Sec 2(90) – Principal supply

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Sec 2(90) – Principal supply 2017-04-14T03:43:55+00:00
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    #1306 |

    “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;

    Priya MadrechaPriya Madrecha
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    The concept of ‘a principal supply’ emerges only for determining whether a supply is a composite supply or not, and where it is a composite supply, the rate of tax applicable for the composite supply.
    Principal supply recognises two or more supplies, and arranges them in a two-step hierarchy – a single predominant supply and the ancillary supply(ies).
    (a)    Supply of laptop and a carry case – In this case, the case only adds value to the supply of laptop and therefore, the case would be ancillary while the laptop comprises the predominant element of the supply. Even where the brand of the case is not the same as that of the laptop, and the supplier can establish that the case is naturally bundled with the laptop in the ordinary course of his business, the supply can be treated as a composite supply.
    (b)    Supply of equipment and installation/ commissioning of the same – While the recipient actually purchases the equipment, making the equipment the principal supply, the installation makes the equipment usable by the recipient. Even if there is a separate charge for the installation of the equipment, since the service is naturally bundled and Provided in the ordinary course of business, the supply would be a composite supply.
    (c)    Supply of repair services of laptop with parts – As such, it is the skill and expertise of the supplier that makes the laptop function as desired. Whether replacement is necessary or a mere resetting of the existing parts restores the functionality of the laptop is not known to the customer. Where the object of the contract is unknown to the customer, that object cannot be the purpose of the contract. The only object that is known to the customer is the ‘repair service’ which makes it the predominant object of supply. This would be the position even if the cost of the parts replaced is higher than the cost of service. However, this theory can apply only where such a replacement is done in the ordinary course of the business of repairing laptops, and such a replacement is naturally bundled with the repair service.

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