Which HSN/SAC code is applicable in the invoice for an order “Supply and placement of mural art in our office building”? The work of art is made of different materials such as wood, metal, ply boards. The art work is done at the artisr’s studio and after completion it is installed on the wall of the office building. If it was only “Supply of art work” then the HSN Code would have been 9730. But the order is for “Supply and placement”. In this case what will be the HSN/SAC Code and what will be the tax rate?
This is a case of WORKS CONTRACT under Composite Supply. A composite supply is comprised of two or more supplies (of goods or of services or of both) which are naturally bundled. In the case of Composite Supply, the whole shall be treated as a supply of principal supply and tax shall be paid according to GST rate applicable on principal supply. It means Rate & HSN/SAC of Principal supply shall be applicable for whole supply.
Supply of art work comes under chapter 97 with HSN 9703 (rate 12%) (Original sculptures and statuary, in any material) and placement of artwork involving some construction activities comes under SAC 9954 (rate 18%). But In your case principal supply is supply of art work and placement of artwork is naturally bundled with it. Hence as per GST law, the whole supply will be taxed at the rate applicable to principal supply. Hence HSN of art work i.e. 9703 may be used for whole supply and may be taxed at 12%.
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Thank you so much for you time and input. You are correct here that the placement/installation of artwork here is minimal. What if the involvement of on site installation is more. Or if the work needs to be done at site instead of at the artists studio just because the finished piece can’t be lifted and carried to the side for risks of damage during transportation. Sometimes we also need to paint directly on the wall.
Thanks once again for your input.
Key point in your question is that “how to determine which one is to be considered as principal supply in case of Composite Supply “. This can be explained as follows:-
In case of composite supply (involving supply of one or more goods or services or both), GST rate and HSN of principal supply is used for whole supply.
Principal supply may be a supply of goods or a supply of service.(As per GST law, supply includes goods as well as services). In composite supply, supplies are naturally bundled and where intention of buyer focused on principal supply but other supplies are naturally bundled with it hence comes together. Hence a Principal Supply is that which is the main requirement or intention of buyer. This can be understood with the help of following examples:-
If I give a servicing contract for 10 photocopier machine installed in our office. It involves Servicing of photocopier and supply of any damaged parts. This is example of Composite supply where servicing of photocopier is principal supply.
In Delhi, I order some machinery parts to be purchased from Mumbai. Freight charges are payable extra to Supplier. This is also a Composite supply which includes supply of spares as well as transportation service. Here Supply of Machinery parts is Principal Supply.
In your case, If you construct the art work at site, where construction material is brought on site and then art work is constructed at site. In such type of work order, intention of buyer is to get art work constructed at site. Hence this is a case of Works Contract where Construction Service is Principal Supply. Hence Construction Service may be considered as Principal Supply and HSN 9954 may be used for whole supply. Generally Construction Services are subject to 18% GST but in some cases like construction relating to historical monuments, archaeological sites, public roads or dams etc GST rate is 12%.
Thank you Mr Ashok Kumar for your valuable inputs without which it would have been really difficult for us to reach any conclusion. Thank you once again.