2025 (2) TMI 59 - AAR - GST

Levy of GST - contract between the Applicant and IOCL is a divisible contract or a single and composite contract? - whether the component imported goods will be taxable as a supply of goods at the time of importation or as a service at the time of incorporation in the works contract i, e. when the erection commission and installation of goods takes place? - supply of goods at the time of importation in the hands of the recipient / importer and a second time as a component of supply of service in the hands of the supplier of EPC contract service at the time of incorporation of the imported goods in a works contract by way of erection commission and installation - value of goods sold on a high seas can be added to the value of a works contract merely because such duty and IGST paid goods are incorporated in the works contract by way of erection commission and installation or not. Whether the contract is a divisible contract or single and a composite contract? - HELD THAT - The contract entered into by the applicant with IOCL is not a divisible contract notwithstanding the fact that the turnkey contract constitutes two different work orders the performance of which is interconnected and interdependent. Whether the component of imported goods will be taxable at the time of supply at the time of importation or as a service at the time of incorporation in the works contract ie when the erection commission and installation of goods takes place? - HELD THAT - In terms of Schedule III read with section 7 (2) of the CGST Act 2017 supply on HSS basis is treated as neither a supply of goods nor a supply of services. Thus the question of levy of GST on such supply does not arise. Now the taxation of goods post HSS sale to IOCL at the time of importation is not within the jurisdiction of this Authority as it is a matter to be decided by the jurisdictional Customs Authority in terms of Customs Act 1962 and Customs Tariff Act 1975. It is not required to entertain the question it being beyond the jurisdiction of this Authority. What will be included and excluded in the value of supply is governed by sub-sections 15 (2) (3) of the CGST Act 2017. In terms of sub-section 15 (2) ibid the value of supply shall include any amount that the supplier is liable to pay in relation to such supply which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both. The EPC contract encompasses both the supply of goods and services. The applicant in terms of the contract is liable to provide the goods supplied on HSS basis to IOCL and thereafter in terms of the work order these goods are supplied back by to the applicant as Free Issue Materials - the submission that this value is not to be included in the transaction value in respect of works contract service is legally not tenable more so since the applicant is contractually bound/liable to supply both the goods and the services. Therefore in terms of section 15 ibid the value of such imported goods would form a part of the transaction value for payment of GST. Whether the supply of goods can be subjected to GST twice first as supply of goods at the time of importation and secondly as component of supply of service in the hands of the supplier of EPC contract in this case the time of supply in respect of imported goods is when the goods land in the customs frontier? - HELD THAT - The contract entered into by the applicant with IOCL is a turnkey EPC contract which is a composite works contract in terms of section 2 (119) ibid. In terms of Sr. No. 6 of Schedule II such composite works contracts involving transfer of property in goods (whether as goods or in some other form) involved in the execution of the said project is a composite supply in terms of Schedule II would be treated as supply of service and leviable to GST accordingly. Even otherwise there is no bar in adding the value of goods sold on HSS if subsequently the supply undertaken is a composite works contract in view of the findings above. In-fact in view of section 15 of the CGST Act 2017 it is found that the law mandates addition of such value to compute the transaction value. Conclusion - i) The contract between the Applicant and IOCL is a not a divisible contract but a single and composite contract. ii) The component of imported goods will form part of the transaction value for computation of value of works contract service. iii) The value of imported goods will form the part of transaction value for computation of value of works contract service. iv) The value of goods sold on a HSS basis will have to be added to the transaction value for computation of the value of a works contract.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered by the Authority for Advance Ruling, Gujarat, in this case were:

1. Whether the contract between the Applicant (Thyssenkrupp Uhde India Private Limited) and IOCL is a divisible contract or a single and composite contract.

2. If the contract is treated as an indivisible and single composite contract, whether the component of imported goods will be taxable as a supply of goods at the time of importation or as a service at the time of incorporation in the works contract.

3. Whether a supply of goods can be subjected to GST twice, first as a supply of goods at the time of importation and a second time as a component of supply of service at the time of incorporation of the imported goods in a works contract.

4. Whether the value of goods sold on a high seas sale basis can be added to the value of a works contract merely because such duty and IGST paid goods are incorporated in the works contract by way of erection, commission, and installation.

ISSUE-WISE DETAILED ANALYSIS

1. Divisibility of the Contract

Relevant legal framework and precedents: The Court examined the nature of the contract under the CGST Act, 2017, and relevant precedents such as the Kone Elevator India Private Limited case, which clarified the nature of works contracts.

Court's interpretation and reasoning: The Court concluded that the contract was a turnkey EPC contract, which by nature is a composite works contract. The Court emphasized that the contract involved a single point responsibility for design, procurement, construction, and commissioning, making it indivisible.

Key evidence and findings: The work orders and tender documents indicated a single lump sum price for the entire project, reinforcing the composite nature of the contract.

Application of law to facts: The Court applied the definition of "works contract" under section 2(119) of the CGST Act, 2017, which includes contracts for construction and installation involving transfer of property in goods.

Treatment of competing arguments: The applicant argued that the contract was divided into two parts: supply of imported goods and services. However, the Court found that the contract's composite nature could not be altered by separate work orders.

Conclusions: The contract was ruled to be a single and composite contract, not divisible.

2. Taxability of Imported Goods

Relevant legal framework and precedents: The Court considered the provisions of the CGST Act, 2017, specifically sections 7 and 15, which deal with the supply of goods and services and their valuation.

Court's interpretation and reasoning: The Court held that the value of imported goods forms part of the transaction value for the works contract service. The supply of goods on a high seas sale basis is not subject to GST as per Schedule III of the CGST Act.

Key evidence and findings: The contract required the applicant to supply goods on a high seas sale basis, which were then incorporated into the works contract.

Application of law to facts: The Court applied section 15 of the CGST Act to include the value of imported goods in the transaction value for the works contract service.

Treatment of competing arguments: The applicant argued against double taxation of imported goods. The Court clarified that the goods are taxed as part of the works contract service, not separately.

Conclusions: The component of imported goods is taxable as part of the works contract service.

3. Double Taxation of Imported Goods

Relevant legal framework and precedents: The Court considered the provisions of the CGST Act regarding the supply of goods and services and previous rulings on similar issues.

Court's interpretation and reasoning: The Court found that the imported goods are not subject to GST twice. They are taxed as part of the works contract service.

Key evidence and findings: The contract structure and the nature of the supply indicated that the goods are part of a composite supply.

Application of law to facts: The Court applied the provisions of the CGST Act to determine the point of taxation for the works contract service.

Treatment of competing arguments: The applicant's argument of double taxation was rejected based on the nature of the composite supply.

Conclusions: There is no double taxation; the goods are taxed as part of the works contract service.

4. Inclusion of High Seas Sale Value in Works Contract

Relevant legal framework and precedents: The Court referred to section 15 of the CGST Act and relevant case law on transaction value.

Court's interpretation and reasoning: The Court held that the value of goods sold on a high seas sale basis must be included in the transaction value for the works contract service.

Key evidence and findings: The scope of work and contractual obligations indicated that the goods were integral to the works contract.

Application of law to facts: The Court applied section 15 to include the value of high seas sale goods in the transaction value.

Treatment of competing arguments: The applicant's argument against inclusion was rejected based on the composite nature of the contract.

Conclusions: The value of goods sold on a high seas sale basis is included in the transaction value for the works contract.

SIGNIFICANT HOLDINGS

The Court established the following core principles:

- A turnkey EPC contract is a single and composite works contract, not divisible, even if separate work orders are issued.

- The value of imported goods forms part of the transaction value for works contract services, and such goods are not subject to double taxation under GST.

- The value of goods sold on a high seas sale basis is included in the transaction value for the works contract service.

Final Determinations on Each Issue:

1. The contract between the Applicant and IOCL is a single and composite contract.

2. The component of imported goods will form part of the transaction value for computation of the value of works contract service.

3. The value of imported goods will form part of the transaction value for computation of the value of works contract service, and the value of goods sold on a high seas sale basis will be added to the transaction value for computation of the value of a works contract.