A.K.JAYASANKARAN NAMBIAR,J. - (1.)The petitioner herein is a company incorporated under the Companies Act, 1956, having its registered office in Mumbai. It is engaged inter alia in the sale of pharmaceutical products, diagnostic kits etc. and it is registered under the Goods and Services Tax Act in the State of Kerala. It is the case of the petitioner in the writ petition that as per the business model operated by it in the State of Kerala, it places its diagnostic instruments at the premises of unrelated hospitals, laboratories etc. for their use for a specified period without any consideration. The petitioner also enters into Reagent Supply and Instrument Use Agreements with various hospitals, laboratories etc, whereunder, the arrangement between the parties is for the supply of medical instruments to the hospital/laboratory concerned, for their use, without any consideration for a specified period and for the supply of specified quantities of reagents, calibrators, disposables etc. at the prices specified in the agreement, through its distributors on payment of applicable GST. It is stated that, as per the agreement, while the supply of instruments is by the petitioner, the supply of reagents, calibrators and disposables are effected by its distributor,
who purchases the said products from the petitioner on principal to principal basis. When the distributor supplies the reagents, calibrators and disposables to the hospitals/laboratories concerned, the distributor discharges the applicable GST on the price charged for supply of the said products. In other words, there is no direct sale/supply of the reagents, calibrators and disposables by the petitioner to the hospitals/laboratories in question. It is also stated that the value of instruments placed at the premises of the hospitals/laboratories compared to the total turnover of supply of reagents, calibrators and disposables by the distributor over the contract period, is small and would only be around 20% of the turnover of supply of reagents, calibrators etc. The agreement entered into between the parties also contains a clause which provides that if the hospital fails to purchase specified minimum quantum of reagents, calibrators etc., then the petitioner is entitled to recover from the hospital an amount equal to the deficit in the actual purchases, vis-a-vis, the minimum purchase stipulated under the contract.

(2.)It would appear that when a consignment of instruments was being transported to a laboratory without any consideration, pursuant to the agreement entered into between the parties, the same was seized by the Assistant State Tax Officer, Kozhikode, on the ground that the goods were not accompanied with a tax invoice but were being transported under a delivery challan. Although the detained goods were subsequently released consequent to the petitioner furnishing a bank guarantee and a bond as provided under the CGST Act and Rules, the petitioner thought it appropriate to obtain an Advance Ruling from the Authority for Advance Ruling [hereinafter referred to as the "AAR"], the 5th respondent herein, on the following question:
"Whether in the facts of the present case, the provision of specified medical instruments by the Applicant to unrelated parties like hospital(s), Lab (s), for use without any consideration, constitutes a "supply" or whether it constitutes "movement of goods otherwise than by way of supply" as per provisions of the CGST/SGST Act, 2017?"

The AAR, by Ext.P2 order dated 26.09.2018, held that the placement of specified medical instruments to unrelated customers like hospitals, laboratories etc., for their use without any consideration, in the backdrop of an agreement containing minimum purchase obligation of products like reagents, calibrators, disposables etc. for a specified period constituted a "composite supply". It thereafter found that the principal supply in the said composite supply was of the transfer of right to use goods for any purpose which was liable to GST under Sl.No.17(iii) - Heading 9973 of Notification No.11/2017 Central Tax (Rate) dated 28.06.2017. As a consequence of the said Ruling, the supply of reagents, calibrators, disposables etc., which is otherwise taxable @ 5% [2.5% CGST + 2.5% SGST], became taxable at the rate of tax applicable to the instruments, namely, 18% [9% CGST + 9% SGST].

(3.)Aggrieved by the said order of the AAR, the petitioner preferred an appeal before the Appellate Authority, the 6 th respondent in the writ petition. The said appeal, however, was rejected by the 6 th respondent, who confirmed the order of the AAR, by Ext.P1 order. In the writ petition, Exts.P1 and P2 orders are impugned inter alia on the contention that, while the 5th and 6th respondents erred in rendering a finding as regards composite supply, when the said query was not raised before them for clarification, the said finding itself was illegal and against the provisions of the CGST/SGST Act.