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No GST on machines given under RRC model, i.e, delivered to customers for free & ownership lies with supplier

November 21, 2019[2019] 111 taxmann.com 375 (AAR - KARNATAKA)
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GST : Where applicant, engaged in business of trading of medical diagnostic reagents and diagnostic equipment entered into a Reagent Rental Placement Contracts (RRC) for supply of equipment, reagents, controls and services in conjunction and equipment was supplied on returnable basis, applicant was liable to pay GST on machines/equipments given to customers; and supply of reagents along with machine rental services was a separate supply independent of machine rental services supplied and rate of tax for supply of rental service of equipments was 9 per cent CGST and 9 per cent KGST

GST : Where applicant, engaged in business of trading of medical diagnostic reagents and diagnostic equipment, entered into a other model was Part Reagent Rental Placement Contract (PRC) wherein contract was worded akin to contract in abovesaid RRC model except for fact that an additional upfront non-refundable deposit obtained from end-customer, applicant was not liable to pay GST on machines/equipments given to customers under RRC model; and supply of reagents along with machine rental services was a separate supply independent of machine rental services supplied

• The applicant was engaged in business of trading of medical diagnostic reagents and diagnostic equipment. He also provided services/spares relating to such equipment. The equipment was also supplied in conjunction with supply of reagents on a rental basis. Currently the equipment was given on rental basis to the customers typically under two types of contracts; the Reagent Rental Placement Contracts (RRC) for supply of equipment, reagents, controls and services, in conjunction and equipment was supplied on returnable basis. Though, the RRC agreements entered into with end customers, for sake of trade convenience, the reagents were sold by the applicant to distributors in different states who would in turn sell goods to end-customers.

• The other model was the Part Reagent Rental Placement Contract (PRC) wherein the contract was worded akin to the contract in the above aid RRC model except for fact that an additional upfront non-refundable deposit obtained from the end-customer.

• The applicant had sought advance ruling in respect of the following questions; whether the applicant was liable to pay GST on the machines given to the customers under RRC/PRC models?

• Whether the supply of reagents along with the machine rental and services in a RRC/PRC contract was a separate supply or a mixed supply or composite supply?

• If considered as composite supply, what was principal supply?

• What was the rate of tax for the service of machine under RRC/PRC models?

• What was the value on which GST has to be paid in case of RRC/PRC model and what is the time of supply?

• Whether the applicant was eligible for the input tax credit on the purchase of machinery for use in RRC/PRC contracts?

• The applicant was liable to pay GST on machines/equipments given to the customers under the PRC Model but is not liable to pay GST on the machines/equipments given to the customers under the RRC model.

• The supply of reagents along with the machine rental services in both RRC and PRC contract is a separate supply independent of machine rental services supplied, if any.

• The rate of tax for the supply of rental service of equipments is 9 per cent CGST and 9 per cent KGST.

• The value on which GST has to be paid and the time of supply are a. in case of RRC Model -

i.   For the supply of reagents - at the time of supply of reagents on the transaction value;
ii.   For the supply of services in the nature of 'an act agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' for which a consideration is received - at the time of supply of such services on the transaction value.

• In case of PRC Model;

i.   For the supply of rental services in equipments - at the time of supply of the equipments on the amount of non-refundable payment received or invoiced, ii. for the supply of reagents - at the time of supply of reagents on the transaction value;
ii.   For the supply of services in the nature of 'an act agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act' for which a consideration is received - at the time of supply of such services on the transaction value.
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