2020 (3) TMI 481 - AAR - GST

Construction service - works contract - Rate of tax on goods supplied under the contract, independent of the Works Contract being executed in the contract. - Applicability of Explanation to Entry No. 234 of Schedule I to Notification No. 01/2017 - Central Tax (Rate) - construction of new 33 / 220 kV Pooling Substation at Badwar, REWA along with associated 220 kV DCDS Transmission line (Route length 3.0 Kms) and associated feeder bay work on total Turnkey basis Applicability of explanation to Entry No. 234 - HELD THAT - The contract is in relation to a Solar Power Plant, which finds mention in Entry No. 234. However, the goods being supplied in the execution of the works contract are not covered in Entry No. 234. The goods being supplied by the applicant are not renewable energy devices or their parts. The relation of the work being done by the applicant and renewable energy is that the electricity being generated by the renewable energy plant is evacuated by the infrastructure erected by the applicant. It is further seen that during the course of the execution of the works contract, the applicant is not supplying any of the items listed in Entry No. 234 - It is pertinent to note that the explanation which provides for splitting the value of the supply into goods and supplies is in Entry No. 234 and not in Entry No. 38. The contention that supply of the goods in Entry No. 234 is essential is further supplanted by the inclusion of the explanation in Entry No. 234. Thus, in case of a Works Contract, the explanation to Entry No. 234 shall apply if and only if, the goods the title in which is/'are being transferred during the execution of Works Contract find a place in Entry No. 234. Works Contract in relation to any of the goods listed in Entry No. 234, where such goods are not part of the Works Contract shall not merit taxation under Entry No. 234. Rate of tax on goods supplied under the contract - HELD THAT - T he contract identifies the goods that form part of the works contract and goods that form part of supply as goods and not as part of a works contract. Also, unless the goods being supplied are part of contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property, they shall not form part of Entry No. 38 and it is explicitly clear in the contract, where the goods are part of the construction activity and otherwise. The work related to supply of goods, civil construction and erection are clearly delineated in the contract. In the supply of equipment for Sub-Station and transmission line, transfer of property is not in the execution of a works contract, but during the course of Erection Testing and Commissioning, as well as in the execution of the Civil Construction work, there is transfer of title in goods during the course of the execution of the contract. Therefore, in the supply of equipment for Sub-Station and transmission line, the supply is that of goods and accordingly the rates given in Notification No. 1/2017 - Central Tax (Rate) and corresponding notifications issued under MPGST Act shall apply. Further in the case of Erection Testing and Commissioning, as well as in Civil Work for Substation, the supply shall be taxed as service and rates applicable to a Works Contract shall apply.

Summary

Issues Involved:

1. Applicability of explanation to Entry No. 234 of Schedule I to Notification No. 01/2017 - Central Tax (Rate) for the construction of a 33/220 kV Pooling Substation and associated works.
2. Taxability of goods supplied under the contract independent of the Works Contract being executed.

Issue-wise Detailed Analysis:

1. Applicability of explanation to Entry No. 234 of Schedule I to Notification No. 01/2017 - Central Tax (Rate):

The applicant, M/s Vihan Enterprises, engaged in the construction of a 33/220 kV Pooling Substation at Badwar, Rewa, under a turnkey contract, questioned whether the explanation to Entry No. 234 of Schedule I to Notification No. 01/2017 - Central Tax (Rate) applies to their project. The concerned officer opined that the explanation to Entry No. 234 does not apply to the supply of the said Works Contract Service.

The applicant argued that their contract involves the supply of goods and services, and they believed that the explanation in Entry No. 234 is not applicable to their supplies. They emphasized that the goods supplied under their contract do not fall under the items listed in Entry No. 234, which include bio-gas plants, solar power-based devices, solar power generating systems, wind mills, waste-to-energy plants, solar lanterns, and ocean wave energy devices.

The Authority for Advance Ruling (AAR) analyzed the provisions and found that the explanation to Entry No. 234 applies only when the goods listed in Entry No. 234 are supplied along with services specified in Entry No. 38. The contract in question involves the construction of infrastructure for the evacuation of power generated by renewable energy plants, but it does not include the supply of renewable energy devices or their parts listed in Entry No. 234. Therefore, the explanation to Entry No. 234 does not apply to the applicant's contract.

2. Taxability of goods supplied under the contract independent of the Works Contract being executed:

The applicant's contract is a Turnkey Contract with distinct parts, where the value of each activity is clearly defined and segregated. The contract includes the supply of equipment for Sub-Stations and Transmission Lines, Erection Testing and Commissioning, and Civil Work for Substations and Feeder Bays.

The AAR observed that the contract identifies goods that form part of the works contract and those that do not. The supply of equipment for Sub-Stations and Transmission Lines is not considered part of the works contract, while the supply of goods during Erection Testing and Commissioning and Civil Work for Substations is considered part of the works contract.

The AAR concluded that the supply of equipment and materials for Sub-Stations, Feeder Bays, and Transmission Lines under the contract should not be included in the value of the Works Contract for Civil Work for Substations and Feeder Bays. The supply of goods independent of the works contract should be taxed at the rates applicable to the goods, while the supply of goods as part of the works contract should be taxed as service.

Ruling:

1. The explanation to Entry No. 234 of Notification No. 1/2017 - Central Tax (Rate) does not apply to the supply of works contract service in the construction of the 33/220 kV Pooling Substation at Badwar, Rewa.
2. Goods supplied under a Turnkey Contract, where there are multiple independent contracts, should not be included in the value of the works contract unless such supply is part of and made in the execution of a works contract.
3. The supply of equipment and materials for Sub-Stations, Feeder Bays, and Transmission Lines under the contract should not be included in the value of the works contract for Civil Work for Substations and Feeder Bays.

This ruling is valid subject to the provisions under section 103(2) until declared void under Section 104(1) of the GST Act.