal fee for receipt of late application is not exempted vide Sl. No. 66 of Notification No. 12/2017-C.T. (Rate) :
dated 28th June, 2017 as amended by 02/2018-C.T. (Rate) :, dated 25-1- 2018 for the reasons stated in para 7 above.
Illustrations

• Works contract under schedule II - treated as supply of services. It means a contract wherein
transfer of property in goods is involved in the execution of such contract and includes contract
for building, construction, fabrication, completion, erection, installation, fitting out,
improvement, modification, repair, maintenance, renovation, alteration or commissioning of any 
immovable property.
• An agent supplies a tourism package consisting of air-ticket, hotel room, transport, tourist guide
and tour to various sites and he charges a single price. The supply is a composite supply where
the main supply is the tour and the other components are seen as integral or incidental to the
main supply.
• Restaurant services - composite as services even if goods sold together
• Laptop - with laptop bag composite supply
Composite or mixed supply
Origin
• GST is levied on supply of goods and services at a rate prescribed by the government for each goods/services. The problem arises when different
goods or services are combined together under single supply. Eg. supplier of TV providing installation services. Is it two separate supplies or one?

• In pre-GST system - it was complex when a singular transaction involved multiple supplies. This problem was prevalent under VAT, Customs and
Service taxes as well.

• There was no separate legislation for service tax and was covered under Chapter V of the Finance Act, 1994.
• In 2012, 1994 Act was amended and an Explanation to Section 66F of Finance Act, 1994 was inserted- defined “bundled services” to mean bundle
of provision of various services wherein element of provision of one service is combined with element or elements of provision of any other service
or services. Eg. in a air travel, transportation was an element of one service combined with element of service of food and beverages bundled
together.

• Essential characteristic test under 66F(3) - the taxability of a bundled service shall be determined in the following manner, namely:--
(a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single
service which gives such bundle its essential character; Eg. “package tour” to include pickup, travel, guide etc.
(b) if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single
service which results in highest liability of service tax. Eg. renting of house for commercial + residential purposes. Residential is tax exempt but
commercial is liable for tax. The entire letting out will be taxable as commercial tenancy.
• Composite transaction under Service Tax where service + sale of goods is there - Dominant Nature Test - Finance Act, 2012
proposed this test If the dominant nature of such a transaction is provision of a service then such transaction would be treated
as a service and taxed as such even if the transaction involves an element of sale of goods. Eg. if for the recipient of services,
no separate rights arise out of serving of food and sale of food, then it is composite transaction of service and service tax
maybe levied. This was based on certain rules -
a) Perception of consumers - if majority treats it as a bundle, shall be a bundle
b) Majority of service providers’ practice - majority airlines provide bundled transport + food experience
c) Ordinary course of business - hotel providing free laundry. Accomodation is main service and laundry is ancillary service.
• The GST law has retained the bundled service from the 1994 Act and termed it as principal supply and ancillary supply. Eg.
the above air travel example, principal supply is air travel and ancillary supply is food and beverages onboard (borrowing
from essential service test).
• Under GST law, there is another supply - mixed supply - based on 66(5)(3)(b) of the Finance Act, 1994 - wherein the
supplies cannot be classified as principal supply and ancillary supply but are independent supplies bundled together. Eg. a
Holi gift basket with sweets, spa services, colors etc. are all packed together for a single price invoiced together, however,
each may be sold separately at different rates of GST.
• Owing to there similarities with pre-GST structure, the rules of interpretation for the service tax determination will be
applicable for GST too.
Composite Supply

Section 2(30) "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) "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;
According to the Education Guide of Central Board of Excise and Customs on Service
Tax as GST does not define these terms -
• The expressions “naturally bundled” are not defined in the guide. Bundled service -
bundle of provision of various services wherein an element of provision of one service
is combined with an element or elements of provision of any other service or services”
• “Ordinary course of business” - the normal or frequent practices followed in the area of
business to which the services relate Eg. airline business’ practice w.r.t. providing food
.

onboard. Also relevant is - perception of the consumer or the service receiver and
majority of service providers in a particular area of business provide similar bundle of
services.
Mixed Supply

Section 2 (74) "mixed supply" means two or more individual supplies of goods or
services, or any combination thereof, made in conjunction with each other by a taxable
person for a single price where such supply does not constitute a composite supply.
Illustration. A supply of a package consisting of canned foods, sweets, chocolates,
cakes, dryfruits, aerated drinks and fruit juices when supplied for a single price is a
mixed supply. Each of these items can be supplied separately and is not dependent on
any other. It shall not be a mixed supply if these items are supplied separately;
Tax liability on composite and mixed supplies

Section 8. 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.
Difference

Composite Supply Mixed Supply

Two or more taxable supplies Two or more taxable supplies

Naturally bundled in conjunction with each other Individually taxable

Rate - the rate of principal supply Rate - the rate of the highest supply
Union of India & Anr v. Mohit Minerals Pvt. Ltd (2022) 10 SCC 700

Meaning of important term/provisions used in facts -

• CIF Contracts: In international trade, the contract may vary in liability between supplier and recipient. From delivery
(including cost of goods, insurance, freight charges) + duty paid (DDP) by the supplier to all the charges paid by
recipient (Ex works - pickup from manufacturer), CIF lies somewhere in between. Wherein, seller is responsible for
Cost of the goods, Insurance and Freight charges till the port of the importing nation. After that the liability to pay
import duty, transportation, warehouse etc. is liability of the buyer.
Eg. supplier of beer in Belgium through CIF contract agrees on paying cost+insurance+ freight from the manufacturing
plant in Antwerp, Belgium to Kochi Port, India. After that, the importer has to pay customs duty at the port and bear all
the charges after that.
• Section 5 of IGST Act, 2017: Levy and Collection - it is the charging section. Section 5(1) of the IGST Act authorises
the levy of an integrated tax on all inter-state supplies of goods and services or both. The integrated tax can also be
levied on goods imported into India on the value determined Under Section 3 of the Customs Tariff Act 1975.
.
Facts
• Mohit Minerals imports non-coking coal from Indonesia, South Africa and the U.S.by ocean transport on a ‘Cost-Insurance-
Freight’ basis which is supplied to domestic industries. The goods are transported from a place outside India, up-to the
customs station in India. The Respondent pays customs duties on the import of coal, which includes the value of ocean
freight. In the case of a CIF contract, the freight invoice is issued by the foreign shipping line to the foreign exporter, without
the involvement of the importer.
• Respondent challenges 2 notifications:
1. Prior to GST, service tax was exempt on ocean freight. After the passing of GST, through Notification No. 8/2017-
Integrated Tax (Rate), tax at the rate of 5 per cent on the supply of specified services, including transportation of goods, in
a vessel from a place outside India up to the customs station of clearance in India was levied.

2. And, Notification 10/2017 Integrated Tax (Rate) - This notification provides tax on Reverse Charge Mechanism under
IGST and entry 10 includes - supplier as a person located in non-taxable territory. Recipient as - Importer, as defined in
clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory. Which means that for the
Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place
outside India up to the customs station of clearance in India, even if such services are provided by a non-resident to another
non-resident, the tax on RCM basis is to be paid by importer. Eg. supplier of beer in Antwerp contracts with a German cargo
to supply beer to port in Kochi. Here, the imported in Kochi will have to pay tax on RCM on behalf of German cargo as
German in not registered, even if contract was independently entered between Belgian supplier and German cargo.
Issues before the Gujarat HC - The Respondent filed a writ petition before the Gujarat High
Court challenging Notification 8/2017 and Notification 10/2017 on the grounds that:
(I) the notifications are ultra vires the IGST Act and CGST Act;
(II) customs duty is levied on the component of ocean freight and the levy of IGST on the freight
element in the course of transportation would amount to double taxation;
(III)in the case of a CIF contract, the supply of service of transport of goods in a vessel is by a
foreign shipping line located in a non-taxable territory to an exporter located in a non-taxable
territory by a vessel outside the territory of India which cannot be subject to tax under the IGST
Act;
(IV)Notification 10/2017 transgresses the provisions of Section 5(3) of the IGST Act as instead of
the "recipient" mentioned therein, the "importer" as defined in Section 2(26) of the Customs
Act, is made liable to pay tax; and (vi)
(V)Entry 9(ii) and para 2 of Notification 8/2017 read with Notification 10/2017 creates a deeming
fiction and a separate taxable event which is not permissible in law.
Ruling of DB of Gujarat HC - the notifications are unconstitutional for exceeding the powers
conferred by the IGST Act and the CGST Act.
(I) The importer of goods on a CIF basis is not the recipient of the transport services as Section 2(93)
of the CGST Act defines a recipient of services to mean someone who pays consideration for the
service, which is the foreign exporter in this case;
(II) There is no territorial nexus for taxation since the supply of service of transportation of goods is by
a person in a non-taxable territory to another person in a non-taxable territory from a place outside
India up to the Indian customs clearance station and this is neither an inter-state nor an intra-state
supply;
(III)Section 2(11) of the IGST Act defines "import of service" to mean the supply of service where the
supplier of service is located outside India, the recipient of service is located in India and the place
of supply of service is in India
(IV)In this case, since the goods are transported on a CIF basis, the recipient of service is the foreign
exporter who is outside India;
(V)Since the importer pays customs duties on the goods which include the value of ocean freight, the
impugned notifications impose double taxation through a delegated legislation, which is
impermissible.
Before the SC
Para 10 - UOI Arguments:
On Charging Section:
• Section 5(1) fulfils the fundamental principles of taxation:
A. Taxable event - "There shall be levied a tax called integrated goods and services tax on all inter-State supplies of goods or services
or both except on the supply of alcoholic liquor for human consumption.”
B. Taxable value - "On the value determined Under Section 15 of the CGST Act”
C. Taxable rate - "At such rates not exceeding 40% as may be notified by the Government on the recommendations of the Council and
collected in such manner as may be prescribed”
D. Taxable person - "Shall be paid by the taxable person

On Composite Supply:

• The CIF transaction and IGST on ocean freight are two independent transactions, entitled to suffer independent levies and do not
qualify as a composite supply Under Section 2(30) of the CGST
• GST and customs duties are not exclusive means of taxation. GST is a destination-based tax. The integrated tax is being sought to be
imposed on the supply of service and not on the goods. Separate aspects are being taxed, hence it cannot be termed as overlapping.
Moreover, the tax is on the value of goods, and not the freight. Tax paid at an anterior stage is not double taxation if it is included in
the overall value;
Para 12 - Mohit Minerals’ Arguments
• In case of CIF contracts, the customer contracts for a supply of delivered goods at the port of
destination. The contract for transportation of goods is entered into by the foreign exporter with the
foreign shipper. Thus, the person liable to pay consideration to the foreign shipper is the foreign
exporter. The importer of goods in India is not the person liable to pay the consideration, and is thus,
not the 'recipient' of the service;
• The contract of the Indian importer with the foreign exporter is for supply of delivered goods. The
service of transportation is a component of the supply of goods similar to raw material, manufacturing
cost or employee cost of the supplier. To contend that the purchaser has received the supply of raw
material or the services of an employee is illogical. Similarly, the argument that the Indian importer has
received transportation services is irrational; and
• Serial No. 9(ii) of Notification 8/2017 read with Para 4 and Serial No. 10 of Notification No. 9 of 2017-
Integrated Tax (Rate) dated 28 June 2019 describe the services as provided by a person located in a
non-taxable territory to a person located in a non-taxable territory. These notifications recognise the
exporter as the recipient of the service of ocean freight;
• Para 13 - Harish Salve’s points -
(i) A CIF contract is an inclusive price covering cost of goods, insurance and freight payable for carriage of goods to the
destination specified in the contract. The essence of the contract is that a seller having shipped the goods in accordance with the
contract, can fulfil his part of the bargain by tendering to the buyer the proper shipping documents. If he does this, he is not in
breach even if the goods are lost before such tender. In the event of a loss, the buyer must pay the price on tender of documents
and his remedies lie against the carrier but not the seller;
(ii) A CIF contract has two components: (i) price is paid for the freight, and (ii) the buyer is never obligated to pay it. The owner of
the vessel who enters into a contract of affreightment has a privity of contract with the supplier of goodsand is rendering a
service to the supplier. If the service is not received, then the question of reverse charge does not arise;
(iii)There must be a taxable event in the CIF contract of the kind contemplated under the IGST Act. In case there is no such event,
it cannot be created through delegated legislation by the GST Council. There is an absence of a statutory fiction by which a CIF
contract can be split into a contract for supply of goods and services, and creating a second layer of fiction by which the shipper
is rendering a service to the supplier of goods. Thus, the question of levy of tax by the GST Council does not arise;
(iv)In the transaction of import of coal on CIF basis in the present case, the recipient will fall under Clause (a) of Section2(93) of
the CGST Act as consideration is payable for the service of shipping. The mere fact that an Indian is the recipient will not lead
to the Indian recipient making the payment separately under the contract of affreightment. The Indian recipient is only a
recipient of goods, not of service;
(v) The law recognises and maintains the integrity of a CIF contract Under Section 2(30) read with Section
2(93), and Section 8. These Sections maintain the integrity of a composite contract by providing that where
the goods come with insurance and freight, the tax is imposed only on supply of goods
• Para 15 - Mr. Arvind Datar’s arguments:
(i) For a levy to be imposed under the IGST Act, the service must be a 'supply' under the provisions of IGST Act
read with Section 7 of the CGST Act. However, Section 1 of the CGST Act and IGST Act are limited to the
territory of India. Thus, any service received outside the territory of India cannot be considered to be 'supply'
under the IGST Act or the CGST Act;
(ii) To impose a levy on a service that is extra-territorial, there has to be a deeming fiction in the form of a
statutory provision which deems the supply of transportation by a vessel to a non-resident exporter. In this
case, such a deeming fiction does not exist. Thus, the transportation service cannot be deemed as a 'supply'
under the IGST Act;
(iii)Only once the service provided outside the territory of India is deemed as a 'supply' by way of statute, can
there be a determination of the supplier and the recipient
• The value of a CIF contract is indivisible, making the computation of tax on such a contract
impossible:
(i) The only way to artificially dissect the value of a CIF contract is by way of statute, which is
absent in this case;
(ii) If such a division is allowed, then the Government will be able to tax not just ocean freight, but
also insurance services; and
(iii)Levy on contracts on a CIF basis will lead to hardships for the Indian recipients. The advantage
of entering into CIF contracts is to ensure that the foreign supplier is responsible for arranging
transportation and insurance. However, if a CIF contract is made subject to GST, then the
Indian importers will have to make their own arrangements to transport the goods, book an
insurance policy and arrange for shipping;
• Mr. Uchit Sheth, counsel appearing on behalf of the Respondents submitted: 22

(i) The importers in a CIF contract do not have any privity of contract with the supplier of the
transportation service since they neither make payment of consideration to the service provider,
nor avail any service. The importers only purchase and import goods;
Court’s findings
• Para 67 - Both the impugned notifications, Notification 8/2017 and Notification 10/2017 have been challenged as
ultra vires the IGST Act. Before adverting to the challenges raised by the parties, it becomes necessary to advert to
some of the key provisions contained in the CGST Act, IGST Act and Customs Act. These provisions are necessary
to respond to several contentions raised by the Respondents, including: (i) whether the taxable event stipulated by
the impugned notifications constitutes a 'supply' under the IGST Act; (ii) whether the importer of goods on a CIF
basis can be deemed to be the 'recipient' of shipping services when they do not pay the consideration; and (iii)
whether the import of goods constitutes a composite supply, among others.
• Para 133 - The transaction at hand involves three parties-the foreign exporter, the Indian importer and the shipping
line. The first leg of the transaction involves a CIF contract, wherein the foreign exporter sells the goods to the
Indian importer and the cost of insurance and freight are the responsibility of the foreign exporter. In other words,
the foreign exporter is liable to ensure that the goods reach their place of destination and the Indian importer pays
the transaction value to the exporter. The second leg of the transaction involves an agreement between the foreign
exporter and the shipping line (whether foreign or Indian) for providing services for transport of goods to the
destination, i.e., in the territory of India.
• Para 134 - On the first leg of the transaction, between the foreign exporter and the Indian importer, the latter is liable
to pay IGST on the transaction value of goods Under Section 5(1) of the IGST Act read with Section 3(7) and 3(8) of
the Customs Tariff Act. Although this transaction involves the provision of services such as insurance and freight it
falls under the ambit of 'composite supply'.
• Para 136- Section 2(30) of the CGST Act clearly provides that a transaction may have two or more taxable supplies, where one of them
is a principal supply. The illustration to Section 2(30) further clarifies that a transaction such as the CIF contract for supply of goods
reflects a composite supply under the CGST Act, where the principal supply is the supply of goods.
• Para 137 - …Section 8 of the CGST Act provides that the tax liability on a composite supply which comprises of two or more supplies,
will only be levied on the 'principal supply'. In a CIF transaction, the principal supply, according to Section 2(30), is supply of goods.
Thus, the tax would be levied as if the transaction was one of supply of goods.
• Para 139 - The Respondents have urged before this Court that the impugned levy which seeks to impose IGST on the 'service' aspect of
the transaction would be in violation of the principle of 'composite supply' incorporated Under Section 2(30) read with Section 8 of the
CGST Act, which applies equally to the imposition of IGST Under Section 20 of the IGST Act. In contrast, the Union Government has
submitted that the impugned levy is on the second leg of the transaction, which is a standalone contract between the foreign exporter
and the foreign shipping line. Thus, the Unionhas urged that the contract between the foreign exporter and the foreign shipping line-of
which the Indian importer is not a party-cannot be deemed to be a part of 'composite supply'. While the first leg of the transaction,
between the foreign exporter and Indian importer, is (according to the submission) a composite supply, the second leg is an
independent transaction.
• Para 142 - In the present case, the question is whether the imposition of IGST on supply of services can be sustained when there is a concomitant
imposition of IGST onsupply of goods. However, we must first analyse the context in which the IGST is levied on the import of goods in this
case.

• Para 143 - The provisions of composite supply in the CGST Act (and the IGST Act) play a specific role in the levy of GST. The idea of
introducing 'composite supply' was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of
supplies altogether. This finds specific mention in the illustration provided Under Section 2(30) of CGST Act, where the principal supply is that of
goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are
naturally bundled together, must be taxed as a composite supply.

• Para 145 - This Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply. It would not be permissible
to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements. In a CIF contract, the supply of goods is
accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this
case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the
Indian importer, on which the IGST is payable Under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section
2(30) of the CGST Act. To levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in
Section 8 and be in violation of the scheme of the GST legislation. Based on this reason, we are of the opinion that while the impugned
notifications are validly issued Under Sections 5(3) and 5(4) of the IGST Act, it would be in violation of Section 8 of the CGST Act and the
overall scheme of the GST legislation.

• Para 148 - Based on the above discussion, we have reached the following conclusion: The impugned levy imposed on the 'service' aspect of the
transaction is in violation of the principle of 'composite supply' enshrined Under Section 2(30) read with Section 8 of the CGST Act. Since the
Indian importer is liable to pay IGST on the 'composite supply', comprising of supply of goods and supply of services of transportation, insurance,
etc. in a CIF contract, a separate levy on the Indian importer for the 'supply of services' by the shipping line would be in violation of Section 8 of
the CGST Act.

• Para 149 - For the reasons stated above, the appeals are accordingly dismissed.
Re: M/s CMC Vellore Association (2019, TN AAR)

Facts
• M/s. Christian Medical College (CMC), Vellore (hereinafter referred to as the 'Applicant'or 'CMC') is engaged in provision
of Health Care services to both inpatients and out-patients.
• CMC has a multi-specialty tertiary care hospital providing health care services under their Governance. They are rendering
medical services with professionals like doctors, nursing staff, lab technicians, etc. Medicines, Drugs, implants and stents,
etc are supplied through pharmacy to in-patients under the prescription of the doctors which are incidental to the health
care services rendered in the hospital.
• The in-patients are provided with stay facilities, medicines, consumables, implants, dietary food and other
surgeries/procedures required for the treatment.
• The Central store of the hospital procures stocks of medicines, implants, consumables etc from various suppliers and
distribr.rte to its outlets such as in-patient pharmacy, operation theatre pharmacy and out-patient pharmacy based on the
indent issued. The in-patient pharmacy and operation theatre pharmacy supplies medicines, implants and consumables only
to in- patients, whereas the out-patient pharmacy attached to the hospital entertain the medical prescription of out-patients.
Questions for the ruling

1. Whether the medicines, drugs, stents, consumables and implants used in the course of
providing health care services to in-patients admitted to the hospital for diagnosis, or
medical treatment or procedures would be considered as " Composite Supply" of
health care services under GST and consequently can exemption under Notification
No.I2/2OI7 read with Section B(a) of GST be claimed?

2. Tax liability on medicines supplied to in-patients through pharmacy?

Applicant’s arguments:
• Para 2.3 - The applicant has contended that the medicines, consumables and implants used in the course of
providing health care services to the patients admitted for diagnosis or treatment in the hospital or clinical
establishment is naturally bundled in ordinary course of business.
• Para 2.3 - The patients expected to receive health care services includes receiving the appropriate medicine,
relevant consumables, or implants required to make sure that appropriate diagnosis or the best possible treatment of
the health issues are conducted. If there is no supply of medicines, consumables or implants, it would be difficult to
render the health care service which will ultimately have an impact in the survival of the patients. The healthcare
service cannot be provided without the drugs/consumables/stents.
• Para 2.3 - This being a composite supply the principal supply is predominant which is health care and therefore
the same is to be considered for tax ability under GST. The ancillary supplies such as room rent and dietary food
provided to in-patients also shall be exempt and beyond the ambit of taxation.
• Para 2.4- CMC have further stated that Health care services provided by a clinical
establishment, an authorised medical practitioner or para medics have been exempted
vide SI. No.74, of Notification no. 12/2017-Central Tax (Rate)

• Para 2.4. - Vide clarifications issued based on the approval of 25th GST Council
Meeting held on 18.01.2018 circular No.32l06/2018-GST, (F.No.354l17 /2OI8- TRU
Dt. I2.A2.2OIB), it was clarified that food supplied to the inpatients as advised by the
doctor/nutritionist is a part of composite supply of health care and not separately
taxable.
Observations by the AAR
• Para 6.2. - In the case at hand, the applicant being a hospital/polyclinic undertakes services of diagnosis, treatment which
comprises of providing bed/lCU, room, nursing care, diagnostics including lab investigations and treatment surgical or
otherwise under the directions of the Doctors. The hospital provides medicines, consumables, implants, etc. to the In-
patients in the course of treatment on the directions of medical doctor for which the In-patient is billed together by the
hospital.
• Para 6.2. - The hospital cannot provide health services including diagnostic, treatment surgery etc. without the help
of medicines to be taken during treatment, implants and consumables used during their stay in the hospital. Only on
using these medicines, consumable and implants as required and prescribed by the doctors and administered during their
stay will the treatment be complete. Hence, supply of medicines, implants and consumables are natural bundled with the
supply of health services. In this case, supply of health services is the principal supply as that is the reason the in-patients
get admitted to hospital instead of buying the medicines or consumables and using on themselves. Therefore, supply of
medicines, consumables and implants to in patients in the course of their treatment is a composite supply of health
services.
• Para 6.4. - Inpatient services means services provided by hospitals to inpatients under the direction of medical doctors
aimed at curing, restoring and or maintaining the health of a patient and the service comprises of medical. Pharmaceutical
and paramedical services, rehabilitation services, nursing services and laboratory and technical services. A complete gamut
of activities required for well-being of a patient and provided by a hospital under the direction of medical doctors is a
composite supply of service and is covered under 'Inpatient services'
• Para 6.5. - Health care services provided by a clinical establishment or an authorised medical practitioner or para medics are
exempted vide Sl. No. 74 of Notification no 12/2O17-C.T.(Rate) dated 28.06.2017

"Clinical establishment" is defined in the said notification under 2(s), which states that
"Clinical Establishment" means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that
offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any
recognized system of medicines in India or a place established as an independent entity or a part of an establishment to carry out
diagnostic or investigative services of diseases.

And 'health care services" is defined under 2(zg) as: (zg) “health care services” means any service by way of diagnosis or treatment or
care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes
services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or
cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to
congenital defects, developmental abnormalities, injury or trauma;
• Para 6.5. - From a joint reading of the 'Explanation of service 'pertaining to 'Inpatient services' and the exemption above, it is evident
that the exemption is applicable to a "Clinical Establishment", when services by way of diagnosis or treatment or care for illness, etc.
are undertaken by such establishment under the directions of a medical doctor. The applicant hospital is a Clinical Establishment and
for the health care services as defined in the Notification above provided including the supply of medicines, implants and
consumables, they are exempt under Sl No 74 of Notification no 12/2OI7-C.T. (rate) dated 28.06.2077 as amended.
Final Ruling
• Para 7 - In view of the foregoing, we rule as under:
1. Medicines, drugs, stents, consumables and implants used in the course of providing health
care services to in-patients admitted to the hospital for diagnosis, or medical treatment or
procedures is a composite supply of In Patient Healthcare Service.
2. Supply of inpatient health care services by the applicant hospital as defined in Para 2(zg) of
Notification no |2/2O17-C.T. (rate) dated 28.06.2017 as amended and Notification No.II (21 /
CfR/ 532(d- l5l / 2OI7 vide G.,C. (Ms) No. 73 dated 29.06.2017 as amended is exempted from
CGST and SGST as per Sl No 74 of the above notifications respectively.
Re: Bharatiyar University, Tamil Nadu AAR, Order Date 19.11.2020

Facts
• The applicant is a University established under the Bharathiyar University Act. They undertake activities related to affiliation of
colleges as affiliated, professional or post graduate colleges under conditions prescribed and to withdraw affiliation from colleges; to
approve colleges providing course of study for admission to the examinations for titles and diplomas of the University under
conditions prescribed and to withdraw such approval; to designate any college as ah autonomous college with the concurrence of the
Government in the manner and under conditions prescribed and to cancel such designation and collect various fees in this regard from
the institutions.

Issue
• Whether the services provided by the University to its constituent colleges (viz.) self-financing and management colleges relating to
admission to, or conduct of examination by such institution by way of affiliation fee, registration fee such as: Application form fees,
Application fees (Application * Registration fee) (each course/section), Inspection fees (each course/section), Affiliation fee for each
course, Affiliation fee for each additional section, Initial affiliation fee to start an institution, Permanent Affiliation fee to the College,
Continuation of affiliation fee for each course, increase in intake for each course for permanent basis processing fee, Penal fee for
receipt of late application are exempted vide Sl. No. 66 of Notification No. 12/2017-C.T. (Rate)?
Applicant’s arguments
• Para 7.1. - It is the contention of the applicant that "affiliation" is the principal supply and
the above other activities are naturally bundled with the principal activity of affiliation of
the colleges to the university and the purpose of affiliation of the colleges to the university
is admission of students and/or conduct of examinations for the purpose of getting a degree
and therefore the exemption provided under Sl. No. 66(b)(iv) of Notification No. 12/2017-
C.T. (Rate) as amended by Notification No. 2/2018 with effect from 25-1-2018 is
applicable to the said supply made by the applicant to the Self-financing and Management
Colleges.
Observations by the AAR
• Para 7.3. - Applying the above to the case at hand, it is seen that the sale of application, registration,
inspection are all supplies which are naturally bundled and supplied in conjunction in the course of the
activity of extending affiliation. Thus, all the fees in question collected by them and the supplies thereto
results in the activity of affiliation of the institution, upgradation, increase in the capacity/course, etc.
and are governed by the UGC regulation discussed in Para 7.2 above. Therefore, we agree with the
claim of the applicant that the entire gamut of activities for which the fees in questions are collected is a
'composite supply' with extending 'affiliation' to an institution of higher education being the 'Principal
Supply’.

• Para 7.4. - It is their contention that the fees collected & the activities undertaken towards affiliation of
the institution, course, extension of course, etc. are services provided to 'educational institutions', 'in
relation to' admission & conduct of examination inasmuch as the institution cannot admit a student
without affiliation and the student cannot take the examination unless he is registered with the
university through the college as per Section 39/Section 40 of the Bharathiyar University Act, 1982.
• Para 7.6. - As per the definition of affiliation under Regulation 2.1 above, affiliation in relation to a college is an activity to recognise such
college to the privileges of the university to which the institution is affiliated. In other words, the activity of affiliation is to monitor
whether the institution possess the required infrastructure in terms of Space, Technical prowess, financial liquidity, faculty strength, etc and
thereby eligible for the privileges to conduct the course/programme of study for the degree/title extended by the University to the students
enrolled in such institutions. In the case at hand, it is evident that the affiliation services provided by the applicant enables the said
institution to conduct the course/programme and do not relate to admission of students to such course/programme in the said institutions or
conduct of examination for such admission in the said institution. Also, the exempted services on the conduct of examination is that
related to the admission to such institution and not related to the examination based on which degree/title, etc. are conferred to the
students, as is being claimed by the applicant, though we do not part any opinion on the claim of the applicant that they extend such
services to the institutions by extending the affiliation. Therefore, we hold that the composite supply of sale of application, registration,
inspection, etc. with 'affiliation' of the said institution/course as the 'Principal supply' are not exempted under the entry Sl. No. 66 of
Notification No. 12/2017-C.T. (Rate) dated 28-6-2017 as amended.

Final Ruling
• The composite supply of sale of application, registration of course, inspection, etc. with 'he 'Principal Supply' of "affiliation" provided by
the Bharathiar University to its constituent colleges (viz.) Self-financing and management colleges for which they collect 1. Application
Form fees; 2. Application Fees (Application * Registration fee (each course/section)); 3. Inspection fees (each course/Section); 4.
Affiliation Fee for each course; 5. Affiliation Fee for each additional section; 6. Initial Affiliation fee to start an institution; 7. Permanent
Affiliation fee to the College; 8. Continuation of affiliation for each course; 9. Increase in intake for each course for permanent basis
processing fee & 10. Penal fee for receipt of late application is not exempted vide Sl. No. 66 of Notification No. 12/2017-C.T. (Rate) :
dated 28th June, 2017 as amended by 02/2018-C.T. (Rate) :, dated 25-1- 2018 for the reasons stated in para 7 above.
Illustrations

• Works contract under schedule II - treated as supply of services. It means a contract wherein
transfer of property in goods is involved in the execution of such contract and includes contract
for building, construction, fabrication, completion, erection, installation, fitting out,
improvement, modification, repair, maintenance, renovation, alteration or commissioning of any 
immovable property.
• An agent supplies a tourism package consisting of air-ticket, hotel room, transport, tourist guide
and tour to various sites and he charges a single price. The supply is a composite supply where
the main supply is the tour and the other components are seen as integral or incidental to the
main supply.
• Restaurant services - composite as services even if goods sold together
• Laptop - with laptop bag composite supply
Pracitce

• Decide if the following is a mixed supply of a composite supply

1. Boarding school provides boarding services + education which is exempt service. The overall services?
2. Supplier of TV also providing installation services.
3. A supply of package consisting of canned foods (5%), sweets(18%), chocolates(18%), cakes(5%), dry fruits(12%) ,
aerated drink(28%) and fruit juices (12%). What would be applicable tax rate in the above case?
4. Yearly service package for replacement of parts too.

• Answers - 1. C, 2. C 3. 28%, M 4. Both