2019 (7) TMI 812 - AAR - GST

Classification of supply - composite supply or not - Whether supply of Engineering Procurement and Construction (EPC) contract for establishment of Fluids Servicing System where in both goods and services are supplied can be construed to be a composite supply in terms of Section 2(30) of CGST Act 2017? - Establishment of Fluids Servicing System (FSS) - principal supply or not - rate of tax. Whether their supply to the ISRO under contract for establishment of FSS can be construed to be a Composite supply; on the applicability of Notification No. 45/2017-Central Tax (Rate) dated 14/11/2017 to the supply provided to ISRO; and the rate of GST applicable to the entire transaction? HELD THAT - TPL is contracted with IPRC to provide Fluid Servicing systems to supply propellants (ISROSENE Liquid Oxygen) and service fluids (Liquid Nitrogen Gaseous Nitrogen Gaseous Helium Water) to the test bed facility for semi-cryogenic engine at IPRC Mahendragiri. Each of these systems (for each fluid) involves various tanks pressure and venting cooling/heating circulation collection drain circuit. TPL should erect these fluid systems at the site along with their piping circuits and instrumentations by means of minor civil works done with concrete brick masonry grouting bolts etc. TPL should fabricate and procure the relevant materials instruments and equipment as defined in the contract. Along with these TPL should also manage the complete project plan review the design and give detailed engineering drawing for all these systems. They should also ensure inspection transportation construction and commissioning of the FSS though various activities are to be done with assistance of IPRC. TPL supplies Goods and Services as required in the contract. It is to determine if the supply of goods and services by the applicant under contract to ISRO can be considered as a composite supply. Mere supply of the equipment instruments pipes and fluid tanks is not enough the same has to be integrated and erected and finally commissioned at the test - bed facility. The Contract itself shows that the supply of these equipment and instruments are necessarily to be given with a host of services such as designing engineering inspection construction commissioning. Further the payment schedule in the contract also shows that the billing / invoicing is indivisible. Thus the whole contract for Establishment of Fluid Servicing System(FSS) of Semi-Cryo Integrated Engine Test (SIET) Facility at ISRO Propulsion Complex (IPRC) Mahendragiri is a composite contract as various supplies of goods and services are naturally bundled together. In the case at hand the applicant has a contractual obligation to supply the materials and also to Erect the entire FSS including the various tanks piping systems instruments electrical circuits etc. Such erection and installation is to be done to the test bed facility for testing the semi cryogenic engine system by means of minor civil works done with concrete brick masonry grouting bolts etc. It involves the transfer of ownership of these goods involved in the erection construction and installation of the fluid systems. The test-bed facility itself is an immovable structure erected at the site in Mahendragiri. The fluid systems and piping circuits provided by TPL are to erected fixing them to the test-bed facility which is embedded in earth. The erection of the System at site makes the system a permanent fixture i.e. immovable property. Thus it is clear that in the case at hand the applicant supplies materials and in conjunction provides the service of erection of the System into at the test-bed facility making all the FSS together as an immovable property. Therefore the whole contract for Establishment of Fluid Servicing System (FSS) of Semi-Cryo Integrated Engine Test (SIET) Facility at ISRO Propulsion Complex (IPRC) Mahendragiri is also a Works Contract . The present supply is a composite supply to be treated as a supply of services. As it is a supply of service Notification No .45/2017- Central Tax (Rate) dated 14/ I I / 2017 and corresponding SGST notification G.O. (Ms) No. 161 dated 14.11.2017 which provides for concessional rate of tax for a supply of goods is not applicable. The applicable rate of tax for the supply will be the rate of tax of applicable for this supply of works contract.

Summary

Issues Involved:
1. Whether the supply of Engineering, Procurement, and Construction (EPC) contract for the establishment of Fluids Servicing System (FSS) can be construed as a composite supply under Section 2(30) of the CGST Act, 2017.
2. Whether the principal supply in such a case can be said to be the "Establishment of Fluids Servicing System (FSS)" and taxable at 5% GST as per Notification No. 45/2017-Central Tax (Rate) dated 14/11/2017.
3. If the principal supply is taxable at 5%, whether the entire transaction in the contract is taxed as per the rate applicable to the principal supply.

Detailed Analysis:

1. Composite Supply:
The applicant, engaged in the process, design, detailed engineering, procurement, shop fabrication & inspection, supply, storage, site fabrication, erection, inspection & commissioning of the FSS for ISRO, sought clarification on whether their contract can be considered a composite supply. The contract involves the supply of various equipment and services, with the applicant responsible for the overall performance of the systems involved. The contract's scope includes the supply of materials, minor civil works, and services like erection and commissioning. The applicant argued that the contract is naturally bundled and linked, where the main intent is the provision of goods constituting the establishment of the FSS, making it a composite supply under Section 2(30) of the CGST Act, 2017.

2. Principal Supply and Tax Rate:
The applicant contended that the principal supply in the contract is the establishment of the FSS, which should be taxed at 5% GST as per Notification No. 45/2017-Central Tax (Rate). They argued that the supply of goods constitutes 86% of the total contract value, and the services provided are incidental to the main supply of goods. Therefore, the entire contract should be taxed at the rate applicable to the principal supply, which is 5%.

3. Applicability of Notification No. 45/2017-Central Tax (Rate):
The applicant sought clarity on whether the entire transaction in the contract would be taxed at the rate applicable to the principal supply if it is determined to be taxable at 5%. They argued that the contract meets the conditions for a composite supply and should be covered under the said notification, making the entire contract taxable at 5% GST.

Authority's Findings:

Composite Supply Determination:
The authority examined the details of the contract and found that the applicant supplies both goods and services as required. The supply of these goods and services is naturally bundled and supplied in conjunction with each other in the ordinary course of business, making it a composite supply under Section 2(30) of the CGST Act, 2017.

Works Contract Classification:
The authority noted that the contract involves the erection and installation of the FSS, which is an immovable property. The applicant's obligation to supply materials and erect the entire FSS, including tanks, piping systems, instruments, and electrical circuits, constitutes a works contract under Section 2(119) of the CGST Act. The test-bed facility where the FSS is installed is an immovable structure, and the fluid systems provided by the applicant are permanently fixed to it, making the contract a works contract.

Tax Rate Applicability:
Since the contract is classified as a works contract, it is treated as a supply of services under Schedule II of the CGST Act. Consequently, Notification No. 45/2017-Central Tax (Rate), which provides a concessional rate for the supply of goods, is not applicable. The applicable rate of tax for the supply will be the rate for works contracts.

Ruling:
1. The supply of the EPC contract for the establishment of FSS is a composite supply under Section 2(30) of the CGST and TNGST Act, 2017.
2. This supply is a works contract under Section 2(119) of the CGST and TNGST Act, 2017, and Notification No. 45/2017-Central Tax (Rate) dated 14/11/2017 is not applicable.
3. The entire transaction is taxable at the rate applicable to the supply of works contracts.