High Court set foot in the conclusion made by the Kerala based Authority for Advance Ruling (AAR) to weed away the argumentative confusions related to composite supply under the GST regime.
Experts assume that the ruling will become guidelines to conclude the cases associated with composite litigation.
The case is related to Abbott HealthCare which supplies medical equipment to hospitals & labs to be used without consideration on agreement basis that was signed between Abbott HealthCare and hospitals & labs.
By the same token, these hospitals & labs acquire a certain quantity of pharmaceuticals goods like disposals, reagents, calibrators, etc from the distributors of Abbott Health Care for consideration until the agreement gets terminated.
The confusion ensued when it was to be decided as to how much GST rate should be applied to this supply as the GST rate to be applied on medical equipment 
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and that on medicines & drugs differs from each other.
Medical equipment attracts GST at the rate of 18%, whereas, drugs & medicines draws GST at the rate of 5%.
The case proceeded to Kerala-based Authority of Advance Ruling (AAR) which concluded this supply of equipment and goods as composite supply.
It ruled that medical equipment is the principal supply and medicines are just incidental and so the higher rate of 18% GST applies to the supply.
Niraj Bagri, partner at Dhruva Advisors claimed that it is quite common that tax department picks up that supply which draws higher GST and intentionally labels it as the principal supply to levy higher rate of tax whenever it is a case of composite supply.
When one company supplies more than one good or service, such goods or services can be mixed together and such supply can be termed as composite supply under the GST regime.
In such cases, the GST rate applicable to the principal supply levies to the complete supply of goods or services. In other cases, different GST rates apply to each transaction individually.
Unconetnded with Kerala based AAR’s ruling, the company took the case to the High Court for the higher level of judgement where the AAR’s ruling to call the supply as composite supply was questioned by the High Court.
High Court held out for this by underlining the presence of two suppliers and absence of one supplier carrying out both the supplies. Further, the non-conclusion of the supply of equipment without consideration as a taxable supply was also pointed.
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Also, the HC said when there is a case of two supplies, the valuation is based on the inclusion of the value of the equipment in the value of reagent to call it as a composite supply.
Another AAR ruling that was challenged by HC was the labelling of medical products supply as incidental to that of medical equipment. HC put the screws to the basis of defining a supply incidental to the other by the AAR.
HC said that the company’s historical pattern and standard of doing transactions are delved into to conclude a transaction as incidental to the other. After making such conclusions, the HC transferred the case back to the AAR.
“The issue of composite supply is one of the biggest sources of litigation. The high court provided guiding principles of how composite supply could be defined,” Bagri said. Companies can cite these principles while arguing similar cases in AAR, he added.
