2023 (12) TMI 890 - AAR - GST

Classification of supply of services - composite supply with principal supply of goods under the Third Contract - supply made by the Applicant under Fifth Contract - supply of services of transportation, freight and insurance under the Fifth Contract provided for the goods supplied - Business Support Services or not. HELD THAT - Having arrived at the considered conclusion that the instant activity of the applicant of construction, erection and commissioning of the said 800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh from Raigarh which includes the services of transportation, insurance and freight, is a composite works contract service classifiable under construction services falling under SAC 9954, attracting GST @18%, there are no reason to discuss the alternate opinion expressed by the applicant of the said service being in the nature of business support services - there exist no grounds whatsoever, in the case in hand warranting exemption as specified under SI. No. 18 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017, which exclusively covers services by way of transportation of goods. Supply of goods under the Third Contract being the principal supply - HELD THAT - Section 7(1 A) of the CGST Act, 2017 read with para 6 (a) of Schedule II to the CGST Act, 2017 stipulates that composite works contracts as defined in section 2(119) of the CGST Act, 2017 shall be treated as supply of services. Thus, when the CGST Act, 2017 itself classifies the instant supply of composite supply of works contract as supply of service , there exist no reason to identify the principal supply in the instant transaction, more so when Notification no. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended prescribes the applicable tax rate in such work contract services. As the supply of services made by the applicant under Fifth Contract relating to construction, erection, civil works, testing, commissioning etc. of the said 800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh which includes the services of transportation, freight, and insurance, has been held to be a composite supply of Works contract, the alternate suggestion put forth by the applicant of the same being Business Support Service is not taken up for decision.

Summary

Issues Involved:
1. Whether the supply of services made by the Applicant under the Fifth Contract is a composite supply with the principal supply of goods under the Third Contract.
2. Whether the supply of services of transportation, freight, and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of Business Support Services and shall be chargeable to tax at specified rates.

Summary:

1. Composite Supply with Principal Supply of Goods:
The applicant, M/s Hitachi Energy India Limited, engaged in the manufacture and supply of electrical equipment, sought an advance ruling on whether the services provided under the Fifth Contract (local transportation, insurance, and other incidental services) are composite supplies with the principal supply of goods under the Third Contract. The Authority examined the contractual obligations and found that the services of transportation, insurance, and freight are not provided in isolation but are linked to the overall execution of the project, which includes the supply of goods. The Authority concluded that these services are naturally bundled with the supply of goods, making it a composite supply with the principal supply being the supply of goods.

2. Nature of Business Support Services:
The applicant also sought a ruling on whether the services under the Fifth Contract could be considered Business Support Services and thus chargeable to tax at specified rates. The Authority analyzed the scope of work under the Fifth Contract, which includes local transportation, insurance, and other incidental services. It was determined that the services provided are part of a composite works contract service, classifiable under construction services falling under SAC 9954, and attract GST at the rate of 18% (CGST @9% + CGGST @9%).

Legal Position and Analysis:
The Authority referred to Section 2(30) of the CGST Act, 2017, which defines composite supply, and concluded that the instant supply is a composite supply. The Authority also highlighted that the contracts are interconnected and indivisible, and any breach in one contract results in a breach of the Fifth Contract, indicating that the services of transportation, insurance, and freight are part of the composite supply of works contract service.

Conclusion:
The supply of services under the Fifth Contract is a composite supply of works contract, classifiable under construction services falling under SAC 9954, attracting GST at 18%. The alternate suggestion of the services being Business Support Services was not taken up for decision, as the composite supply classification was established. The ruling is applicable only to the activities undertaken within the State of Chhattisgarh.