2018 (5) TMI 964 - AAR - GST

Levy of GST - Works contract / composite contracts - inclusion of freight in the value of supply - activity of supply of materials and allied services for erection of towers, testing and commissioning of transmission lines and setting up sub-stations collectively called the Tower Package. - The applicant raises separate freight bills on the contractee as per the rate schedule - applicant raises separate freight bills on the contractee as per the rate schedule annexed to the Second Contract - Section 97 (2)(a) & (e) of the CGST / WBGST Act, 2017 - whether applicant is liable to pay tax on such freight bills? Held that - It is immediately apparent that the First Contract cannot be executed independent of the Second Contract. There cannot be any supply of goods without a place of supply. As the goods to be supplied under the First Contract involve movement and/or installation at the site, the place of supply shall be the location of the goods at the time when movement of the goods terminates for delivery to the recipient, or moved to the site for assembly or installation - Composite nature of the contract is clear from the clause that defines satisfactory performance of the First Contract (supply of goods) as the time when the goods so supplied are installed and finally commissioned in terms of the Second Contract - The price components of both the First and the Second Contracts, including that for transportation, in-transit insurance etc are to be clubbed together to arrive at the value of the composite supply of works contract service as discussed above, and taxed at 18% in terms of Serial no. 3 (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28/06/2017 (1135 FT dated 28/06/2017 under the State Tax). Ruling - The applicant supplies works contract service, of which freight and transportation is merely a component and not a separate and independent identity, and GST is to be paid at 18% on the entire value of the composite supply, including supply of materials, freight and transportation, erection, commissioning etc.

Summary

Issues:
1. Tax liability on freight bills for transportation services provided as part of tower package contracts.

Analysis:
The Applicant, a supplier of materials and services for tower packages, sought a ruling on the tax liability of freight bills for transportation services provided under contracts with a corporation. The Applicant claimed exemption under Notification No. 9/2017 for transportation services, arguing that as a non-GTA, the services were exempt. However, it was clarified that the exemption notification under the IGST Act should be contract-specific for inter-state supplies, and the West Bengal Authority for Advance Ruling lacked jurisdiction for inter-state matters. Therefore, reference was made to analogous notifications under the GST Acts, specifically Notification No. 12/2017.

The Exemption Notification exempts transportation services by road, excluding those by a GTA. The Applicant was not transporting goods but hiring a transport agency, making them the recipient, not the supplier, of transportation services. The ruling emphasized that the consideration payable under the contracts needed to be examined to determine the taxability of transportation and ancillary services included in the freight bills.

The contracts comprised two parts: the First Contract for material supply and the Second Contract for additional services like transportation, erection of towers, and testing. The ruling highlighted the interdependence of the contracts, stating that the First Contract could not stand alone without the Second Contract. The contracts were deemed a single source responsibility contract, with breach in one considered a breach in the other. The composite nature of the contracts was evident, with the supply of goods and allied services forming an indivisible works contract supply.

Consequently, the ruling concluded that the Applicant provided works contract services, with freight and transportation being components of the composite supply. GST was to be paid at 18% on the entire value of the works contract service, including materials, freight, transportation, erection, and commissioning. The ruling was subject to the provisions under Section 103 of the GST Act unless declared void under Section 104(1).

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the ruling's rationale regarding the tax liability on freight bills for transportation services within the tower package contracts.