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 PARAGRAPHS-

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 commissioning certificate. 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. 

QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT-

Applicant has sought ruling to be pronounced under section 97(2) (a) (e) of the CGST Act 2017, on the following questions:

1. 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?
2. In case the said agreements are considered as composite supply, what is the principal supply between goods and services?
3. In case services are considered as the principal supply, what tax rate should be applicable?
4. In respect of the said agreements, what shall be the relevant place of supply and type of tax which needs to be discharged? (i.e. CGST & SGST or IGST).

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.