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TMI Blog2021 (12) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... eference is given with respect to bundled service it can be extended to bundled supplies in the GST regime. The applicant is involved in supply two services i.e. Setting up of FGD plat and O M of the said plant, one at a time - the service of Setting up of FGD plant, which is in the nature of turnkey project / EPC contract and examine whether setting up of the said plant qualifies to be a composite supply of works contract or not. In the instant case, the setting up of FGD plant includes civil works (tanks silo works, Mill Building, MCC building etc.), Equipment foundation works, duct works, installation works (mechanical / electrical) etc., Thus the applicant has undertaken erection, installation commissioning of FGD plant, which is permanently fastened to earth and hence the said plant becomes immovable property. Construction, supply of relevant goods, assembly, commissioning of such immovable structure qualifies as a works contract service - the tender Notification the Job order reveal that the FGD plant is primarily meant for the control of emission of Sulphur Dioxide, Nitrogen Oxide and other items as per the notification dated issued under the Environment Protec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pta, CA Authorised Representative ORDER UNDER SECTION 98(4) OF CGST ACT, 2017 UNDER SECTION 98(4) OF KGST ACT, 2017 M/s. Shapoorji Pallonji and Company Pvt. Ltd., (herein after referred as Applicant), 7th Floor, 124, Surya Chambers, HAL Airport Road, Murugeshpalya, Bengaluru - 560 017, having GSTIN 29AAACS6994C1Z1, filed an application for Advance Ruling under Section 97 of CGST Act,2017 read with Rule 104 of the KGST Rules, 2017 and Section 97 of the KGST Act, 2017 read with Rule 104 of KGST Rules 2017 in form GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the KGST Act. 2. The applicant submitted that they are engaged in the construction business and providing works contracts services to various customers including the Government, Public Sector Undertakings, Government Entities and Private Sector entities. The applicant got the order from M/s Raichur Power Corporation Limited (herein after referred to as RPCL ), on winning the tender, for setting up of Wet Limestone Flue Gas Desulphurisation (referred as FGD) and operation maintenance of the said plant. The applicant stated that they have initiated the work for setting up of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details of said emission limit are given in Schedule-I of Environment (Protection) Rules, 1986, which are as detailed below: Pollutant TPPs(units) installed upto 21.12.2003 TPPs(units) installed after 1.4.2004 upto 31.12.2016 TPPs(units) to be installed from 1.1.2017 Particulate matter 100 mg/Nm3 50 mg/Nm3 30 mg/Nm3 Sulphur Dioxide SO2 600 mg/Nm3 ( 500MW capacity units) 100 mg/Nm3 200 mg/Nm3 ( _500MW capacity units) Oxides of Nitrogen (NOx) 600 mg/Nm3 300 mg/Nm3 100 mg/Nm3 Mercury (Hg) 0.03 mg/Nm3 It classifies the thermal power project in different categories according to the date of installation of the plant and lays down the emission limit. The above emission limits are required to be achieved within a period of two years from the date of notification which has been extended to the year 2024. 3.5 M/s RPCL h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l form. The main equipment includes for Gypsum Handling System is gypsum hydro cyclones, vacuum belt filters, vacuum pumps, filter water system etc., vi. Wastewater treatment and disposal System : The FGD system produce a small amount of wastewater. The main task of the wastewater treatment plant is to adjust the pH and to remove the heavy metals and suspended solids. The waste water collected in the waste water tank of FGD system shall be provided with adequate treatment with lime as reagent and then disposed to existing ash handling system. vii. Chimney : Reinforced Cement Concrete (RCC) Chimney will be of cylindrical in shape with 9.0 m diameter and 125 m height. Treated flue gas from the absorber will flow through chimney and finally released into the atmosphere. viii. Electrical instrumentation : Electricity is required to run slurry pumps, limestone ball mills, conveyor belts, wastewater treatment and recycling pumps, lighting of the plant etc., SCADA system will be provided to run FGD plant with automation. 3.8 The scope of operation maintenance of FGD plant system is provided at page 636 of Technical Specification document-Section-9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ministry of Forest and Climate Change with the optimum utilization of energy and consumption of limestone. Further, the applicant is also responsible for appointing experienced service engineer, supervisor etc. for proper operation and maintenance of the FGD plant during the O M period. The Section 9.1.0 i.e. Scope-Operation Maintenance of Technical Specification document and the copy of contract entered by applicant with M/s ROCL are enclosed. 3.9 Furthermore, as mentioned above, M/s RPCL is required to achieve the emission norms as notified by the Ministry of Forest and Climate Change. The entire process of installing the plant is to achieve the said object. 4. APPLICANT S INTERPRETATION OF LAW 4.1 Scope of Work : The applicant, quoting the definition of Composite Supply defined under Section 2(30) of the CGST Act 2017, submitted that the scope of work covered in the present project is in the nature of composite supply as the supply given under the work order satisfies all the following four criteria. a) Two or more taxable supply of goods or services or any combination thereof. b) Supply is naturally bundled. c) Supply in conjunction with each ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of gases without impurities. The above economic objective is achieved through FGD plant. Therefore, the principal supply is FGD plant. The setting up of FGD plant is a works contract as defined in Section 2(119) of the CGST Act, 2017 in as much as the setting up of plant results in immovable property. 4.2 The services provided by the applicant are covered under entry no.3(iv)fel of the Notification No.11 /2017-CT(R) dated 28.06.2017, as amended from time to time: The applicant submits that clause (e) of entry no. 3(iv) of notification 11/2017-CT(R) dated 28.06.2017 i.e. (e) a pollution control or effluent treatment plant, except located as a part of a factory has two limbs. The first limb specifies that supply of services should be by way of construction, erection, commissioning, installation etc., resulting in a pollution control device or effluent treatment plant In this regard the applicant submits as under: i. It is submitted that at the time of generation of Thermal Power by the various coal based thermal power plants, the gases like Sulphur dioxide gas, Mercury are also generated which is major air pollutant and has significant impacts upon hum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Excise Act, 1944 It is submitted that the term Factory is not defined under the CGST Act, 2017 but the same is defined under Section 2(e) of the Central Excise Act, 1944. The definition of factory can be adopted under CGST Act also as both the Acts are for levying Indirect taxes on goods. Further, the definition gives popular meaning of the factory. The same is reproduced below: (e) Factory means any premises, including the precincts thereof wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on; As per above definition, the term factory means any premises including precincts thereof wherein or in any part of which, excisable goods other than salt are manufactured or any manufacturing process connected with the production of these goods is being carried on. Thus, it is evident from above that to be called any premises or precincts thereof as Factory , it is necessary that manufacturing process should be carried on in any part of the said premises. ii. Meaning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary one of the meanings of the word process is a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the accomplishment of some result . The activity contemplated by the definition is perfectly general requiring only the continuous or quick succession. It is not one of the requisites that the activity should involve some operation on some material in order to (sic effect) to its conversion to some particular stage. There is nothing in the natural meaning of the word process to exclude its application to handling. There may be a process which consists only in handling and there may be a process which consists only in handling and there may be a process which involves no handling or not merely handling but use or also use. It may be a process involving the handling of the material and it need not be a process involving the use of material. The activity may be subordinate but one in relation to the further process of manufacture. Thus, as per above the word manufacture is generally understood to mean as bringing into existence a new substance. It does not mean merely to produce some change in a substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Supreme Court in the case of Union of India Vs. Ahmedabad Electricity Co. Ltd., [2003 (158) ELT 3 (SC)] has decided that the process of burning of coal which produces the heat to produce the steam does not result in the process of manufacture. The observation of the Court is as follows: 6. An important distinguishing factor is that coal is used in factories as fuel and not as raw material for purposes of manufacturing the end product. The learned ASG appearing for the Union of India submitted that cinder is a by-product of coal. Even if cinder is a by-product of coal, it is not a by-product of the raw material used in a factory for manufacturing the end product. It is a by-product of an item of fuel. 26. Can burning of coal be called manufacturing? The locomotive steam engines used to run on coal. Coal was being constantly burnt in the boiler of the engine. The constant burning of coal produced cinder. Could it be said that the engine driver was manufacturing cinder? Is any manufacturing activity involved? Burning of coal for purposes of producing steam cannot be said to be a manufacturing activity. Therefore, neither ash nor cinder can be said to be products of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rformance guarantee testing and acceptance procedures and performance liquidated damages clause of Section C7 reveal that if the demonstrated guarantee/s continue to be beyond the stipulated acceptable shortfall limit, even after the modifications/replacement within 90 days or a reasonable period allowed by the owner, after tests have been completed, the owner will have the right to either (a) reject the equipment / system / plant and recover from the bidder the payment already made or (b) accept the equipment / system / plant after levying applicable liquidated damages. Thus, it is evident that the objective of the plant is ensured at the completion of construction stage itself vide several clauses and performance guarantee including liquidation damages. Hence, the contention of the applicant that the Operation Maintenance and construction services together ensure the essential character of the service is not acceptable. Further, Section A4 clause 13.3 provides for payment schedule and as per cause 13.3.4 payment schedule for O M of FGD system is on invoice basis raised monthly. Hence it is evident that the contract itself has separated the payment for O M activity based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 The Assistant Commissioner concluded that the supply shall be considered as mixed supply as defined in Section 2(74) of the CGST Act, 2017. In order to constitute the supply as mixed supply the following two major conditions shall be satisfied. a) It should be for a single price. b) Such supply should not constitute the composite supply. It is submitted that both the conditions are not satisfied and the same will be evident for the following submissions: i. Single Price: The applicant, on page 33 onwards of the application, has enclosed the Annexure to the agreement, which gives price separately for supply of goods, supply of services, civil work, freight, operation maintenance. The Assistant Commissioner has not referred to the said break-up. Further, the Assistant Commissioner has admitted in para (vii) that the contract has separated the payment of operation maintenance activity based on the monthly invoices from the construction activity, but has not referred to break-up given in other supply like goods, civil work mentioned above. It is also admitted that the amount will vary month to month. Therefore it is submitted that the condition of single pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the applicant sought advance ruling in respect of the questions mentioned at para 2 supra. 11. The applicant contends that their services of (i) setting up of FGD plant and (ii) Operation Maintenance of the said plant, together constitute a composite supply and the principal supply is setting up of the FGD plant; their services are covered under SAC 9954 and accordingly entry number 3(iv)(e) of the Notification 11/2017-Central Tax (Rate) dated 28.06.2017 is applicable to them thereby attract GST @ 12%. 12. In view of the above, the major issue before us to decide is whether the combined service of setting up of Wet Limestone FGD plant and operation maintenance of the said plant be considered as a composite supply or not. We proceed to examine whether the impugned supply constitutes to be a composite supply, for which we invite reference to the definition of Composite Supply . 13. Composite Supply is defined under section 2(30) of the CGST Act 2017 to mean a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant; If the person, other than the one who setup the plant, operates the plant desired result may not be achieved and both the persons may blame each other and therefore the activities are naturally bundled in ordinary course of business. Further the maintenance of the plant is incidental to operation, which is essential to ensure the plant in working condition. Further the Bid document (clause(a) of Section-9 of Technical Specification ) also substantiates that the activities are naturally bundled. The applicant claims that the principal supply is FGD plant. Thus the applicant conveniently clubbed the operation activity with the supply of setting up of FGD plant and maintenance and operation as the incidental activity. 15. The applicant during the personal hearing while referring to the ruling of the Appellate Authority for Advance Ruling, Karnataka in the case of M/s BEML, Bengaluru, wherein it was held, from para no. 18 to para no. 23, that supply of goods and services from each cost centre namely C, D, E, and G are independent supply; that each supply mentioned in cost centre C, D, E and G are independent supplies and are not interdependent; the price is also separately s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempted from the purview of service tax. The expression relating to is very wide in its amplitude and scope as held by the Hon ble Apex Court in Doypack Systems P. Ltd. [1998 (36) ELT 0201 (SC)]. Therefore, all taxable services rendered in relation to transmission/ distribution of electricity would be eligible for the benefit of exemption under the said Notification for the period prior to 27.02.2010. b. Mumbai Railway Vikas Corporation Ltd. 2021 (11) TMI 18 CESTAT Mumbai The Tribunal in paras 4.10 as 4.11 has referred to the various clauses of the argreement and meaning of Divisible Contract as given in various dictionaries. Observation of the commissioner. The Tribunal in para 4.12 has concluded that it is turnkey contract incorporating all the activity specified in the contract as one complete work. The Tribunal in para 4.13 relied upon the judgement of Sentinel Rolling Shutters and Engineering Co. (13) Ltd. v. CST 1978 (4) SCC 260. The Supreme Court has held that the payment of amount due under the contract may be spread over the entire period of the execution of the contract. This cannot have any bearing on the determination of question whether the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble it shall be considered as divisible contract. In this case as evident from the tender document that M/s RPCL intend to receive operating plant. Therefore, each part of the contract like supply, erection and commissioning are not separately enforceable. Hence, it is submitted that it is not divisible contract. 15.3 Many judgements were not placed before AAAR. The above judgement referred in para 15.1 were not placed before AAAR by the applicant. Therefore, AAAR did not have the advantage of the ratio of these judgments. The AAAR in the case of M/s BEML Limited in para 21 has observed as under: The concept of the Naturally Bundled , as used in Section 2(30) of the CGST Act, 2017, lays emphasis on the fact that the different elements in a composite supply are integral to the overall supply and if one of the elements is removed the nature of supply will be affected. We fail to see this concept in this contract. In this case, although there is only one contract, the different activities done by the Cost Centers C, D, E and G as part of the contract, are clearly specified and identifiable. The scope of works undertaken by each Cost Centre C, D, E and G are entirely ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emergency absorber system, slurry recirculation oxidation system, limestone, handling system, gypsum dewatering system, emergency slurry system, process water system, cranes, hoists elevators, compressed air system. Electrical Installation work- 6.6 kv ht switchgear panel work, transformer work, emergency diesel generator set work, it panels (0.415 kv distribution device) work, ups dc system, lighting work. Control Instrumentations installation work- FGD control system work, analysers work, instruments work, actuators with cabinets and boxes work, 400 kv switchyard work, hvac system water supply work Finally, structures / Units are to be integrated to form a complete FGD project for testing commissioning as per tender specifications. The various activities which are required to be completed for setting up the FGD plant are given in Annexure-1 to this submission. The above method of execution is explained by one example. The item specified in Sr. No. 3, 4 and 5 are Chimney Stacks Unit, Absorber, Tanks Silo Works. The applicant can commence civil work for setting up of Chimney Stacks Unit, Aborber, Tanks Silo Works simultaneously. The procurement of material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h operation and maintenance is required to be performed by the applicant. Therefore, it is submitted that operation and maintenance and setting up of plant is composite supply where setting up of plant is principal supply. The operation and maintenance in common parlance is naturally bundled with the setting up of plant as any problems noticed during operation and maintenance is required to be rectified by the person setting up of plant. In case operation and maintenance is done by other person there will be always dispute between the person setting up of plant and person operating and maintaining of the plant. Each one will try to find out fault with other. Therefore, in commercial parlance operation and maintenance generally awarded to person who setting up of the plant. 15.8 Conclusion It is submitted that the activity of the applicant shall be considered as composite supply of setting up of plant and operation and maintenance with setting up of plant as principal supply. 16. Considering the submissions made by the applicant and the jurisdictional officer, we now proceed to examine the tender documents and the agreement to bring out the substance of agreement and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting power plant and subject to the fulfillment of performance guarantees. This clearly indicates that the setting up of FGD plant and the O M of the same are two separate distinguished supplies and the supply of O M service starts after completion of the setting up of FGD plant. Thus these two supplies are not naturally bundled. v. Clause 20 of the bid document specifies that Corporation reserves the right to award whole or part of the work should be the situation so warrant , which indicates that the owner (RPCL) can award the contract to different persons, if situation warrants. Thus it can be construed that the contract is divisible and the activity of setting up of FDG plant and O M are two separate and independent supplies and are not naturally bundled. In view of the above, it is clearly evident that the two supplies of setting up of FGD plant and its O M are separate supplies, not supplied in conjunction with each other but one after the other i.e. after completion of the supply of setting up of FGD plant and hand over of the same only the supply of O M gets initiated. Further the price for each supply is separately indicated. Thus the impugned supply does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The flexibility demonstrated by the contracting parties indicates that O M is not an integral activity to setting up of FGD plant but a separate distinct activity. Thus the said case laws are not applicable to the instant case. 18. When interpreting the nature of a contract, the form of the agreement is not important, it is rather the substance which has to be seen. The parties may use any words they like to suit their intention and it is therefore imperative that the agreement may not be taken as it is but its nature/substance has to be seen to arrive at the correct conclusions. In this case, although a single contract has been made for setting up of Wet Limestone Flue Gas Desulphurisation (FGD) plant, and also the operation maintenance of the said plant, there is clear demarcation of the activities not only in terms of the price break up, but also from the intent of the contract demonstrated in various provisions as discussed supra. Thus the two supplies of setting up of FGD plant and its O M are separate supplies, not naturally bundled and not supplied in conjunction with each other but one after the other. 19. The ruling of the AAAR, Karnataka, in the case of M/s BEML ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken erection, installation commissioning of FGD plant, which is permanently fastened to earth and hence the said plant becomes immovable property. Construction, supply of relevant goods, assembly, commissioning of such immovable structure qualifies as a works contract service. Further the tender Notification the Job order reveal that the FGD plant is primarily meant for the control of emission of Sulphur Dioxide, Nitrogen Oxide and other items as per the notification dated issued under the Environment Protection Act, 1986. Thus the said plant is meant for control of emission of hazardous gases. Explanatory Notes to the Scheme of Classification of Services is a guiding tool for classification of services, under which Tariff heading 9954 covers construction services and the heading 995429 specifically covers Construction services of other civil engineering works not elsewhere covered which include plants for treating and processing of hazardous/non-hazardous materials. The setting up of FGD plant merits classification under this heading 995429, as the said plant is meant for control of emission. Entry No.3 of Notification No.11/2017-Central Tax (Rate) dated 28.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing process is being carried on. The term manufacture is defined under Section 2 (72) of the CGST Act. 2017 to mean processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term -manufacturer shall be construed accordingly In the thermal power plant coal is burnt to generate the steam, which in turn is used to rotate the turbine that is attached to a shaft which rotates within the magnetic field and thereby alternate current is generated. Thus no raw material / input is processed to result in a new product having a distinct name, character. Therefore the process involved in the thermal power plant does not amount to manufacturing process The Hon ble Supreme Court in the case of Union of India Vs. Ahmedabad Electricity Co. Ltd., [2003 (158) ELT 3 (SC)] held that the process of burning of coal which produces the heat to produce the steam does not result in the process of manufacture. In view of the above, both the conditions i.e. the FGD plant is a pollution control plant and is not located as part of a factory, are fulfilled and hence the applicant s service i.e. set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prepared on performance of FGD plant. f) Submission of periodical reports to the owner on the operating conditions of the FGD plant. Contractor has to ensure that adequate measures are initiated in advance to overcome any actual or likely shortfall in performance. It is clearly evident from above that the applicant, during the O M contract period of 3 years, is responsible for achieving emission norms as notified by the Ministry of Forest and Climate Change with the optimum utilization of energy and consumption of limestone. Further, the applicant is also responsible for appointing experienced service engineer, supervisor etc. for proper operation and maintenance of the FGD plant during the O M period. M/s RPCL is required to achieve the emission norms as notified by the Ministry of Forest and Climate Change. The FGD plant has to be in operation so as to achieve the said object. The applicant, being the contractor for O M of the FGD plant, is involved in supporting the running of the said plant and thereby is supporting M/s RPCL to achieve the object and hence is supporting the business of the owner of the plant i.e M/s RPCL. Therefore the O M of the FGD plant gets cov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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