Doms Industries Private Limited

1.M/s Doms Industries Pvt. Ltd is manufacturer and suppliers of all kind of the stationary items like wooden pencils, sharpeners, erasers, mathematical & drawing instruments, ball point pens, wax crayons & oil pastels and wide range of student art materials.

2.The applicant has submitted that GST council in his 47th Meeting recommended changes in GST rate applicable on specified goods and services. These changes have come into effect vide Not. No. 212022-CT (Rate) dated 13-7-2022 w.e.f 18-7-2022 and are as follows:

2.1 [t is submitted that the aforesaid products are sold by the applicant in combination with other products which are liable to GST rate @ 5Yo and l2oh. The applicant is supplying following products in which Pencil Sharpener and Scales are sold as accessories:

3.for a single price. The value of eraser and Sharpener provided in this pack is minimal when compared to overall price of pack. The applicant is of the view that the principal products in the above packs are pencils. The applicant submits that the eraser and sharpener are integral to the use and performance of the principal product that is pencil. The pencil cannot be used without sharpening and erasers are specifically used for erasing of writings done with pencils. The sharpener and eraser do not have any utility by itself. The applicant submits that it has always been trade practice in the Indian Stationery industry to sell a pack of pencil containing one sharpener and one eraser together.

(2) Doms Smart Kit : This product is a gift pack containing combination of nine different products that is, a colouring book, two pack of pencils, one pack of colour pencils, one pack of oil pastels, one pack of plastic crayons, one pack of wax crayons, one eraser, one scale and one sharpener. It is submitted by the aoolicant that DurDose of selline a kit bundled with to draw convenlence The kit allows young kids to get a drawing book and other drawing / colouring product in a single pack. This kit is sold for a single price of all products bundled togeth The applicant has submitted that they used to sell the said kit under HSN code of the Item with the highest value inside the kit, as it also had the maximum GST Rate. However, with the change in GST rate of pencil sharpener to 18%o, sharpener now has the highest tax rate amongst all the products bundled together.

(3) DOMS My first Pencil Kit: This product is combo pack containing a pencil and comp products like eraser, scale and sharpener. The purpose of selling this as a kit bundled with products complimentary to pencil is to allow purchasing convenience to the consumer. The kit helps the children in learning the basic writing skills and providing the necessary products in on single pack. This kit is sold for a single price of all products bundled together. The applicant has submitted that they used to sell the said kit under HSN code of the Item with the highest value inside the kit, as it also had the maximum GST Rate. However, with the change in GST rate of pencil sharpener to 18%o, sharpener now has the highest tax rate amongst all the products bundled together.

4.The applicant has submitted that Composite Supply is defined under Section 2(30) of CGST Act, 2017 and is read as under :

4.1 The applicant submits that to qualify as a “composite supply”, conditions must be satisfied:

o There must be two or more taxable supplies of goods or services or any combination thereof;

o Such supplies of goods or services must be naturally bundled;

o Such supplies of goods or services are made in conjunction with each other in an ordinary course of business; and

o One of such combination of supplies of goods or services is principal/ predominant supply to others which are ancillary to such principal element.

5.Mixed Supply is defined under Section 2(74) of CGST Act,2017.

6.The applicant submits that for a combination of supplies to qualiS as a ‘mixed supply’, it is important that such a combination should be supplied for a single price and the supplies are not naturally bundles. It is further submits that where goods are sold in combination with other goods and the same are naturally bundled in the ordinary course of business as per guidance stipulated under the Education guide, such supplies shall be construed as composite supply.

7.Section 8 of CGST Act, 2017 defrnes taxability of Composite and Mixed Supplies and read as follows:

8.The applicant submits thar vide Not. No. 612022-CT (Rate) dated l3-7-22 w.e. from 18-7-22 the GST Rate has been changes as under :

9.The applicant has submitted the essential characteristic of their.

10.The applicant has submitted that four critical conditions are required to be satisfied for categorization of supply of multiple goods under composite supply. If these conditjBls4orq.

11.The applicant has submitted that with respect to the above multiproduct packs, all the four conditions are fulfilled, such supplies may qualify as ‘Composite Supply’. Accordingly, the GST rate as applicable on the principal product which in the instant case is pencil/colour pencil/crayons will apply to the complete set. Hence, these products shall fall under Heading 9609 and chargeable to GST rate of l2o/o.

Revenue’s Submission

12.The Assistant Commissioner, CGST & C. Ex. Commissionerate, Surat vide letter dated ll-10-2022 has submitted comments on the question on which Advance Ruling is sought and is as follows;

13.Additional Submission The applicant vide letter dated 8-ll-2022 has submitted the following;

A. Demonstrate that the Products are Naturallv Bundled:

1.For the purposes of GST, the taxability and reporting of supply on an invoice involving sale of goods in combination to other goods/ services is guided by the nature of ‘Composite Supply’. As per section 2(30) of the CGST Act, a’Composite is defined to mean a supply made by a taxable person to a recipient comprising two; ‘taxable supplies of goods or services or any combination thereof, which are naturall  buhdled ‘arid supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

2.The concept of ‘naturally bundled’ supplies is not defined under CGST Act. However, the ‘Education Guide’ issued by the Central Board of Excise & Customs (‘CBEC’) in the year 2012 explains the ‘Bundled service’ to mean a bundle of provision of various services wherein an element of one service is combined with an element or elements of any other service or services. Though this reference is given with respect to bundled service it can also be extended to bundled supplies of goods as well under the GST regime. For this, reliance can be placed on the flyer cum FAQ issued by CBIC to explain the concepts of ‘composite supply’ and ‘mixed supply’, which also makes reference to the Education Guide issued under service tax regime in determining whether a supply is a composite or a mixed supply under GST regime.

3.Para 9.2.4, the Education Guide discussed that whether a bouquet of services is bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below:

(a). The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

b). Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

4.Hence, the above indicators specif, the basis for determining if a bundle of goods or services are natural in ordinary course of business.

B.Demonstrate that the items nacked together in product are essential used tosether:

1.For a combination to be regarded as a composite supply the taxability is determined based on the principal supply i.e. the supply which constitutes the predominant element of such composite supply.

2.Section 2(90) defines the term ‘principal supply’ as ‘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’.

3.As can be observed from the above definition, one of the important aspects of a principal supply is that any other supply fonning part of the composite supply should be ancillary to such principal supply. Here, it is relevant to note, that the term ‘ancillary’ is not defined under the CGST Act. Accordingly, reference could be made to the definition of such a term in general parlance.

4.As per Stroud’s Judicial Dictionary and the Supreme Court in its decision in the the Commissioner of Customs Vs. Spice Telecom, Bangalore 12006 (203) (SC)1, the term ancillary is defined as ‘A Work is said to be “ancillary or to a thing, trade or bustness when it is not necessary thereof or o primary .

5.Further, the Hon’ble Supreme Court in the case of Vareed Jacob vs Sosamma Geevarghese [AIR 1984 SC 744) has accepted the meaning assigned to the word “ancillary” as stated in the Law Lexicon. ‘The expression ‘ancillary’ meons aiding, ayxiliary subordinate; attendant upon; that which aids or promotes a proceeding os a principal;

6.Therefore, given the aforementioned definition specified in Stroud’s Legal Dictionary, AS it is not a com Also, as per the definition in Law Lexicon, for a supply to be ancillary to another, it should be aiding or supporting or promoting the principal supply.

7.Further it has been always a Trade Practice in the Indian Stationery industry to sell a pack of pencils containing one sharpener & one eraser together. Also, it has been the perception of consumer to reasonably expect sharpener & eraser along with a pack of pencils. The eraser & sharpener are integral to the use and performance of the principal product, that is, pencil. The pencil cannot be used without sharpening and the erasers are specifically used for erasing of writings done with pencils. The sharpener can be used only for sharpening pencils. Other than to be used along with the use of pencils, the eraser and the sharpener do not have any utility by itself.

C. Without preiudice to above we would like state as under:

1.As per Section 9(1) of CGST Act, GST is payable on supply of goods at the prescribed rates. In this regard, GST rates have been prescribed vide Notification No. l/ 2017 – Central Tax (Rate) dated 30 June 2017 (‘GST Rate Notification’). The rate schedule notified under GST follows the HSN classification system to determine GST rates for various products as present under Customs law.

2.Further, the explanation to GST Rate Notification also indicates that the classification along with rules for interpretation of schedules is to be ascertained on the same principles as applicable under Customs law. We have reproduced the extract of such below:

3.As apparent from the above extract, the classification of goods under GST is done in accordance with Customs Tariff Act, 1975. Thus, it is pertinent to evaluate/ understand the principles of classification under Customs Act to determine taxability under GST law. Under Customs Law, the following rules/notes is prescribed for interpretation and classification of rate tariff:

4.GIR lays down the principles for classification of goods under import tariff to ensure uniform and consistent legal interpretation. The key principles laid under GIR is given below:

5.Here it is relevant to note that Rule 3 is applied when goods are capable of being classifiable under two or more heading. In such cases, the classification of goods which are put up in sets for retail sale is to be undertaken basis the product providing essential character to the complete set.

6.Considering the industry in which the company operates the goods sold by them shall fall under the ambit of term ‘goods put up in sets for retail sale’. The Indian Customs law does not provide any explanation/ guidance on the said term. Hence, reliance can be placed on the guidance provided by World Customs Organisation (WCO) considering that the entire scheme of customs tariff and classification norrns applicable in India are based on the tariff and principles developed by the World Customs Organisation (WCO).

7.The World Customs Organisation has laid down explanatory notes for construal of all the rules specified under GIR. The said explanatory notes define the term ‘goods put up in sets for retail saleo to mean, goods which:

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