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Composite supply-gst

HEMANTH RANKA (Tax & Financial Consultants) (360 Points)

02 July 2018

Whether Royalty charged in respect of any product stands as individual supply or is a composite supply of the principal goods.

Actually on purchase of Iron Ore Fines, Royalty is collected and the supplier is charges 18% gst on royalty and 5% on Iron Ore. My contention is Royalty is a party of composite supply and the whole supply should attaract 5% GST.

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4 Replies

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 02 July 2018

Is it a usual practice in industry to collect royalty along with sale value on sale of iron ores?

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HEMANTH RANKA (Tax & Financial Consultants) (360 Points)
Replied 02 July 2018

I can't take a strict stand on whether it is a usual practice or not. I am not sure whether the royalty collect is on behalf of the goverment or under an agreement with the party.

I request you to give the suggestion on the basis of the information provided.

Thank you

CA Shivam Arora (Chartered Accountant) (2414 Points)
Replied 02 July 2018

As far as I understand, royalty is paid to govt. for exploration of natural resources i.e. consideration for service.

Whereas the other payment is for purchase of goods(iron ore) i.e. consideration for goods.

Both are different transaction and hence different rate of tax being charged.

I also hope that different bill being raised for both the above mentioned transactions.

HEMANTH RANKA (Tax & Financial Consultants) (360 Points)
Replied 04 July 2018

Thank you for your reply sir,

They are issuing a consolidated invoice & they are not issuing separate invoices for IronOre and Royalty.

Further I want you to consider some other points also:

1. Payment of royalty only arises when the iron ore is explored, hence royalty and iron ore becomes composite supply.

2. Value of supply includes any tax, cess etc collected.

In the view of the above I feel it is a composite supply and it should be subjected to single rate of tax or Iron Ore. Please provide your inputs sir.

Thank you