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TMI Blog2021 (12) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. In the Agreement, each and every work define separately in the said Agreement/Schedule of Agreement. The construction of R R colony service is not in any way in combination with mining service as the construction of R R colony is one time job whereas the mining service is a regular job for longer period, hence both the services are not going together or not depend on one another, supplied independently - Further, the terms of payment of each service mentioned separately in the Agreement and there is no connection/combination of payment of both the services. Invoices of the services is also raised separately. Hence both the services can be identifiable separately and has no conjunction with each other for qualify the same as composite service. Thus, the services of construction of R R colony is not composite supply with mining service. Works contract service or not - HELD THAT:- As per definition of Works Contract Service, any construction of colony/building wherein transfer of property in goods is involved in the execution of such contract is covers under the definition of Works contract service for payment of GST. In this case as per the submission of the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Adani Enterprises Limited (hereinafter referred to as Applicant ), is a company incorporated under the Companies Act, 1956. It is registered with the GST Authorities in the State of Madhya Pradesh and has been granted Registration No 23AABCA2804L1Z2. 2. The provisions of the CGST Act and MPGST Act are identical, except for certain provisions. Therefore, unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the MPGST Act. Further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or MP GST Act would be mentioned as being under the GST Act. BRIEF FACTS OF THE CASE AND SUBMISSION OF THE APPLICANTS IN THEIR APPLICATION IS AS UNDER - 3. The Applicant has entered into Agreement dated 08.03.2019 with Andhra Pradesh Mineral Development Corporation Limited (hereafter referred to as APMDCL ), in terms of which, it has been appointed as a Mine Operator (hereinafter referred to as MO ) for planning, engineering, financing, construction, development, operation and maintenance of Suliyari coal mine and subsequent delivery of coal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project Affected Families / PAP ). The cost incurred for constructing the R R Colony will be reimbursed by APMDCL. It is relevant to note that the Applicant in terms of the said agreement is only required to construct the R R colony for APMDCL. The land on which the R R colony is built, belongs to APMDCL as well as the super-structure that will be constructed will also belong to APMDCL, and that, the Applicant will not have any title or ownership of the R R Colony at any point in time. A copy of the Agreement with APMDCL dated 08.03.2019 along with the Schedules is attached and marked as Exhibit A . 3.4 For the construction of the R R Colony, the Applicant had appointed a sub-contractor, who will undertake the said construction work and invoice the Applicant for the supply of works contract services. In turn, the Applicant will raise an invoice on APMDCL for supply of works contract services, seeking reimbursement towards the actual expenditure, incurred on the construction of the R R Colony without any mar-up or margin. 3.5 The applicant submitted that (a) The nature of Mining activity and the construction are totally independent of each other. The risks, rewards and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an artificial bundling of the supplies, like that in the instant case, where supply of works contract of a construction of colony is not naturally or ordinarily bundled with the supply of mining services rendered by a mine operator. (iv) Further the definition of Composite Supply requires that the supplies which are naturally bundled should be supplied in conjunction with each other in the ordinary course of business . The CBIC has, in its flyer on Composite and Mixed Supplies , listed out some indicators for determining whether a supply can be said to be bundled in the ordinary course of business . The indicators are listed out herein below for ease of reference: The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business. Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. The nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendition of construction services (of the R R Colony) and Mining Services is not a composite supply for the purposes of the CGST Act, 2017. (viii) Furthermore, it is submitted that activity of construction of R R Colony clearly falls within the scope of the works contract as defined under Section 2(119) of the CGST Act, 2017. For reference purposes, the said definition has been reproduced hereunder: -works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract; (ix) On the perusal of the above definition, it appears that the activity of constructing a building (immovable property) is one of the specified activities in the definition of works contract. The other condition of there being a transfer of property in goods is also satisfied inasmuch as the title of the steel, cement, etc. which goes in the construction of the building is transferred to APMDCL. Thus the, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services will be used for providing works contract services as it s outward supply. In view of the above, disallowance under Section 17(5)(c) is not attracted. (xiii) The disallowance u/s 17(5(c) are attracted only when the works contract service is procured otherwise than in the course of further supply of work contract service. In the present case, the applicant is procuring the works contract service and is in turn rendering the same to the APMDC. Hence the disallowance u/s 17(5)(C) shall not arise in the hands of the applicant, but may only arise in the hands of APMDC. In case the disallowance u/s 17(5)(C) is given effect in the hand of the ultimate consumer being APMDC, then applying the same in the hands of Applicant will amount to double restriction of ITC which is never the intention of the ACT. (xiv) Hence in the view of the Applicant the service of Mining and Service of construction or monitoring of construction are two independent activities. The consideration for both is independently determined. Hence the question of which is predominant of these two. shall not arise at all. As the applicant is receiving the Work contract services in the course of further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take utilize ITC as per GST Act Rule on the basis of Tax invoice raised by his sub-contractors as his output works contract service for construction of R R colony only to APMDC the said Input tax credit should not be utilized towards the payment of GST liability with regards to supply of Mining Services. 6. RECORD OF PERSONAL HEARING - Shri Copal Chosla, GM, Finance, Mr. Vishal Agrawal, Tax Consultant and Shri HareshNikaam, Manager, Finance Account, Shri Deep Khare, Deputy Commissioner, Satna, the concerned officer SGST and Shri Deelip Kumar, Asstt. Commissioner, CGST, Rewaappeared for personal hearing through virtual hearing. The representative of the applicant reiterated the submissions already made in the application. The applicant during virtual hearing emphasizes on the definition of Composite supply given in the Section 2(30) of CGST Act and submitted that the construction of R R colony is not covered under the Composite supply and covers under Works contract service. He further emphasizes that:- (a) The nature of Mining activity and the construction are totally independent of each other. The risks, rewards and the skillset required for execution of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, while setting out APMDCL s obligation inter alia provides that it would make payment to the applicant towards construction of R R colony. (vi) That insofar as payment towards R R colony is concerned, Schedule 2 read with Schedule 15 to the Agreement stipulates that the entire cost towards construction of the R R colony would be paid on milestone basis as under: Sr. Percentage of cost Mile Stone a) 5% of the cost towards Construction of R R colony - as initial advance amount, interest bearing. Acknowledgement of letter of acceptance by the Applicant alongwith submission of Bank guarantee covering 110% of the advance amount and approval of Master Network and detailed PERT network on work schedule for construction of R R colony. b) 5% of the cost towards construction of R R colony - as initial advance amount, interest bearing. On certification by APMDCL that by the Applicant has opened its office at the site and mobilized its equipment alongwith submission of bank guarantee covering 110% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of a rehabilitation colony. It was thus submitted that the said two supplies cannot be said to be naturally bundled in the ordinary course of business. (xiii) that the construction of the R R colony and undertaking mining operations could not be said to be a composite supply also for the reason that the two supplies were not made in conjunction with one another in the ordinary course of business, inasmuch as the works contract service of constructing the R R colony is a one-time activity, and would conclude prior to the mine having commenced commercial operations. Therefore, by no stretch of imagination can it be contended that the two supplies in question are made in conjunction with one another. (xiv) It was submitted that the activity of constructing the R R colony was appropriately taxable as supply of works contract services, as defined in Section 2(119) of the CGST Act, to mean a contract for building, construction of an immoveable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. (xv) that the construction of the R R colony is construction of an immoveable property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary course of business, one of which is a principal supply; As per the above definition, a composite supply essentially has the following ingredients: (iii) Consisting of two or more taxable supplies of goods or services or both, or any combination thereof, (iv) which are naturally bundled (v) Supplied in conjunction with each other 7.3 Hence for classify of the service of construction of R R colony by the applicant as composite supply of mining service, the above ingredients is essentially should be there. We go through the Agreement signed between the Applicant and APMDC submitted by the Applicant with their application and we observe that as per para 8.2 (c)(page no.36),only mentioned that R R activities provided at clause 1B of Schedule 2 of this Agreement. The said para is mentioned under the heading of Mine operator obligation during the development stage of the Agreement. The relevant para 1B of the Schedule of Agreement in respect of Construction of R R colony and Schedule 15 in respect of terms of payment for construction of R R Colony is reproduced below :- Para 1B Rehabilitation and resettlement: - The mine operator shall be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as initial advance amount as interest bearing (interest @13.55% per annum) on i. Fulfilment of conditions mentioned at item no, l(A)(i), I(A)(iii), (A)(iv), I(A)(v), 1(A)(vi) above ii. On certification of Owners representative that the Mine Operator has opened his office at Site and mobilized the plant equipment and iii. Submission of unconditional Bank Guarantee covering 110% of the advance amount along with the interest as per the formats provided by the Owner which shall be initially kept valid up to ninety (90) days beyond the schedule date of completion of Development Stage. However, in case of delay in completion of these facilities, the validity of this Bank Guarantee shall be extended by the period of such delay. C. Eighty percent (80%) of cost towards construction of R R Colony against different milestones involved in construction of R R Colony shall be as per terms and conditions provided at Appendix] of Schedule 2. D. Ten percent (10%) of the cost towards construction of R R Colony on Final Acceptance of the R R Colony, Note 1: The recovery of the interest component on the interest bearing advance amount shall be made from the progres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mining Service as the other payment of mining service also described separately in the said Agreement i.e. Terms of payment of Coal handling plant given in Schedule 15 (2). Further we observe that as per Para 1B of the Schedule of Agreement (page No.7), the cost of construction of R R colony will be reimbursable, hence I find that the said payment is independent and has no connection with other services provided by the Applicant. The relevant para reproduced below :- R R Colony shall be constructed by the Mine Operator on mutual finalization of plan and sign. Documented payment towards the cost of R R colony construction shall be reimbursed to the mine operator. 7.5 We observe that in this case the construction of R R colony is to be done from the sub-contractor by the Applicant and the invoice of the said construction was raised by the sub-contractor to the Applicant under Works contract service and thereafter the Applicant reimburse the same amount from the APMDC by raising the invoice to APMDC. The Applicant has additionally been given the mandate of construction of the Rehabilitation Resettlement ( R R ) colony for which it will be reimbursed on actuals. 7.6 We o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the building i.e. R R colony is transferred to APMDC, hence, we find that the construction of R R colony is covers under the definition of Works Contract Service and GST is leviable on the said service under the Works contract service. 7.9 Now we discus about the second question raised by the Applicant that whether the applicant will be eligible to avail ITC of tax paid to the sub- contractor on Works Contract Service for construction of R R Colony or the same would be disallowed in terms of Section 17(5) (c ) of the CGST Act, 2017.We observe that the Section 17(5) of the CGST Act, 2017 deals with blocked credits under the GST law and enlists various circumstances under which the Input Tax Credit cannot be availed by the Recipient of Supply, notwithstanding the provisions of Section 16(1) (1) of CGST Act. The Sub-Section (c) of Section 17(5) deals with blocked/ineligible credit relating to Works Contract Services . The relevant provisions are as follows: (c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the view of this authority as discussed above. 7.11 In view of above, as per the submission of the Applicant, Agreement, departmental view submitted by the Additional Commissioner, Jabalpur and the provisions of GST law, we conclude that the construction of the R R colony by the applicant is supply of works contract service and also eligible for ITC of tax paid to sub-contractor for providing further Works contract service only. 8. Ruling 8.1 In respect of 1st question, the Authority hereby is of the opinion that the services of construction of the R R Colony supplied by the Applicant would be taxed under the Works Contract Service. 8.2 In respect of 2nd question, the Authority hereby is of the opinion that the Applicant will be eligible to avail Input Tax Credit of tax paid to the sub-contractor on works contract services for construction of R R colony and utilize same for providing/ supply of Works Contract service only. Further in terms of Section 17(5)(c) of the CGST Act, 2017, the said credit should not be utilized towards the payment of GST liability with regards to any other service including Mining Service. 8.3 The ruling is valid subject to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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