2018 (12) TMI 649 - AAR - GST

Levy of GST - rate of tax - transportation charges levied by the Applicant on PGCIL - supply contract/service contract - composite supply - Held that - The Applicant is registered under Goods and Services Tax (GST) Act 2017 and is engaged in the business of manufacturing and selling various products and solutions as required in Power Transmission and Distribution Sector. The Company has two divisions namely (i) Transformer division and (ii) Project division. The Applicant, as part of its activities has entered into following contracts with Power Grid Corporation of India Limited - As per second contract entered into with PGCIL in respect of various services to be undertaken upto successful commissioning of the project which includes planning, transportation of goods, loading and unloading etc for which seprate invoices and consideration has been stipulated. For the purpose of transportation of goods applicant avails the services of Goods Transport Agency Who transports the goods. Applicant also pays tax under reverse charge basis. Further applicant on back to back basis issues invoices and charges separate consideration for transportation services to PGCIL. It is this transportation charges/freight recovered by the applicant from PGCIL which is the subject matter of present application. It can be safely concluded that the agreement for setting up Tower Package TW05 for 800KV transmission Line Project is a single indivisible contract. As the contract consists of two or more taxable supplies of goods and services and their combination, is a composite supply as defined u/s 2(30) of the GST Act - the first contract and the second contract is one single individual contract. Whether this composite supplies constitute works contract as defined u/s 2(119) of the GST Act? - Held that - The subject contracts are for commissioning of immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of said contracts. The contract before us thus are clearly covered by the definition of works contract as per section 2(119) of GST Act - The contract before us thus are clearly covered by the definition of works contract as per section 2(119) of GST Act - further, composite supplies in the nature works of contract as defined u/s 2(119) is declared as supply of services as per section 7 r/w entry 6(a) Of Schedule Il of the GST Act. The impugned supply of transportation service is not supply of standalone service but integral component of composite supply in the nature of works contract as defined u/s 2 (119) and the entire contract is a supply of services as per entry 6(a) of schedule II of the GST Act and liable to pay GST as per entry at Sr. no. 3(ii) of the Notification No. 1/2017 of Central Tax (Rate) dt. 28/06/2017 and corresponding notification under the MGST Act. GST is leviable on the transportation charges Levied by the Applicant on PGCIL. GST in the present case would be liable at 18% as per entry at Sr. no. 3(ii) of the Notification No. 1/2017 of Central Tax (Rate) dt. 28/06/2017 and corresponding notification under the MGST Act.

Summary

Issues Involved:
1. Whether GST is leviable on the transportation charges levied by the Applicant on PGCIL.
2. If GST is payable, what would be the rate of GST to be charged on such charges.

Issue-Wise Detailed Analysis:

1. Whether GST is leviable on the transportation charges levied by the Applicant on PGCIL:

The Applicant, engaged in the power transmission and distribution sector, has entered into two contracts with PGCIL: a Supply Contract and a Service Contract. The Supply Contract involves the supply of various equipment and materials, while the Service Contract covers services such as planning, transportation, loading, unloading, and installation of the transmission line.

The Applicant contends that the transportation services provided to PGCIL should be exempt from GST under Notification 12/2017-Central Tax (Rate) dated 28th June 2017, which exempts services by way of transportation of goods by road, except when provided by a Goods Transport Agency (GTA). The Applicant argues that since they do not issue consignment notes, they do not qualify as a GTA, and thus their transportation services should be exempt from GST.

However, the Authority for Advance Ruling (AAR) examined the contracts and concluded that the Supply Contract and the Service Contract are part of a single, indivisible contract for the complete execution of the Tower Package. The AAR referred to the definition of "composite supply" under Section 2(30) of the GST Act, which includes two or more taxable supplies naturally bundled and supplied in conjunction with each other. The AAR determined that the transportation services are an integral part of the composite supply of works contract, which involves the transfer of property in goods and services.

The AAR also referred to the definition of "works contract" under Section 2(119) of the GST Act, which includes contracts for construction, fabrication, and installation of immovable property. The AAR concluded that the contracts between the Applicant and PGCIL qualify as works contracts and are therefore subject to GST as per Section 7 read with entry 6(a) of Schedule II of the GST Act.

2. If GST is payable, what would be the rate of GST to be charged on such charges:

Since the AAR determined that the transportation services are part of a composite supply in the nature of a works contract, the entire contract is considered a supply of services. According to entry at Sr. no. 3(ii) of the Notification No. 1/2017 of Central Tax (Rate) dated 28/06/2017, and the corresponding notification under the MGST Act, the applicable GST rate for works contract services is 18%.

Order:

The AAR ruled that GST is leviable on the transportation charges levied by the Applicant on PGCIL. The applicable rate of GST on such charges is 18% as per the relevant notifications.