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2024 (3) TMI 45 - AAAR - GSTClassification of supply - survey, designing, installation and commissioning of project under EPC contract - to be classified under SAC Heading No. 9954 which relates to construction services or not - rate of tax applicable on the said supplies by the Appellant - SI. No. 3 (ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 - time limitation for filing appeal. Whether the appeal has been filed within stipulated period (i.e. thirty days from the date on which the Ruling sought to be appealed against is communicated to the Appellant) prescribed under Section 100 (2) of CGST Act, 2017 or not? - HELD THAT - It is found that the date of communication of the Order of AAR, Rajasthan to the Appellant was 21.09.2021 and the appeal was filed on the portal on 19.10.2021. Thus, the Appellant have filed the appeal within statutory period of 30 days of date of communication of the Order of the AAR. Whether the supplies proposed by the Appellant in pursuance of the EPC contract with M/s Vedanta Limited are classifiable under SAC Heading No. 998621 of the Scheme of classification of services of under Heading 9983 or under Heading 9954? - HELD THAT - The Appellant have not denied the fact that supply of service under the EPC Contract in question also involves transfer of property in goods. The only contention by the Appellant in this regard is that the scope of Heading 9986 does not exclude Works Contract Service. As can be seen from the appeal as also from the EPC Contract submitted by the Appellant, the Appellant have been assigned the work related to establishment of infrastructure for the proposed Sulphate removal plant as well as other facility - One of the important aspects of the EPC Contract is that Appellant are responsible for doing civil or structural work which includes jungle clearance, Gabion Wall mattress around the plot, foundation, structures, buildings like control building, sub-stations, switchyard, fire stations and sheds, roads, paving and drains etc. and the contract contains provisions which prescribe the quality of various types of material such as concrete for foundation and structural steel material. The Appellant shall also obtain all necessary approval. Coming to the proposed classification under Heading 998621 it is observed that the said heading covers support services to oil and gas extraction which is self explanatory in as much as the services proposed to be classified under this heading provide support to the main activity of oil and gas extraction and such activity of extraction eventually requires the infrastructure facilities established. These three parts of the entire gamut of oil and gas extraction are clearly distinguished from each other. Support service has to be essentially distinct from the main activity of oil and gas extraction. And establishment of infrastructure facilities in the form of SRP, pipelines, control buildings, sub-stations, switchyards, toilets and fire stations, to illustrate a few, is clearly a distinct feature of the activity of oil and gas extraction. Hence, support services to oil and gas extraction is clearly distinguishable from establishment of infrastructure facilities for oil and gas extraction and the former cannot be confused with the latter. Since, the Appellant have been tasked with establishment of Sulphate Removal Plant, the activities undertaken by the Appellant in pursuance of the EPC Contract cannot, by any stretch of imagination, be said to be support services to oil and gas extraction. The distinction between the activities undertaken by the Appellant in terms of the EPC contract and the activities included in the definition of SAC Heading No. 998621 is strikingly clear. Therefore, the activities undertaken by the Appellant in pursuance of the EPC Contract cannot be classified under SAC Heading No. 998621 as these are not in the nature of support services to oil and gas extraction. SAC Heading No. 998341 covers a wide range of activities which include provision of advice, guidance and operational assistance concerning the location of oil and gas fields including feasibility studies. But, it is observed that the Appellant have not proposed to undertake any such activity rather the Appellant have proposed to undertake establishment/ creation/ construction of infrastructure facilities for oil and gas extraction(execution of Sulphate Removal Plant) which are quite different and distinct from the advice concerning location of gas fields. SAC Heading No. 9954 of the Scheme of Classification covers the overall construction services with SAC Heading No. 995425 the general construction services of mines and industrial plants. The explanatory notes clarify that the said service code includes construction services for mining and related facilities associated with mining operations. Since, oil and gas exploration is also a form of mining; therefore, the construction services proposed to be supplied by the Appellant for execution of Sulphate Removal Plant are appropriately classifiable under the SAC Heading No. 9954. Since, the nature of supply justifies its classification as construction services of mining, it is observed that there is no conflict suggesting preference to specific description under SAC Heading No. 998621 to general description under SAC Heading No. 9954 because the nature of activities clearly indicates that the supply is classifiable under SAC Heading No. 9954. Entry Sl. No. 3(ii) of Notification No. 11/2017-CT(R), dated 28.06.2017 was omitted with effect from 01.04.2019 and, therefore, the supplies proposed to be undertaken by the Appellant could not have been eligible for the rate prescribed therein. However, it is observed that up to Notification No. 3/2019-CT (R), dated 29.03.2019, major changes have been made in the said entry under Sl. No. 3 of the basic Notification No. 11/2017-CT(R), dated 28.06.2017 to provide for different rates of tax for supplies under the categories of supply of construction services or supply of works contract services - the said item (xii) of entry at Sl. No. 3 of Notification No. 11/2017-CT(R), dated 28.06.2017, as amended up to Notification No. 3/2019-CT (R), dated 29.03.2019 prescribes Central Tax @ 9% on the supplies proposed to be undertaken in terms of the EPC Contract and therefore, the supplies proposed to be undertaken by the Appellant attract tax at the rate of 18%.
Issues Involved:
1. Classification of services under SAC Heading No. 998621. 2. Classification of services under SAC Heading No. 9983. 3. Classification of services under SAC Heading No. 9954. 4. Correct classification and applicable rate of tax. Summary of Judgment: G.1. Classification under Heading 998621: The Appellant's services under the EPC contract for constructing a Sulphate Removal Plant (SRP) were examined. The court found that the services did not qualify as "support services to oil and gas extraction" under SAC Heading No. 998621. The activities involved in the EPC contract, such as construction, procurement, and commissioning of the SRP, were distinct from the support services described in SAC Heading No. 998621, which include activities like well casing, cementing, and test drilling. G.2. Classification under Heading 9983: The court also considered the alternative classification under SAC Heading No. 9983, which covers "other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both." The court found that the Appellant's activities, which involved the creation of new infrastructure and facilities, did not fit within the scope of SAC Heading No. 9983. The services provided by the Appellant were more aligned with construction services rather than consulting or evaluation services. G.3. Classification under Heading 9954: The court upheld the classification of the Appellant's services under SAC Heading No. 9954, which relates to construction services. The EPC contract involved the construction of various facilities, including the SRP, buildings, roads, and pipelines, which are covered under SAC Heading No. 9954. The court noted that the contract involved a composite supply of services and goods, amounting to a works contract as defined under clause (119) of Section 2 of the CGST Act, 2017. G.4. AAR's Ruling - Classification vis-a-vis Rate of Tax: The court found that the AAR's ruling classifying the services under SAC Heading No. 9954 was correct. However, the AAR had erroneously applied a tax rate under entry Sl. No. 3(ii) of Notification No. 11/2017-CT(R), which had been omitted. The correct rate of tax for the services provided by the Appellant was determined to be 18% (9% CGST + 9% SGST) under item (xii) of entry at Sl. No. 3 of Notification No. 11/2017-CT(R), as amended. Conclusion and Findings: 1. The Appellant's services are classifiable under SAC Heading No. 9954 as construction services, which are in the nature of a composite supply defined as works contract. 2. The claim that SAC Heading No. 998621 provides a more specific description is not supported by the EPC contract. 3. The proposed supplies are not covered by SAC Heading No. 998621 or Heading 9983. 4. The applicable rate of tax is 18% under item (xii) of entry at Sl. No. 3 of Notification No. 11/2017-CT(R), as amended. Order: The AAR's ruling is upheld with modifications regarding the applicable rate of tax. The appeal is disposed of accordingly.
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