Maharashtra authority calls maintenance contracts a service


NEW DELHI: Giving clarity on goods and services tax (GST) to those providing annual maintenance contracts (AMCs) for several items, including white goods and electronic products, the Maharashtra Authority for Advance Ruling (AAR) has said that AMCs are a “composite supply” and classified them as service.

The issue, raised by Cummins India — which provided AMCs for diesel and natural gas engines sold by it — was the tax classification of the maintenance contract as it entailed provision of service and supply of parts, which are goods. The ruling will help get clarity on the tax rate for goods that may be supplied under the contract.

“This is an important ruling, which clearly and rightly states that the predominant intention of an AMC contract is to receive upkeep services and not replacement of any faulty parts, thus the tax rate of service being provided should be applied,” said Harpreet Singh, partner for indirect taxes at consulting firm KPMG. He added the ruling will provide relief and clarity on taxation of AMCs for air-conditioners, washing machines, handsets, imaging machines and several other sectors.

The AAR held that AMCs are a “composite supply” like booking a hotel room along with meals, as the customer is paying the price for only one item. The GST law states that multiple supplies qualify as a composite supply, as only one price is being recovered and tax rate of the “principal supply” should be applied. In this case, the AAR said that “principal supply” was a service.

“It is submitted that the main object of the contract is to supply services and making available of parts/ components is ancillary to the same. Consequently, the principal supply of the transaction is ‘service’,” it said. The ruling will be applicable to all states unless the AAR in another state interprets it differently.


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