2019 (4) TMI 806 - AAR - GST

Maintainability of Advance Ruling application - Works Contract Service - applicable rate of tax - transaction proposed to be executed in relation to tenders issued by the Oil and Natural Gas Corporation of India Ltd. (ONGC) for executing erection, commissioning and installation work on turnkey basis for petroleum operations Held that - From a perusal of the provisions relating to Advance Ruling, it is seen that Advance Ruling means a decision provided by this authority to an applicant on specified questions and matters in relation to the supply of goods or services or both or being undertaken or proposed to be undertaken by the applicant. An Advance Ruling, thus helps the applicant in determining the liability to pay GST. It also brings certainty in determining the tax liability with no litigation as the ruling is binding on the Government authorities the applicant. On the contrary, in the present case, it is found that the tender contract is awarded to a consortium other than the applicant and as such the possibility of supply of goods or services or both by the applicant pertaining to the said tender contract is no more available. ARA application filed by the applicant is infructuous and hence the questions raised in the application are not answered.

Summary

Issues Involved:

1. Whether the terms of the NIT, in particular its self-styled description as 'lump sum turnkey' contract, render it as a 'works contract' under GST law?
2. If the answer to (1) is affirmative, does it imply that each and every supply made under the contract would be subject to the rate of tax applicable to a 'works contract'?
3. If the answer to (1) is affirmative, will the position change if the consortium members raise distinct invoices and ONGC pays directly to the members?
4. Can it be said that in such circumstances the individual invoices will not be affected by the overall description as a 'works contract'?
5. If the answer to (1) is affirmative and only one single rate of tax applies to the entire contract, can the members claim the rate of tax in terms of Notification No. 39/2017 - Integrated Tax (Rate) dated 13.10.2017?
6. Can the member of the consortium supplying goods alone claim a concessional rate of tax of 5% in terms of Notification No. 3/2017-Integrated Tax (Rate) dated 28.06.2017?

Detailed Analysis:

Issue 1: Whether the terms of the NIT render it as a 'works contract' under GST law?

The applicant sought clarity on whether the NIT's description as a 'lump sum turnkey' contract qualifies it as a 'works contract' under GST law. The definition of 'works contract' under Section 2(119) of the CGST Act includes contracts for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration, or commissioning of any immovable property involving the transfer of property in goods. The applicant argued that the contract involves separate supplies of goods and services by consortium members, raising distinct invoices directly paid by ONGC.

Issue 2: If the answer to (1) is affirmative, does it imply that each and every supply made under the contract would be subject to the rate of tax applicable to a 'works contract'?

The applicant contended that if the contract is deemed a 'works contract', then each supply under the contract should be taxed as such. The concerned officer emphasized that 'works contract' is a composite supply treated as a supply of services under Schedule II of the CGST Act, and the rate of tax applicable to the entire contract would be based on the 'works contract' classification.

Issue 3: If the answer to (1) is affirmative, will the position change if the consortium members raise distinct invoices and ONGC pays directly to the members?

The applicant queried whether distinct invoicing by consortium members and direct payments by ONGC would affect the 'works contract' classification. The concerned officer noted that even with distinct invoices, the supply would remain a 'works contract' if it involves the transfer of goods and services in execution of the contract. The supply would be treated as a composite supply of services.

Issue 4: Can it be said that in such circumstances the individual invoices will not be affected by the overall description as a 'works contract'?

The concerned officer argued that individual invoices would still be part of the 'works contract' and would not change the overall classification. The supply of goods and services would still be considered a composite supply, and the tax rate applicable to 'works contract' would apply.

Issue 5: If the answer to (1) is affirmative and only one single rate of tax applies to the entire contract, can the members claim the rate of tax in terms of Notification No. 39/2017 - Integrated Tax (Rate) dated 13.10.2017?

The applicant sought to know if a single tax rate under Notification No. 39/2017 would apply to the entire contract. The concerned officer clarified that if the contract is a 'works contract', the tax rate specified in Notification No. 39/2017 would apply to the entire contract, regardless of distinct invoicing by consortium members.

Issue 6: Can the member of the consortium supplying goods alone claim a concessional rate of tax of 5% in terms of Notification No. 3/2017-Integrated Tax (Rate) dated 28.06.2017?

The applicant inquired if a consortium member supplying only goods could claim a concessional tax rate of 5% under Notification No. 3/2017. The concerned officer stated that if the contract is classified as a 'works contract', the concessional rate for goods alone would not apply. The entire contract would be taxed as a 'works contract' supply of services.

Conclusion:

The application was deemed infructuous as the contract was awarded to a different consortium, and the applicant was not a member of the successful consortium. Therefore, the questions raised were not answered, and the application was dismissed.