2021 (1) TMI 1098 - AAR - GST

Levy of GST - Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant as per SIOM Agreement and Escrow Agreement from Odisha Government /ULBs for the Green Field Public Street Lighting System in the State of Odisha - composite supply or not - balance 10% of the Project Capital Expenditure and O M Fees received as Annuity Fee over the period of 7 years by the Applicant as per SIOM Agreement considering the Si. No. 3(vi) of the notification No. 11/2017 Central Tax (Rate), dt. 28-06-2017 as amended by Notification No. 31/2017 Central Tax (Rate), dt. 13-10-2017 and corresponding notifications of Odisha State Tax Rate as amended - time for raising GST Invoices for Capital Subsidy and Annuity Fee (consisting of 10% of Project Capital Expenditure and O M Fee) payable in 7 years - rate of tax on the supplies by the sub-contractor to the Applicant shall be 12 % GST in terms of serial no. 3 (ix) of Notification No.11/2017-Central Tax(Rate) dated 28.6.2017 as amended by Notification No.1/2018-Central Tax (Rate) dated 25.01.2018/ Odisha State Tax (Rate) dated 28.06.2017 as amended. Whether in the present case, the supply being undertaken or proposed to be undertaken by the applicant would qualify to be a supply of composite supply or works contract ? - HELD THAT - On perusal of the SIOM agreement (supply, installation, operation and maintenance) Equipment Price Schedule for Cluster C, we see that the contract value for cluster C (urban Local Bodies in Balasore, Bhadrak, Jajpur, Baripada) is ₹ 42.35cr and the contract pricing is different for Equipment of Materials and O M Fee (operation and maintenance fee). Out of ₹ 42.35 cr, the price of Equipments is ₹ 38.23 Cr and the price for O M Fee is ₹ 4.12Cr only. Thus the contract price has clearly bifurcated the contract into a supply of goods and supply of services. Further clause No. 13 of the agreement deals with TERMS OF PAYMENTS. The said clause of the agreement envisages that separate payment for capital subsidy O M Fee. There appears to be a clear bifurcation in the agreement with respect to price of Equipments and O M Fees - the agreement that the contract is considering a clear demarcation of goods and services to be provided by the applicant but the supplies are naturally bundled and in conjunction with each other. It is found that in the agreement submitted by the applicant, the major part of the contract is supply of goods. The price of these goods supplied to the client by the applicant constitutes 90.23% of total contract price. Further we find that the goods that are supplied are used by the applicant to provide services like installation, commissioning and maintenance etc. Without these goods the services cannot be supplied by the applicant and therefore we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Therefore, the instant supply squarely falls under the definition of composite supply where the principal supply is supply of goods - here is a composite supply in the subject case since in the subject case there is no building, construction, fabrication, completion, erection etc of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of the contract - Besides, as per para 1(c) of Schedule II of the CGST/OGST Act, any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods and not a service. Whether the supply of the applicant falls under the supply of works contract service ? - HELD THAT - The salient features of the agreement indicate that the obligation on the applicant is in relation to the effective installation and functioning of the goods supplied by them and thereafter, they would undertake the activities of operation and maintenance of the same. The contract governing their supplies does not relate to building, construction, and fabrication etc. of any immovable properties, as envisaged in the definition of works contract . Their supplies are in the nature of movable property i.e. supply of goods which involves ancillary services such as installation, commissioning etc. All these services which are supplied to the clients are nothing but ancillary activities with the main activities of supply of goods. The primary activity of the applicant is therefore, supply of goods and not supply of services . Further, the activity performed by the applicant is not related to the immovable property at any point of the time and hence the said activity does not qualify to be a works contract . Whether Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant as per SIOM Agreement and Escrow Agreement from Odisha Government / ULBs for the Green Field Public Street Lighting System in the State of Odisha is not liable to GST and if liable to GST, then at what rate of GST? - HELD THAT - In view of Section 15 (2)(e) of the CGST Act, the value of supply shall include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. On perusal of the agreement/contract, we see that the capital subsidy received/ receivable by the applicant in the instant case is the actual cost incurred by the project SPV (the applicant in the instant case) in the project as approved by the Authority ULBs. It is not a subsidy which generally means grant/grant-in-aid or a benefit given to an individual, business or institution, usually by the government. It is also not a subsidy which typically given to remove some type of burden and to promote a social good or an economic policy for overall interest of the public. The so called capital subsidy cannot be a subsidy by any stretch of the imagination, rather the same is a consideration as defined in Section 2(31) of the CGST Act in relation to the supply of goods and therefore, the said capital subsidy shall certainly be liable to be included in the Transaction Value for the purpose of calculation of GST. We are of the considered view that the applicant is liable to pay GST on Capital Subsidy ( 90% of the total capital expenditure). What shall be the GST rate for the balance 10% of the Project Capital Expenditure and O M Fees received as Annuity Fee over the period of 7 years by the Applicant as per SIOM Agreement considering the Sl. No. 3 (vi) of the notification No. 11/2017 Central Tax (Rate), dt. 28-06-2017 as amended by Notification No. 31/2017 Central Tax (Rate), dt. 13-10-2017 and corresponding notifications of Odisha State Tax Rate as amended ? - HELD THAT - The supply being undertaken or proposed to be undertaken by the applicant would qualify to be a supply of composite supply in terms of definition under Section 2(119) of the Central Goods and Services Tax Act, 2017, where the principal supply is supply of goods not supply of service . Therefore, question of the applicability of concessional rate of tax in terms of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 and as amended does not arise. The GST will have to be paid on the goods at the appropriate rate after classification under the appropriate heading. What shall be the time for raising GST Invoices for Capital Subsidy and Annuity Fee (consisting of 10% of Project Capital Expenditure and O M Fee) payable in 7 years? - HELD THAT - Since in the subject case there is a composite supply where the predominant supply/principal supply is supply of goods , we are of the opinion that the applicant should raise invoice as per the provisions of Section 31 of the CGST Act, 2017.

Summary

Issues Involved:
1. Liability of GST on Capital Subsidy.
2. GST rate for the balance 10% of Project Capital Expenditure and O&M Fees.
3. Timing for raising GST invoices for Capital Subsidy and Annuity Fee.
4. GST rate on supplies by sub-contractors to the Applicant.

Detailed Analysis:

Issue 1: Liability of GST on Capital Subsidy
The applicant sought clarification on whether the Capital Subsidy (90% of Project Capital Expenditure) received from the Odisha Government/ULBs for the Green Field Public Street Lighting System is liable to GST. The applicant argued that this subsidy is not "consideration" as defined in Section 2(31) of the CGST Act and should not be subject to GST.

Judgment:
The Authority ruled that the Capital Subsidy received is indeed liable to GST. The ruling emphasized that the subsidy is directly linked to the price and is therefore included in the transaction value for GST calculation. The GST will be paid on the goods at the appropriate rate after classification under the appropriate heading.

Issue 2: GST Rate for the Balance 10% of Project Capital Expenditure and O&M Fees
The applicant queried the applicable GST rate for the remaining 10% of Project Capital Expenditure and O&M Fees received as Annuity Fee over seven years, citing that the supply qualifies as a "works contract service" under Section 2(119) of the CGST Act.

Judgment:
The Authority determined that the supply in question qualifies as a "composite supply" where the principal supply is the supply of goods, not services. Therefore, the concessional rate of tax as per Notification No. 11/2017-Central Tax (Rate) does not apply. The GST must be paid on the goods at the appropriate rate after classification under the appropriate heading.

Issue 3: Timing for Raising GST Invoices for Capital Subsidy and Annuity Fee
The applicant sought guidance on the timing for raising GST invoices for Capital Subsidy and Annuity Fee, suggesting that invoices should be raised at the time of sending the bill for payment to the Authority/ULB.

Judgment:
The Authority ruled that since the supply is a "composite supply" with the principal supply being goods, invoices should be raised as per the provisions of Section 31 of the CGST Act, 2017.

Issue 4: GST Rate on Supplies by Sub-Contractors to the Applicant
The applicant queried whether the rate of tax on supplies by sub-contractors to the applicant should be 12% GST (6% CGST and 6% SGST) in terms of Notification No. 11/2017-Central Tax (Rate).

Judgment:
The Authority ruled that Notification No. 11/2017-Central Tax (Rate) applies to the "supply of service." Since the supply by the applicant qualifies as a "composite supply" with the principal supply being goods, the notification is not applicable. Therefore, the GST rate on supplies by sub-contractors to the applicant must be determined based on the classification of goods.

Conclusion:
The Authority for Advance Ruling, Odisha, concluded that the Capital Subsidy is liable to GST, the supply qualifies as a composite supply of goods, and invoices should be raised as per Section 31 of the CGST Act. The notification for concessional GST rates on services does not apply to the applicant's case. This ruling is subject to appeal within 30 days if either party is aggrieved.