HP India GST Case (2019) – AAAR Maharashtra Ruling on Composite vs. Mixed Supply

HP India GST Case: The classification of supplies under GST as composite supply or mixed supply has been a recurring issue for businesses dealing with bundled products and services. The distinction is critical:

• Composite supply is taxed at the rate of the principal supply.
• Mixed supply is taxed at the highest rate applicable to any item in the bundle.

In the case of In Re: M/s HP India Sales Pvt. Ltd. [2019 (8) TMI 30 – AAAR, Maharashtra], the dispute revolved around whether the supply of ElectroInk along with consumables used in HP Indigo printers should be treated as a composite supply (principal supply = ink) or a mixed supply (all items taxed equally).

Facts of the HP India GST Case

• Assessee: HP India Sales Pvt. Ltd. (“HP India”), engaged in supplying HP Indigo printers and related consumables.
• Business Model:
  1. Printers sold upfront to resellers/customers.
  2. ElectroInk and consumables (oil, binary ink developer, blanket, print imaging plate, etc.) supplied for continued functioning of printers.
  3. Spare parts supplied to resellers for maintenance services.
• Supply Process:
  • ElectroInk and consumables imported, cleared on payment of customs duty + IGST, stored at Maharashtra warehouse.
  • Resellers appointed across India to supply goods to customers.
  • Supplies remained HP India’s property until customers used them for printing.
• AAR Maharashtra Ruling:
  • Held that the supply of ElectroInk with consumables constituted a mixed supply, not composite supply.
  • Reason: Items were not naturally bundled, could be supplied independently, and did not depend on each other.
• HP India appealed before AAAR Maharashtra.

Point of Dispute

Whether the supply of ElectroInk along with consumables (binary ink developer, blanket, plates, etc.) should be classified as:

• Composite supply with ElectroInk as the principal supply, or
• Mixed supply taxable at the highest GST rate applicable.

Submissions by the Assessee

• The predominant element in the supply bundle is ElectroInk.
• Other consumables are supportive in nature, ensuring proper use of ink.
• Without ElectroInk, consumables have no standalone value; hence, they are naturally bundled.
• Supply pattern, based on “per click” consumption cycle, indicates that the principal supply is ink, making it a composite supply.

Findings of the AAAR (Maharashtra)

The Appellate Authority rejected the assessee’s arguments and upheld AAR’s view:

1. Composite supply definition: Requires two or more supplies that are naturally bundled in the ordinary course of business, one being the principal supply.
2. Not naturally bundled: Printing requires all products (ink + consumables). Each product is equally essential; no principal supply exists.
3. No industry practice shown: HP India failed to prove that such bundled supply is an industry-wide practice. Simply offering customers a tiered program does not establish natural bundling.

Held:

• Supply of ElectroInk with consumables does not qualify as composite supply.
• It is treated as mixed supply, taxable at the highest GST rate applicable to any bundled item.

Practical Impact on Businesses

• Higher tax liability: Mixed supply attracts the highest rate among bundled items, increasing GST burden.
• Industry practice critical: To qualify as composite supply, taxpayers must show natural bundling in industry practice.
• Documentation importance: Agreements and invoicing must clearly establish the principal supply if composite supply treatment is intended.
• Risk for bundled supply models: Companies selling machines + consumables or software + support must carefully evaluate GST classification.

Key Takeaways

1. Composite supply requires natural bundling – not just a business design but also recognition in industry practice.
2. Mixed supply = higher tax rate – businesses must assess GST impact while structuring bundled offers.
3. Burden of proof on taxpayer – failure to demonstrate industry practice and predominant supply leads to mixed supply classification.
4. Consumables treated equally important – where multiple items are essential, no principal supply exists.

Why This Case Matters

The HP India ruling is a significant precedent for businesses offering machines bundled with consumables or ancillary items. It clarifies that simply labeling one item as “principal supply” does not make a bundle composite.

For industries like printing, electronics, pharma, and IT, this ruling highlights the importance of:

• Structuring contracts carefully
• Evidencing industry practices
• Aligning invoicing and pricing to reflect composite supply

Failure to do so could result in classification as mixed supply, leading to higher GST outflow and compliance risks.