RAJASTHAN AAR CLARIFIES GST ON MAINTENANCE CONTRACTS:- SANDVIK ASIA CASE EXPLAINED

RAJASTHAN AAR CLARIFIES GST ON MAINTENANCE CONTRACTS:- SANDVIK ASIA CASE EXPLAINED

RAJASTHAN AUTHORITY FOR ADVANCE RULING

GOODS AND SERVICES TAX

Case Title- M/s Sandvik Asia Pvt. Ltd.

(GST AAR RAJASTHAN)

Advance Ruling No.RAJ/AAR/2018-19/21

Date of Judgment/Order- 12th October 2018

IMPORTANT PARAGRAPGS

Para No. 1. SUBMISSION OF THE APPLICANT:
The Applicant is a private limited company incorporated under the provisions of Companies Act, 1956 having registered head office located at Pune and holding GST registration Number (GSTIN) 08AACCS6638K1ZX for the State of Maharashtra.
1.1. The Applicant is a multi-product, multi-division entity, engaged in manufacturing, distribution and sales agency activities of various industrial products which include metal cutting tools, mining/construction equipment, spares for mining equipment, seamless stainless steel tubes and pipes and wires and heating systems. Further, the Applicant is also engaged into the business of after sales support for the mining equipment manufactured by its overseas group entities which are imported by the customers into India.
1.2. With respect to after sales support, the Applicant provides maintenance services for the imported equipment which includes repair and replacement of parts and tools. The maintenance services are provided for the equipment post issuance of commissioningcertificate. The maintenance services are rendered on the equipment for a specific period as agreed with the customer from the commencement of mining operations depending upon the number of hours the equipment are operational or the quantum of output ton produced by the equipment during the equipment life cycle.
1.3. In respect of the supply of part under the proposed agreements, the Applicant would supply parts falling under multiple GST rates such as 12%, 18%, 28%, etc.
1.4. The Applicant intends to execute an agreement for providing maintenance services to prospective customers for equipment located at various sites in the state of Rajasthan.

Question no.1
The applicant is mainly providing support services in respect of maintenance of machinery supplied by them. The machinery supplied in 2017 also requires maintenance and further supply of its parts by the applicant. We also find that the applicant also makes an integrated contract for the operation and maintenance service and they are not in a position to ascertain which parts are to be supplied in the course of its operation and maintenance. In these two situations the question raised by the applicant is that Whether on facts and circumstances of the case, the maintenance services rendered on customers’ equipment under the two agreements i.e. comprehensive maintenance services agreement and supply of parts and services agreement which also includes supply and replacement of spare parts should be classified as ‘composite supply’ under Section 2(30) of Central Goods and Service tax Act, 2017 (CGST Act) and Rajasthan State Goods and Service Tax Act, 2017 (RJ SGST Act) (collectively referred to as the ‘GST Act’ or as mixed supply under Section 2(74) of GST Act?

RULING

1. The activities performed under the ‘Comprehensive Maintenance Contract’ are to be treated as a composite supply of services and the activities performed under ‘Equipment Parts Supply and Services Agreement’ are to be treated as Mixed Supply.
2. In respect of the activities performed under ‘Comprehensive Maintenance Contract’, the supply of Operation & Maintenance services is the principal supply and the supply of other services are ancillary to such principal
   supply.
3. The service code for Maintenance and repair services of commercial and industrial machinery is 9987171 and the prescribed rate of GST is 18% (CGST @ 9% of the taxable value, SGST @ 9% of the taxable value) or
   IGST @ 18% of the taxable value. For the supply of mixed services, the applicant is liable to pay the highest rate of tax as per Section 8(b) of the CGST Act, 2017.
4. As the query raised by the applicant does not fall in the categories mentioned under Section 97(2) of CGST/SGST Act, 2017, hence the same is accordingly disposed off.