The Daman and Diu bench of the Appellate Authority for Advance Ruling ( AAAR ) has upheld the order of AAR and held that 18% GST applicable on printing of Pamphlet & Leaflet falls under category of supply of service

The appellant, M/s. Temple Packaging Pvt. Ltd is engaged in the activity of printing leaflets falling under CHS No. 4901. The said product is manufactured out of the inputs namely paper/ink owned by the appellants and content supplied by the clients mainly located in the pharmaceutical sector. The leaflets manufactured by the appellants are sold to the clients on agreed consideration which is entirely based on the manufacturing expenses incurred by the appellants by using inputs owned by the appellants. Under Central Excise regime they cleared the same as excisable goods under CHS No. 4901 as exempted being chargeable to NIL tariff rate, they migrated to GST regime with effect from July 2017 and started supplying the same as supply of goods on payment of 5% GST levied at Sr. 201 of Schedule-I of Notification no. 1/2017-CT(Rate).

The Delegation of the federation of Master Printers, to which the appellant is a member met with the officials in Ministry of Finance in New Delhi on 21.07.2017 to seek clarification on GST rates applicable to various printed products and during the course of meeting it was made to understand that when the printed products are made by using content supplied by the customer, then it will have to be classified under the category of service and will fall under the SAC 9988. In view of the clarification provided by the federation most of the members started clearing the goods under the category of service instead of goods and the appellant also started clearing the goods under the category of service SAC no. 9989 by paying 18% GST.

Due to the ambiguity after the vide circulars of CBIC on 11 /11/2017 and 27/01/2018 divergent practice was prevailing in the industry where some of the manufacturers cleared it as goods on payment of 5% GST under CHS 4901 and some of the manufacturers cleared it under the category of goods on payment of 12% GST under CHS 4911 to avoid risk of recovery of differential amount of GST at later stage. The appellants are engaged in supplying printed leaflets to customers located in SEZ and also in physical export/deemed export against EPCG/advance license. While affecting zero rated supply to SEZ units or against own EPCG license the appellants were facing difficulty to account for against export obligation as they needed to fulfill the export obligation by delivering as goods under CHS No. 4901. Because of this uncertainty regarding taxability on supply of leaflets, the appellant preferred an application before the Advance Ruling Authority seeking clarification on that the printed leaflet supplied by the applicant falls under the category of supply of goods falling under CHS No. 4901 and not as a supply of service under SAC No. 9899.

The AAR passed an order stating that printing of Pamphlet and leaflet falls under the category of supply of service falling under SAC No. 9989 and attracts 18% GST. Aggrieved by the view of AAR, the appellant approached AAAR.

While upholding the order pronounced by the AAR the Coram of Ms. Seema Arora. Member (Central Tax) and Shri Gaurav Singh Rajawat, Member (State Tax), held that “the supply made by the applicant is a composite supply, the same has also be accepted by the appellant in their grounds of appeal. Now as per Section 8(a) the taxability in the case of composite supply comprising two or more supplies, one of which is a principal supply shall be treated as a supply of such principal supply. Thus ascertaining as to what constitutes a Principal supply plays a determining role in classification of the supply”.

It was further held by the authority that “the contention of the appellant is mainly based on the argument that Para no. 4 of Circular No.11/11/2017-GST, deals with the items books, pamphlets, brochures, annual reports whereas their product is a leaflet, which is different from these items, they have further argued that their case is covered by Para No. 5 of the circular which is for products of Chapter no. 48 and 49, other than publishing matters. From the careful reading of the circular, it is observed that Para no. 4 covers those items or goods which in itself may not be of any use to the client in absence of the content/instruction printed on it. The client approaches the supplier (the appellant) not for the purchase of a piece of paper i.e., a leaflet but for getting the content/instruction printed on the paper or a leaflet, the utility of the leaflet for the client is that of a medium for conveying the message and instruction which is mandatory in the pharmaceutical sector, the leaflet is not used in the pharmaceutical industry as a goods or inputs but only as a medium of instruction. These instructions can generally be conveyed through a virtual medium (intangible) or through a leaflet (tangible). In the pharmaceutical industry such content/instruction which are mandatory, cannot be attested with the medicine through a virtual medium and hence the leaflets have to be made available with the medicines. The buyers of the medicine are not interested in the piece of paper but the instructions mentioned in it. It would be fair to say that the client of the appellant would never accept the leaflet if the content as provided by them is not properly and correctly printed. It is also the fact that the content/instruction is the property of the client and therefore would obviously be holding the right over it. Hence the dominance in this case is of the content/instruction and not of the paper (leaflet). The argument of the appellant is that the circular mentions only books, pamphlets. Brochures annual reports and not a leaflet is not convincing as the content of the circular clearly suggests that items mentioned therein is not an exhaustive list but an indicative list, this can be observed from the fact that the term “and the like” has been used after mentioning the items. The dominance in the items mentioned in Para no. 4 is of the printing of content/instruction. In case Para no: 5 the dominance is not of the leaflet but of the printing, the argument of the appellant to find a shelter under Para no. 5 is very feeble and devoid of any logic and therefore not acceptable”.

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