2024 (7) TMI 980 - AAR - GST

Applicability of N/N. 66/2017 on turnkey contract - levy of GST on advance received against supply portion in Turnkey contract - divisible contract or not - Identification of rates for supply and service separately under single contract can be read as divisible contract. Divisible contract or not - HELD THAT - The recipient has not contracted for ex-factory supply of materials, but for the composite supply, namely works contract service tor supply, installation, testing and commissioning of 11 KV medium voltage covered conductor (MVCC) with its accessories. A bifurcation of the turnkey contract into two further contracts as part-I and part-II, would not change the classification. The contract, being a turnkey contract, both of which are interlinked interdependent to performance as is evident from article 5, leads to the conclusion that the turnkey contract entered by the applicant with the PGVCL, is a works contract as defined u/s 2(1 19) supra. Further, there is nothing on record cither in the application or in the additional submission averring that the supply, installation testing commissioning of 11 KV medium voltage covered conductor (MVCC) with its accessories, is not an immovable property. The contract entered into by the applicant with PGVCL is also not a divisible contract, notwithstanding the fact that the turnkey contract, constitutes two different contract, entered on the same day, the performance of which is interconnected, interdependent wherein the obligations cast in part-II clearly slate that his performance in part-I is interconnected to his performance in part-II vice versa. Whether GST is payable on advance received and whether the notification no. 66/2017-CT dated 15.11.2017 is applicable for turnkey contract? - HELD THAT - CGST Act, 2017 clearly states that a works contract in terms of schedule II, is to be treated as supply of service. Now, N/N. 66/2017-CT dated 15.11.2017, relied upon by the applicant states that a registered person, shall pay the central tax on the outward supply of goods at the time of supply as specified in section 12 (2) (a) of CGST Act, 2017 including in the situations attracting the provisions of section 14 of the said Act - GST is payable on advance received by the applicant and the benefit of notification no. 66/2017-CT dated 15.1 1.2017 is not applicable in respect of the turnkey contract entered into by the applicant.

Summary

Issues Involved:
1. Applicability of Notification No. 66/2017-CT dated 15.11.2017 for a turnkey contract.
2. GST liability on advance received against the supply portion in a turnkey contract.
3. Classification of the contract as a divisible contract.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 66/2017-CT dated 15.11.2017 for a turnkey contract:
The applicant contended that Notification No. 66/2017-CT exempts payment of GST at the time of receipt of advances for goods. However, the authority held that the contract is a works contract as defined under Section 2(119) of the CGST Act, 2017. The contract involves supply, installation, testing, and commissioning of 11 KV Medium Voltage Covered Conductor (MVCC) with its accessories, which is a composite supply of goods and services. The notification applies only to the supply of goods, not services. Therefore, the benefit of Notification No. 66/2017-CT does not apply to the turnkey contract, which is classified as a works contract.

2. GST liability on advance received against the supply portion in a turnkey contract:
The applicant argued that no GST is payable on advances received against the supply portion due to the notification mentioned above. However, since the turnkey contract is classified as a works contract, it falls under the purview of Schedule II of the CGST Act, 2017, which treats works contracts as a supply of services. Consequently, the applicant is liable to pay GST on the advance received against the supply portion of the turnkey contract.

3. Classification of the contract as a divisible contract:
The applicant claimed that the contract is divisible into two parts: supply of plant (Part-I) and supply of installation services (Part-II). Despite the bifurcation of monetary values for goods and services, the authority concluded that the contract is indivisible. The supply of goods and their installation are interdependent and interconnected, making it a single works contract. The authority referenced the Supreme Court's judgment in M/s. Kone Elevator India Pvt. Ltd., which emphasized that a works contract is indivisible and includes both supply of goods and services. Therefore, the turnkey contract cannot be considered a divisible contract.

Ruling:
1. Notification No. 66/2017-CT dated 15.11.2017 is not applicable to the turnkey contract as it is classified as a works contract.
2. GST is payable on advance received against the supply portion of the turnkey contract.
3. The turnkey contract cannot be considered a divisible contract.

The judgment comprehensively addresses the issues raised by the applicant, emphasizing the indivisible nature of the works contract and the consequent GST implications.