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2025 (4) TMI 415 - AAR - GSTClassification of supply - composite supply with principal supply of goods under the Third Contract or not - supply of services made by the Applicant under Fifth Contract - supply of service of transportation freight and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of Business Support Services or not - HELD THAT - As per the Fifth Contract the applicant had been entrusted with the responsibility of delivery of goods at the site of installation. In connection with the same the applicant had engaged transporters for undertaking transportation. The said transporters had issued consignment notes on which the applicant discharged the GST under Reverse Charge. The applicant had also obtained necessary insurance for the said goods. Thereafter in terms of the said contract the applicant raised invoices on Power Grid Corporation of India Limited for freight and insurance along with applicable taxes under SAC code 996793 Other goods transport services . However the GST component of the said invoices was reportedly not reimbursed by Power Grid Corporation of India Limited as they are of the view that the same is exempt in terms of Sl.No. 18 of Notification No. 12/2017-CT (Rate). The services of transportation with the additional services of taking in-transit insurance are not being provided in isolation by the applicant in the instant case and that they are inextricably linked to the overall execution of the project that comprises of four other Contracts. Apart from the ex-works supply of goods under the First and Third Contract it involves erection and commissioning including civil work of the various equipment and materials to be supplied for setting up the facility/system under the First Second and Third Contracts and training in India and any other services specified in the contract - in the instant case the scope of work especially under the Fifth Contract involving the applicant does not get restricted to procurement of goods transportation of goods and taking delivery of the same but it extends to erection testing and commissioning i.e. installation of the facility/system including the training to be imparted in relation to the same. Though the contract is divided into five segments so as to assign the roles and responsibilities to the different parties involved in the contract the overall assignment is to install terminals at the respective places to provide Bipole link between the Western region and the Southern region. It is opined that the commissioning of terminals and other such installations tantamount to commissioning of immovable property wherein the property in goods stand transferred to the principal on completion of the respective segment of the project. From a conjoined and harmonious reading of the various clauses of Third Contract and Fifth Contract awarded to the applicant and their inter-dependency under the overall contract comprising of five contracts we are of the considered opinion that the agreement for setting up the aforesaid project is nothing but a composite works contract as defined under Section 2 (119) of the CGST/TNGST Acts 2017 and that the same is classifiable under Construction Services falling under SAC 9954 attracting GST @ 18% as provided under entry Sl.No.3 (xii) of N/N. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended vide N/N. 1/2018-Central Tax (Rate) dated 25.01.2018. Once it is held that the said activity qualifies as Works Contract Service the question of examining the applicability of exemption as provided under Sl.No.18 of the N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 as claimed by the applicant under para 3 of Annexure-A (Statement of relevant facts) enclosed to the application does not arise. Conclusion - i) The supply of services made by the Applicant under Fifth Contract is composite supply of service under Works Contract . ii) The supply of service of transportation freight and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of Works Contract Service and shall be chargeable to taxes under GST at 18%.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are: 1. Whether the supply of services made by the Applicant under the Fifth Contract constitutes a composite supply with the principal supply of goods under the Third Contract. 2. Whether the supply of services of transportation, freight, and insurance under the Fifth Contract, provided for the goods supplied by the Applicant, is in the nature of Business Support Services and shall be chargeable to tax at specified rates. ISSUE-WISE DETAILED ANALYSIS 1. Composite Supply under the Fifth Contract - Relevant Legal Framework and Precedents: The analysis hinges on the definition of "composite supply" as per Section 2(30) of the CGST Act, 2017, which refers to a supply consisting of two or more taxable supplies naturally bundled and supplied in conjunction with each other, one of which is a principal supply. - Court's Interpretation and Reasoning: The Court noted that the services provided under the Fifth Contract are not isolated but are part of an integrated project involving multiple contracts. The contracts are interlinked through a cross-fall breach clause, indicating that a breach in one contract affects the others. - Key Evidence and Findings: The contracts were split into five segments, each with specific roles and responsibilities. The Fifth Contract involved services such as local transportation, insurance, and other incidental services, which were essential for the completion of the project. - Application of Law to Facts: The Court applied the definition of composite supply to the facts, concluding that the services under the Fifth Contract are bundled with the supply of goods and other services necessary for the project's execution. - Treatment of Competing Arguments: The Applicant argued that the services should be considered separately, but the Court found that the interdependency of the contracts and the nature of the services provided supported a composite supply classification. - Conclusions: The services under the Fifth Contract are part of a composite supply, with the principal supply being the works contract. 2. Nature of Services under the Fifth Contract - Relevant Legal Framework and Precedents: The Court examined whether the services fall under "Business Support Services" or are part of a "Works Contract" as defined under Section 2(119) of the CGST Act, 2017. - Court's Interpretation and Reasoning: The Court emphasized that the services are integral to the execution of the works contract, which involves the construction and commissioning of immovable property. - Key Evidence and Findings: The contracts included provisions for local transportation, insurance, and installation services, all necessary for the project's completion. - Application of Law to Facts: The Court determined that the services are not merely supportive but are essential components of the works contract, thereby classifying them as part of the works contract service. - Treatment of Competing Arguments: The Applicant's suggestion that the services could be classified as Business Support Services was rejected, as the Court found them to be part of the works contract. - Conclusions: The services under the Fifth Contract are classified as works contract services and are chargeable under GST at 18%. SIGNIFICANT HOLDINGS - Core Principles Established: The judgment establishes that services integral to the execution of a works contract, even if provided under separate contracts, are to be treated as part of the composite supply of the works contract. - Final Determinations on Each Issue: The supply of services under the Fifth Contract is a composite supply of service under a works contract. The services of transportation, freight, and insurance are part of the works contract service and are taxable under GST at 18%. RULING 1. The supply of services made by the Applicant under the Fifth Contract is a composite supply of service under a "Works Contract." 2. The supply of service of transportation, freight, and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of "Works Contract" Service and shall be chargeable to taxes under GST at 18% (CGST-9% + SGST-9%).
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