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"Analysis of Composite Transactions under Negative List Regime"


Nature of Transactions


Transactions can be classified as a) Transfer of title in goods (sale) or immovable property b) Service c) Manufacture.


However in practical life we come across transactions which have both, transfer of title and service as ingredients.


  • Transaction involving two distinct transactions: Sales and Installation of equipment are treated separately even if single invoice issued.


  • Composite transactions: Both sales and service are so linked that they cannot be segregated, then “dominant nature test is applied.


Dominant Nature Test


Principles emanating from BSNL vs. UOI-2006 (SC)

  • Works contract and Catering contracts can be vivisected in sales and service.
  • Transactions other than above cannot be split in sales and service.
  • If dominant nature is sale of goods or immovable property then the transaction is treated as such. Purchase of TV with home delivery
  • If dominant nature is provision of service then it is taxed as service for eg. Photocopy, photography.


Treatment of goods under New Tax Regime

  • Notification no. 12/2003-ST: Exempting sale of goods during provision of service: Deleted
  • Definition of service excludes Transfer in title of goods or immovable property
  • Service further excludes “Deemed Sale” under clause 366(29A) of Constitution
  • Only Service portion of works contract is taxable as service.