2020 (4) TMI 667 - AAAR - GST

Exemption form CGST and SGST - GTA services - transportation activities - composite contracts or not - divisibility of contracts - freight charges recovered by the Appellant under the contract from the customer without issuance of consignment note - Serial no. 18 of Notification no. 12/2017-Central Tax Rate F. No. 334/1/2017 dated 28 June 2017 - Serial no. 18 in Notification no. 12/2017-State Tax (Rate) no. MGST 1017/C.R.103(11)/ Taxation-1 dated 29 June 2017 - Challenge to AAR decision. The appellant has entered into separate contracts for supply of goods and supply of services and the same does not constitute a composite supply - HELD THAT - After going through the terms of contracts it is seen that though there are two contracts one for supply of goods and other for supply of services in fact these two contracts are not separate or independent contracts as envisaged by the appellant but are parts of the one whole contract which are separated by the appellant for the reason known to him - All the contracts are interdependent. Further the contracts are covered by the cross fall breach clause which means breach of one will be deemed as breach of other. The work of Taking Over/Time for Completion of the project and handing over to the Employer upon successful completion is to be completed within 38 months. From the terms of the contract it is crystal clear that the transportation services provided by appellant which are the part of Fifth service contract is not only integrally connected with Third contract of supply of goods but it is also connected with the other contracts (First Second Fourth and Sixth contracts) which are performed by the JV partners other than the appellant - The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant and the execution of turnkey project. The function relating to the supply of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection testing and commissioning of the project. The supply of the goods and the supply of services are inextricably linked with each other. The contract awarded in substance and essence is a composite contract as defined in section 2 (30) of the C.G.S.T. Act 2017 for supply of goods and services - The entire transaction of providing the goods and the services is naturally bundled and hence this is clearly a case of composite supply of goods and supply of services. Another contention made by the appellant is that the Contracts entered into by the Appellant are not composite supply of services as work contract and Services provided by the Appellant are not in relation to immovable property - HELD THAT - It is seen from the nature of contract which envisages installation which involves civil works to erect the structure for execution of the project in its entirety. It is an entire system comprising of a variety of different structures which are installed after a lot of prior work which involves detailed designing ground work. Appellant has also submitted few photographs of the project which clearly shows that the structure is attached to the earth with the help of civil work. The photographs indicate the magnitude of the work done. Further foundations in cement concrete cement concrete walls as well as cement concrete structures are constructed during the execution of the project. The mode of annexation shows that the groundwork being the necessary foundation is an important part of the project. The object of annexation as said earlier cannot be to make it movable from one place to the other - Hence considering the scope of the work and the facts revealed by the photographs it can be very well said that completion of the installation erection of the total project is resulting into immovable property. Hence the total project assigned to the appellant is nothing but composite supply of works contract as envisaged u/s 2 (119) of GST Act. Applicability of decision in the Advance Ruling in the case of IN RE M/S. NR ENERGY SOLUTIONS INDIA PVT. LTD. 2019 (6) TMI 1171 - AUTHORITY FOR ADVANCE RULING MAHARASHTRA - HELD THAT - From the order of the Advance Ruling Authority in case of M/s. NR Energy Solutions India Pvt. Ltd. it can be seen that the terms of the contract are limited to supply and installation of Relay Protection Panels and Substation Automation System SAS) which is a small part of system compare to the whole contract awarded to appellant. The appellant cannot equate the contract of supply and installation of certain part of the system with the whole contract in the present case of on-shore and off-shore supply of goods and services for complete execution of 320KV 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur - Hence ratio of advance ruling in case of M/s. NR Energy Solutions India Pvt. Ltd. is not applicable to present case. The agreement for setting up for 320KV 2 X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh Chhattisgarh) and Southern region (Pugalur Tamil Nadu-North Trichur Kerala) is a composite works contract as defined u/s 2(119) of GST Act and taxable @ 18% and hence Transportation services provided by the appellant being part of the whole works contract will be taxable @ 18% as works contract services and will not be eligible for the exemption as provided in Serial no. 18 of the Notification No. 12/2017-Central Tax (Rate) dated the 28th June 2017 and Notification No. 12/2017-State Tax (Rate) dated the 29th June 2017. Order passed by the Advance Ruling upheld.

Summary

Issues Involved:
1. Applicability of exemption from CGST and SGST on freight charges recovered without issuance of consignment note.
2. Whether the contracts entered into by the Appellant constitute a composite supply.
3. Whether the services provided by the Appellant are in relation to immovable property and qualify as works contract services.

Issue-wise Detailed Analysis:

1. Applicability of exemption from CGST and SGST on freight charges recovered without issuance of consignment note:
The Appellant argued that the freight charges recovered from the customer without issuing a consignment note should be exempt from CGST and SGST under Notification No. 12/2017. They contended that since they did not issue consignment notes, they did not qualify as a Goods Transport Agency (GTA) and thus were eligible for the exemption. However, the Appellate Authority observed that the freight charges were part of a single composite contract involving supply and services, making the exemption inapplicable. The Authority emphasized that the services were naturally bundled and part of an indivisible composite supply, thus taxable as a whole.

2. Whether the contracts entered into by the Appellant constitute a composite supply:
The Appellant maintained that the contracts for supply of goods and services were separate and distinct, with different scopes of work, considerations, and invoices. They argued that the transportation services were independent and should not be treated as part of a composite supply. However, the Authority noted that the contracts were interdependent and naturally bundled, forming a composite supply. The contracts were linked by a cross fall breach clause, indicating that any breach in one contract would affect the others. The Authority concluded that the supply of goods and services were inextricably linked, and thus constituted a composite supply under Section 2(30) of the CGST Act.

3. Whether the services provided by the Appellant are in relation to immovable property and qualify as works contract services:
The Appellant contended that the goods supplied were not permanently attached to the earth and could be removed, thus not qualifying as immovable property. They argued that the services provided did not constitute a works contract. However, the Authority examined the nature of the contracts and the execution of the project, including the civil works involved. It was observed that the entire setup was intended to be permanent and not movable. The Authority referred to various judicial pronouncements and concluded that the project resulted in immovable property. Hence, the contracts were deemed to be a composite supply of works contract services, taxable at 18%.

Conclusion:
The Appellate Authority upheld the Advance Ruling Authority's decision, confirming that the transportation services provided by the Appellant were part of a composite works contract and taxable at 18%. The exemption under Notification No. 12/2017 was not applicable, and the contracts were considered as a single indivisible contract for the supply of goods and services, resulting in immovable property.