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TMI Blog2023 (12) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... rafts and provide for its maintenance etc. The applicant therefore is engaged in two taxable supplies. What is pivotal is that the supply of service is possible only when the goods i.e. aircrafts are supplied. Hence, the contract is a composite supply which are naturally bundled and supplied in conjunction wherein the principal supply is that of aircrafts. What will be the appropriate classification and rate of tax of the said supply? - HELD THAT:- Since it is already held that the contract with Airbus for supply of aircraft is a composite supply, and that the principal supply being supply of goods viz aircraft, it is held that aircrafts are classifiable under CTH 8802 will attract GST @ 5% in terms of notification No. 1/2017-IT (Rate) dated 28.6.2017 entry no. 244. Value to be adopted, for the purpose of payment of GST - HELD THAT:- In this case, the applicant relying on clause 1 [which defines FIM] and clause 4.2 of the contract and clauses 1.3 and 2.3.7 of the SoW, is of the view that since the FIM were supplied free owing to a contractual obligation and also on account of the difficulty laced in indigenization, this will not form part of the value of supply - However, the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om Spain to MoD in a fly-away condition, for the remaining 40 aircrafts, Airbus Defence Space SAU and Tata Consultancy Services has entered into a contract with the applicant [as the Indian Aircraft Contractor (IAC) for manufacture and supply vide contract dated 29.10.2021 (hereinafter referred to as the contract ). 5. The relevant clauses of the contract dated 29.10.2021, entered into between Airbus Defence Space SAU, Tata Advanced Systems Ltd and Tata Consultancy Services Ltd, is reproduced below for ease of reference viz: Airbus SE means Airbus Societas Europaea, a European public limited-liability company with its registered office in Amsterdam....... Aircraft means the C-295 MW transport aircraft modified by the purchaser for installation of CSE and including associated role equipment technical literature: C295 Aircraft Programme means all activities to be undertaken by the purchaser in relation to the aircraft including the design, development, certification, manufacturing support; Free Issue Material means any material tool provided by purchaser to the supplier during the term of this Contract; IAC the Indian Aircraft Contractor mean the consortium formed by Tata Advanced Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requirements of the Contract and associated Orders and shall include, as necessary and/or as requested by the Purchaser, but shall not be limited to:- (i) activities necessary to ensure compliance of the Item with the requirements of the Specification (including those in connection with continued airworthiness of the fleet, in service requirements and military qualification requirements as applicable) (ii) supply of all material, including, but not limited to raw material standards, sealants and adhesives. (iii) the manufacture, delivery (as defined in Article 7 Inspection, Delivery and Acceptance ) and support of the Items (as further defined in the Article 3.4 Support ) (iv) the design, manufacture and maintenance of Tooling as necessary to develop and manufacture the Items: (v) the supply of all relevant, updated and accurate documentation (including but not limited to documentation for certification, for continued airworthiness) and support requirements. (vi) the performance of. or assistance to the Purchaser for, as the case may be any modification activities as further defined in Article 8 Modifications (vii) the provision of any prototype, moulds, test samples, test tools ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Purchaser property but shall remain responsible for its custody, maintenance and set up at its own costs whenever reinstallation is required by the Purchaser. 4.2.1.4 If any action is taken by a third party in respect of any of the Purchaser s Property, the Supplier shall notify the Purchaser of such action and shall notify the third party that such Purchaser s Property is not the property of the Supplier. 4.2.1.5 All risks in such Purchaser s Property shall pass to the Supplier upon delivery thereof to the Supplier and shall remain with the Supplier until returned to the Purchaser 4.2.1.6 The Supplier shall return any Purchaser s Property upon request by the Purchaser and at the latest, upon expiry or termination of all the Orders for the performance of which such Purchaser s Property was loaned. 4.2.1.6 The supplier shall return any Purchaser s property upon request by the purchaser and, at the latest, upon expiry or termination of all the orders for the performance of which such purchaser s property was loaned. 4.2.2. Use of Purchaser s Property: the Supplier shall not use any Purchaser s Property for any purpose other than the performance of the Contract. The Supplier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusive of applicable taxes. The said invoice will then be forwarded by the Airbus to MoD for payment. The payments under the contract are firm and fixed in currency basket of Euros, USD and INR. While the INR payments will be made by MoD directly to the applicant on behalf of Airbus, the payments in Euros and USD will be made by Airbus to the applicant. The payment schedule involves certain amounts received as advances on milestone basis and thereafter on per aircraft delivery basis. Airbus will obtain registration under Goods and Services Tax (GST ) in India. 10. On the aforementioned facts, the applicant vide his application dated 24.12.2021, sought ruling on the following questions viz (i) What is the nature of supply under the contract between the applicant Airbus (i.e. whether the same will qualify as supply of goods or supply of service? (ii) Given the nature of the activities undertaken by the applicant under the contract, what will be the appropriate classification rate of tax of the said supply? (iii) What is the value to be adopted for the purpose of payment of GST? (iv) What will be the time of supply for payment of GST? 11. The Authority for Advance Ruling (AAR) vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd rate of tax of the said supply? (iii) What is the value to be adopted for the purpose of payment of GST? (iv) What will be the time of supply for payment of GST? 15. The applicant has relying on sections 2(52) and 7 of the CGST Act, 2017, and judgements in the case of BSNL [2006 (3) TMI-1 SC] and JK tyre Industries Limited [2017 (10) TMI 258-Mad (HC)] made the following submissions: that whether a contract involves supply of goods or otherwise must be determined on true subject matter of the contract; that on perusal of the various clauses of the contract and detailed scope of work, the main responsibility of the applicant is to manufacture and supply 40 C 295 aircrafts as per the established work share and delivery plan; that the main responsibility of the applicant under the contract is to produce 40 C-295 aircrafts; that while the scope includes various activities such as assembly, integration, painting, testing, manufacture of detailed parts, supply of tooling, provision of consumables etc. it is essentially a detailing of the various activities to be undertaken, which ultimately results in manufacture and supply of the airworthy aircrafts. 16. The applicant in addition to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l supply is manufacture supply of aircraft in airworthy condition; that the various services provided are only incidental or ancillary to the main supply of aircrafts. 19. Additionally, the applicant feels that since their activity will qualify as a composite supply with the principal supply being supply of goods, i.e. aircraft, the same is classifiable under CTH 8802 and will attract GST @ 5% in terms of entry 244 of notification No. 1/2017-IT (Rate) dated 28.06.2017. 20. The applicant has further stated that in terms of section 12(2), ibid, the liability to pay GST on supply of goods shall arise on the date of issue of invoice or the last date to issue invoice, whichever is earlier, further, as per section 31(1) of the CGST Act, in case of supply of goods, invoice shall be issued before or at the time of removal of goods or delivery of goods, further, as per notification No. 66/2017 CT dated 15.11.2017, in the case of supply of goods, the time of supply will be attracted only at the time of issue of invoice and not on receipt of payment. Therefore, the applicant feels that there is no requirement to pay GST on receipt of advance in the case of. supply of goods. 21. further, in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es under the contract are integral part of manufacture and supply of aircraft therefore it will not constitute a distinct supply of service by applicant to Airbus: that in the case of Patnaik Co [1965 (1) TMI 44-SC. it was held that a contract of sale is one whose main object is transfer of properly in delivery of possession of a chattel as a chattel to the buyer: that they also wish to rely on the case of T V Sundaran Iyengar Sons [1975 35 STC 24]. The Central India Machinery Manufacturing Co Ltd [1977 (4) TMI 150 SC]. Azad Coach Builders P Ltd [2000 (2) TMI 808]. Hindustan Shipyard Ltd [2000(7) TMI 864 SC], CC Sebastian [2007 8 VST 798 Ker) Cement Concrete P Ltd 12023 (8) TMI 403- Patna]: that the contractual obligation of the applicant is not discharged till the supply of airworthy aircrafts; that the title and risk in respect of the aircraft will pass from the applicant to Airbus only at the time of delivery of the aircrafts; that certain components such as engines, propellers, hydraulic landing gear etc. provided as FIM will be used in final assembly of aircrafts; that FIM provided by Airbus under contract will not detract the nature of supply; that what is supplied by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and services in terms of the contract is a composite supply in terms of section 8(a) or a mixed supply in terms of section 8(b) of the CGST Act, 2017. 32. Now, both the terms composite supply and mixed supply stand defined under section 2, viz (30) composite supply means 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 conjunction with each other in the ordinary course of business, one of which is a principal supply: Illustration .- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply: (74) mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply. Illustration .- .A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are - --- There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. --- The elements are normally advertised as a package. --- The different elements are not available separately. --- The different elements are integral to one overall supply if one or more is removed, the nature of the supply would be affected. No straight jacket formula can he laid down Io determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above 33. A conjoint reading of the contract and the scope of work clearly shows that the main task entrusted to the applicant under the contract is to produce 40 C-295 aircrafts, the scope includes various activities such as assembly, integration, painting, testing, manufacture of detailed parts, supply of tooling, provision of consumables etc.. It is essentially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement between the applicant and Airbus requires the applicant to supply the aircrafts and provide for its maintenance etc. The applicant therefore is engaged in two taxable supplies. What is pivotal is that the supply of service is possible only when the goods i.e. aircrafts are supplied. Hence, we are of the opinion that the contract is a composite supply which are naturally bundled and supplied in conjunction wherein the principal supply is that of aircrafts. 37. The applicant has relied on a plethora of judgements. We find it apt to quote relevant extracts from one of the judgement viz. The Central India Machinery Manufacturing Company Ltd Ors [1977 (4) TMI 150 SC] Whether on the facts of this case, the contract dated 15-6-1968 between the Union of India and the Central India Machinery Manufacturing Company Ltd. (Wagon Structural Division) Bharathpur (hereinafter called tile Company) for manufacture and supply of wagons, was a contract of sale or work contract, is the principal question that falls to be determined in this appeal by certificate, field by the Union of India against a judgment dated January 31, 1969 of the High Court of Rajasthan. The broad criteria for distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices quoted under the present contract, is qua each aircraft. The ratio therefore is applicable. However, the differentiation is that the contract under question is of supply of aircrafts along with provision of support services. It is on this background that we have held that the supply is a composite supply wherein the principal supply is supply of aircrafts. 38. Now we move on to the second question posed before us i.e. Given the nature of the activities undertaken by the Applicant under the contract, what will be the appropriate classification and rate of tax of the said supply. 39. Before dwelling on to the subject, it would be prudent to reproduce the relevant portion of the judgement of the Hon ble Supreme Court in the case of Mohit Minerals (P) Ltd. [Civil Appeal No. 1390 of 2022], delivered on 19.5.2022 , viz 135. Section 2(30) of the CGST Act defines composite supply as (30) composite supply means 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 conjunction with each other in the ordinary course of business, one of which is a prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. To levy the IGST on the supply of the service component of the transaction would contradict the principle enshrined in Section 8 and be in violation of the scheme of the GST legislation. Based on this reason, we are of the opinion that while the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act. it would be in violation of Section 8 of the C GST Act and the overall scheme of the GST legislation. As noted earlier, under Section 7(3) of the CGST Act. the Central Government has the power to notify an import of goods as an import of services and vice-versa: 7. Scope of supply .. (3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the Council, specify, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready held that the contract with Airbus for supply of aircraft is a composite supply, and that the principal supply being supply of goods viz aircraft, we hold that aircrafts are classifiable under CTH 8802 will attract GST @ 5% in terms of notification No. 1/2017-IT (Rate) dated 28.6.2017 entry no. 244. 41. Moving on to the next question wherein the applicant has sought ruling about the value to be adopted, for the purpose of payment of GST. For the sake of case of reference, we reproduce the Section 15 which deals with valuation under CGST. 15. Value of taxable supply. [relevant extracts] (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include,- (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission has stated that in terms of section 15 reproduced supra, they are not related with Airbus; that there is no consideration flowing from Airbus to the applicant other than the contract price agreed between them; that there are various parts, components materials which cannot be indigenized are provided by Airbus as FIM during the contract; that the ownership of the FIM shall vest with Airbus. The applicant has relied upon various clauses of the contract, to contend that value of FIM should not form part of transaction value. For ease of understanding, the relied upon clauses arc reproduced below: Clause 1 Definition of FIM already reproduced in para 5 supra; Clause 4.2 already reproduced in para 5 supra; Clause 1.3 of SoW Statement of Work 1.3 BASIC WORKSHARE The main activities to be performed by each Party are as follows: The supplier shall: 1. Produce 40 A/Cs C-295 according to the established workshare and delivery plan 2. Provide Aircraft painting as a subcontracted activity of the Supplier 3. Provide the facilities, standard hand-tooling, standard troubleshooting tools and GSE equipment 4. Provide the production all support function: manufacturing engineering, quality, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined under section 15 of the CGST Act, 2017? Section 15(2)(b), reproduced supra, states that value shall include any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both. I However, in this case, the applicant relying on clause 1 [which defines FIM] and clause 4.2 of the contract and clauses 1.3 and 2.3.7 of the SoW, is of the view that since the FIM were supplied free owing to a contractual obligation and also on account of the difficulty laced in indigenization, this will not form part of the value of supply. However, we find that the issue of valuation of free supplies under GST has been decided by the Honbl Chhattisgarh High Court in the case of M/s. Shree Jeet Transport (Writ Petition (T) No. 117/2022), on 17.10.2023, the relevant extracts of which are reproduced below viz. 1. (a) This instant petition is filed to challenge the order dated 28-2-2022 (Annexure - P/5) passed by the Appellate Authority for Advance Ruling, Chhattisgarh (for brevity the AAAR ) as no decision was rendered in terms of Section 101 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied with such ruling, filed an appeal before the Appellate Authority i.e. AAAR wherein the AAAR passed an order dated 28-2-2022. The Member of the CGST (Central) upheld the view of the AAR and held that diesel, which is filled FoC by the service recipient in the engaged chartered (dedicated) vehicles as per the proposed draft agreement would form part of value of supply of service charged by the appellant and applicable rate of GST was to be leviable whereas the SGST Member held that considering the provisions of Section 15(2)(b) which provides that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply does not include FoC diesel for the simple reason that the liability to pay for the diesel as per draft contract is of service recipient. 20(c) In the case in hand, as per the proposed agreement/contract, the fuel (diesel) is not in the scope of the service of the petitioner. The agreement purports that the fuel would be free of cost basis for transportation of the goods and fuel would be filled by the service recipient for transportation. 21. The very definition and existence of the petitioner who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made or agreed to be made for consideration in furtherance of business by the supplier. So the nature of business would be the decisive factor and if such consideration is shifted by entering into agreement, it would be encroaching upon turf of G.T.A., and would only be a collective enthusiasm and that statutory liability cannot be evaded. As has been laid down by the Supreme Court in CLP India Pvt. Ltd. Versus Gujarat Urja Vikas Nigam (2020) 5 SCC 185, the parties by agreement cannot over-ride the statutory provisions in relation to matter of tariff. 26. Another submission is made that the model GST law proposed to include in Section 15(2)(b) of CGST Act the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued . Therefore by such provision, free supply was included to be valued. However, in the final GST law, the provision of free supply by the service recipient was excluded. It is contended that the transaction value was an inclusive part in the proposed Model GST law under clause (b) Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould nevertheless be added to the value for the purpose of GST. (emphasis supplied) 44. The judgement is applicable to the facts of the present dispute, in light of the reasoning adopted in the judgement, as listed out in paras 21 to 31, reproduced supra, more so since the FIMs supplied by Airbus, as per the applicant himself are crucial/critical components of the aircraft. 45. The issue therefore is no longer res Integra having been decided by the Hon ble High Court of Chhattisgarh, following the judgement of the Honbl High Court we hold that the value to be adopted for the purpose of payment of GST in respect of 40 aircraft will include the supply made free of cost by Airbus i.e. will include the value of FIMs also. 46. The last question pertains to the time of supply for payment of GST. The applicant states that in terms of section 12(2) of the CGST Act, liability on supply of goods shall arise on the date of issue of invoice or on the last date to issue invoice, whichever is earlier. The applicant submits that they are not supposed to pay GST on receipt of advance in the case of. supply of goods. They have also relied upon notification No. 66/2017-CT dated 15.11.2017 to substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Act including in the situations attracting the provisions of section 14 of the said Act, and shall accordingly furnish the details and returns as mentioned in Chapter IX of the said Act and the rules made thereunder and the period prescribed for the payment of tax by such class of registered persons shall be such as specified in the said Act. [F.No. 349/58/2017-GST (Pt.)] (Dr. Sreeparvathy S.L.) Under Secretary to the Government of India A conjoint reading of section 12, reproduced supra, with notification No. 66/2017-CT, clearly leads one to a conclusion, that provision on payment of tax on advances received on supply of goods, stands deleted vide notification No. 66/2017-CT dated 15.11.2017. Therefore, we agree with the contention of the applicant that they are not required to pay GST on the receipt of advance in the case of supply of goods. 48. In the light of the above, we rule as under: RULING (i) The nature of supply under the contract between the Applicant and Airbus is a composite supply in terms of section 8 of the CGST Act, 2017 wherein the principal supply is supply of aircraft (i.e., supply of goods . (ii) The aircrafts are classifiable under CTH 8802 will attract G ..... X X X X Extracts X X X X X X X X Extracts X X X X
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