2021 (6) TMI 387 - AAR - GST

Interpretation of the term a contract - TDS applicability under section 51 of the GST Act - no contract or contract of continuous supply - whether the single tax invoice shall be considered as a contract or aggregate value of purchase from a vendor for the whole year be considered as a contract? - HELD THAT - Coming to the meaning of supply under a contract , it is very well accepted that there must be a supplier and a recipient for a supply to happen and these two persons must be either distinct persons or deemed to be distinct persons under the Act. When there is a supply of goods or services from one person to another, it has to be as a follow up action of an agreement to supply, either written or verbal or implied. There is no precondition that the agreement to supply should always be in writing and the same is governed under the Contract Act, 1872. The agreement to sell and the contract of Sale of Goods as envisaged in the Sale of Goods Act, 1930 also are governed under the Contract Act, 1872. Further, sale of goods is only a subset of supply as envisaged in Section 7(1) of the GST Act and hence all contracts covered under the Sale of Goods Act, 1930 are also contracts under the GST Acts - The agreement between the supplier and the recipient is of prime consideration and if it is for a continuous supply to be made in installments, then the contract would include all the part supplies made and covered under separate invoices. It is in this context, the supply under a contract should be understood and the total value of such supply under a contract, if it exceeds ₹ 2,50,000-00 would be liable for deduction of tax at source, subject to other conditions. The agreement of continuous supply is a contract for scenario no, 3 and 4 and if the amount involved in the supply in this contract exceeds ₹ 2.5 lakhs, then the applicant is supposed to deduct TDS on the payment credited to the vendor - In the first scenario, since the value of the single invoice is more than ₹ 2.5 lakh, there is no doubt that the tax deduction at source is applicable under section 51 subject to other conditions. In the second scenario, the applicant has clearly stated that the value of supply under a single invoice does not exceed ₹ 2.5 Lakhs and assuming that it is a single transaction as per the purchase order, then tax deduction at source is not applicable on that single transaction or invoice. But if it is a part supply and a part of the continuous supply as per the purchase order, then if the total value of supply as mentioned in the purchase order is more than ₹ 2.5 Lakh, then the provisions of tax deduction at source would become applicable even on this invoice.

Summary

Issues Involved:
1. Interpretation of the term "a contract" for TDS applicability under Section 51 of the GST Act.
2. Applicability of TDS provisions in the absence of a contract or in the case of continuous supply contracts.
3. Whether a single tax invoice can be considered "a contract" or if the aggregate value of purchases from a vendor for the whole year should be considered as a contract.

Detailed Analysis:

1. Interpretation of "a contract" for TDS applicability under Section 51 of the GST Act:
The applicant sought clarification on the meaning of "a contract" for TDS applicability under Section 51 of the GST Act. The applicant argued that in the absence of a formal contract, each tax invoice should be considered as "a contract" for TDS purposes. The applicant referred to provisions from the Sale of Goods Act, 1930, and the Contract Act, 1872, to support their interpretation that each tax invoice could be construed as "a contract" for TDS purposes.

2. Applicability of TDS provisions in the absence of a contract or in the case of continuous supply contracts:
The applicant presented four scenarios to illustrate different procurement situations:
- Scenario 1: Procurement without a contract, with a single invoice exceeding ?2,50,000.
- Scenario 2: Procurement without a contract, with individual invoices below ?2,50,000 but total annual purchases exceeding this limit.
- Scenario 3: Continuous supply contract with individual invoices and total annual supply below ?2,50,000.
- Scenario 4: Continuous supply contract with individual invoices below ?2,50,000 but total annual supply exceeding this limit.

The applicant argued that TDS provisions should be interpreted differently for each scenario, suggesting that in the absence of a formal contract, TDS should not be applicable if the individual invoice value is below ?2,50,000.

3. Whether a single tax invoice can be considered "a contract" or if the aggregate value of purchases from a vendor for the whole year should be considered as a contract:
The applicant contended that each tax invoice should be considered as "a contract" for TDS purposes, especially when there is no formal contract in place. They argued that the aggregate value of purchases from a vendor for the whole year should not be considered as a contract for TDS applicability.

Authority's Discussion and Findings:
The authority examined the submissions from the applicant, the departmental authorities, and relevant legal provisions. They noted that Section 51 of the GST Act mandates TDS deduction if the total value of supply under a contract exceeds ?2,50,000. The authority clarified that the term "a contract" does not necessarily require a written agreement and can be verbal or implied, governed by the Contract Act, 1872.

The authority emphasized that the supply under a contract, rather than the invoice value, is the criterion for determining TDS liability. They explained that a contract for continuous supply involves multiple part supplies covered under separate invoices, and the total value of such supplies should be considered for TDS applicability.

Ruling:
The authority ruled that TDS is applicable to all supplies if the value of supply under a contract (scenarios 3 and 4) or purchase order (scenario 2) exceeds ?2,50,000. For scenario 1, the invoice value is considered for determining the "value of supply" under a contract.