9911796707
TMI Blog2023 (12) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices Tax Act, 2017 (hereinafter referred to as CGGST Act, 2017)] M/s Hitachi Energy India Limited, 1st Floor, No. OP-05, C246/6, Vallabh Nagar, Near Sant Gyaneshwar School, Raipur, Chhattisgarh, 492001, a registered unit having GSTIN-22AARCA9513E1ZR, has furnished an application in form ARA-01 under section 97 of the Chhattisgarh Goods & Services Tax Act, 2017 seeking advance ruling as to (i) Whether the supply of services made by the Applicant under Fifth Contract is composite supply with principal supply of goods under the Third Contract? (ii) 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?. The above said ARA-01 application dated 08.06.2023 complete in all respect along with the relevant challans was received on 28.06.2023. 2. Facts of the case: - 2.1. As informed by the applicant in the instant ARA-01 application, they are a company inter alia engaged in manufacture and supply of electrical equipment of various capacities depending on end use and application to specific industry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contract). 2.6. As per the Fifth Contract, the applicant has been entrusted with the responsibility of delivery of goods at the site of installation. For this, the applicant engaged transporters who issued consignment notes and raised invoices to the applicant for such transportation of goods. The applicant discharged the GST liability under reverse charge mechanism on the amounts paid by them to the transporters. 2.7. As per the terms of the Contract, the Applicant raised invoices on PGCIL for 'F&I' or 'Freight and Insurance' along with the taxes under SAC 996793. 2.9. However, the GST component of the said invoices was not reimbursed by PGCIL as they are of the view that the same is exempt in terms of SI. No. 18 of the Notification 12/2017-CT (Rate). That, the applicant bore the cost of the differential GST on their own account and duly deposited the same to the Government in a timely manner. 2.10 PGCIL responded to the correspondences of the applicant vide letter dated 22.03.2018 wherein it was stated that PGCIL did not share the understanding of the applicant that supply of goods and Freight & Insurance are composite supply. It was however stated that the applicant may opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, it is clear that it is normal industry practice that the goods to be supplied are to be delivered at site and freight and insurance are to be paid as natural consequence. Thus, the supplies are bundled together and the services so performed are ancillary and necessary for the supply of goods, making the same the principal supply. iii. That, since the applicant fulfils the conditions laid down by virtue of Section 2(30) of the CGST Act, 2017, the services of local transportation, insurance and freight for supplying goods, should be considered as a composite supply, with the principal supply being supply of goods. iv. That, the rulings cited below are also squarely applicable wherein in similar circumstances, it has been held that incidental supplies of transportation, freight and insurance made by the applicant should be treated as being provided in conjunction with the principal supply of supply of goods, which was the intention of the parties of the Contract as well: * In Re: Aditya Birla Nuvo Limited reported at 2019 (29) G.S.T.L. 247 (A.A.R. - GST) * In Re: Skipper Limited reported at 2019 (20) G.S.T.L. 110 (A.A.R. - GST) v. The applicant has also invite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reight and insurance being provided under the Fifth Contract are in the nature of Business Support Services and hence, do not warrant exemption under SI. No. 18 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017, which only covers services by way of transportation of goods. ii. That, to undertake the transportation of goods, the applicant has engaged third party vendors who are performing the said service. Since the applicant is not performing the services but only arranging 'or the same, the applicant is providing business support services. iii. That, the said activity is akin to managing logistics of the goods and hence, would be considered as a business support service herein and shall be covered under SAC 998599 as 'business support services not elsewhere specified'. Reliance has been placed on Emerald System Engineering Limited v. Commissioner of Service Tax reported at 2016 (43) S.T.R. 545 (Tri.-Mumbai). 4. Personal Hearing: - Keeping with the established principles of natural justice, personal hearing in the matter was extended to the applicant in person, as requested by them and accordingly, Ms. Neethu James, Advocate and authorized representative of the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso mean a reference to the same provisions under the CGGST Act, 2017. Now we sequentially proceed to discuss the issues involved in the ruling so sought by the applicant and the law as applicable in the present case. 6. Section 96 of CGST Act, 2017, Authority for advance ruling, stipulates as under: - Subject to the provisions of this Chapter, for the purposes of this Act, the Authority for advance ruling constituted under the provisions of a State Goods and Services Tax Act or Union Territory Goods and Services Tax Act shall be deemed to be the Authority for advance ruling in respect of that State or Union territory. Section 97(2) of CGST Act, 2017 stipulates that: - The question, on which the advance ruling is sought under this Act, shall be in respect of- (a) classification of any goods or services or both; (b) applicability of a notification issued under the provisions of this Act; (c) determination of time and value of supply of goods or services or both; (d) admissibility of input tax credit of tax paid or deemed to have been paid; (e) determination of the liability to pay tax on any goods or services or both; (f) whether applicant is required to be regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Corporation of India Ltd. (PGCIL) it is seen that, in the present context, the contractual obligation between the aforesaid JV and PGCIL is for setting up and delivering 800 KV, 6000 MW HVDC terminals for establishing the transmission link for transmitting electricity from Raigarh, Chhattisgarh to Pugalur, Tamil Nadu. Before getting into the issues raised by the applicant in the instant application, we would like to mention here in no uncertain terms that the rulings made here in the instant case in hand is applicable only to the impugned activity of the applicant of "setting up and 800KV, 6000 MW HVDC terminals for establishing the transmission link for transmitting electricity from Raigarh", falling within the Geographical jurisdiction of the State of Chhattisgarh. From the details furnished by the applicant in the instant ARA-01 and details as available in the public domain it could be gathered that the instant project is regarding the construction of the +/- 800 kV HVDC bipole lines passing through five States viz. Chhattisgarh, Maharashtra, Andhra Pradesh, Telangana & Tamil Nadu covering nearly 1800 Kms. The aforesaid work involves construction of above bipole line wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied under First Contract and Third Contract and installing, commissioning of equipment, civil works, etc. for the goods supplied under First Contract, Second Contract and the Third Contract. 9.1 It has been informed by the applicant that at the time of the execution of the Contracts, they were functioning under the name of M/s. ABB India Limited and that with effect from 01.12.2019, the Power Grids business of ABB India Limited stands transferred to M/s. ABB Power Products and Systems Limited as a going concern. The Bengaluru bench of the Hon'ble National Company Law Tribunal ("NCLT") has sanctioned the said Scheme vide its order dated November 27, 2019. Accordingly, all the contract(s)/ statements of work/ purchase orders/ arrangements in relation to ABB India Limited's Power Grids business stands transferred to ABB Povyer Products and Systems Limited. The change had no effect on the contract or its scope thereof. A copy of the change order issued by PGCIL dated 25.02.2020 noting the change of the applicant from M/s. ABB India Limited to M/s. ABB Power Products and Systems Limited for the purpose of the contract was also furnished. The name of the applicant Company was changed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (v) 'Fifth Contract' - On-shore Services Contract (with Applicant) - performance of all services inter alia local transportation, insurance and other incidental services, taking delivery of equipment / materials to be supplied under the 'First Contract' and 'Third Contract1 under the scope of ABBAB and Applicant, respectively, and unloading, handling, storage, erection including civil works, testing and commissioning of various equipment / materials to be supplied under the 'First Contract', 'Second Contract' and 'Third Contract', under the scope of ABBAB, BHEL and Applicant as per the division of work under the JV agreement. It has further been informed by the applicant that the Contract stipulated a separate Contract price for each of the five Contracts along with break-up of the costs relatable to each of the five Contracts. The provisions of the contracts require the successful execution of all five contracts for the implementation of the Project, meaning that the contracts are interlinked. As per the provisions of each of the contracts, the applicant was liable to furnish Contract Performance Security for 10% of the value of the 'First Contract', 'Second Contract', 'Third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Notification No. 12/2017-CT (Rate) dated 28.06.2017 and the supply of the said services should be considered to be in the nature of composite supply, with the principal supply being supply of goods under the First and Third Contract. The applicant has also pleaded that the services of transportation are not being provided in isolation and that the applicant is providing the services of local transportation and allied services under the fifth Contract, which is linked to the overall execution of the Project, which comprises of four other contracts. It was thus their view that the services of transportation, freight and insurance are reasonably expected to be provided by the applicant to PGIL and that the said services are necessary for the goods to be supplied at the site, as required under the First and Third Contracts. Further, that the industry practice mandates that the services be naturally bundled with supply of goods. Accordingly, they expressed their opinion that the services of local Transportation are being provided in consonance with the ex-works supply of goods and are therefore, in the nature of composite services. Citing reference io Article 5 of the Contract, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, erection and commissioning of the said +/-800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh and Pugalur, Tamil Nadu associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalure, Tamil Nadu)- North Trichur. The scope of the work allotted to the applicant for the aforesaid tower package being on-shore Supply Contract [ex-works supply of equipment and materials including mandatory I availability spares from within India, type testing under the scope of Applicant as per the division of work indicated in the JV agreement, required for the complete execution of the Project] and on-shore Services Contract [performance of all services inter alia local transportation, insurance and other incidental services, taking delivery of equipment/materials to be supplied under the 'First contract' and 'Third Contract' under the scope of ABBAB and applicant respectively, and unloading, handling, storage, erection including civil, works, testing and commissioning of various equipment/materials to be supplied under the 'First Contract', 'Second Contract' and 'Third Contract', under the scope of ABBAB, BHEL and applicant as per the division of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice. From the definition, a work shall be treated as Works Contract if that work is done for land or earth or for immovable property and there is transfer of property in goods involved in the execution of such contract. Immovable property by its very definition means that it cannot be moved and cannot be detached or dismantled from the land or earth and further that dismantling of the same would render it defunct / redundant. Immovable property would include in its ambit land and the things which are attached to or embedded in the land such as buildings, bridges etc. Whether the particular property is an immovable property or not is subject to the peculiar facts of each case. Hon'ble courts have pronounced various judicial pronouncements laying down certain criteria for determining whether a property is immovable or not. From these decisions, it can be derived that an immovable property would consist of the following characteristic: * It should be permanently attached to or affixed to the earth. * It should come into existence as an immovable property. * It cannot be shifted from one location to other location without dismantling it. * In other words, only individual pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructural damage and even articles merely resting on their own weight are fixture only if they are attached with the intention of permanently improving the premises. The Indian law has developed on similar lines and the mode of annexation and object of annexation have been applied as relevant tests in this country also. Para-23 (relevant extract): 23. The courts in this country have applied the test whether the annexation is with the object of permanent beneficial enjoyment of the land or building........................ Hon'ble Court in the aforesaid case was thus of the opinion that the "attachment in order to qualify the expression attached to earth, must be for the beneficial enjoyment of that to which it is attached. Doors, windows and shutters of a house are attached to the house, which is imbedded in the earth. They are attached to the house which is imbedded in the earth for the beneficial enjoyment of the house. They have no separate existence from the house." Thus, the Hon'ble Supreme Court considered even a temporary shelter such as a hut as an immovable property as long as it is for the beneficial enjoyment of the land to which it is attached. Applying this cardi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: "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; As already discussed in the preceding para, the work being undertaken by the applicant is a tower package involving construction, erection and commissioning of the said +/-800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh and Pugalur, Tamil Nadu, the scope of the work allotted to the applicant for the aforesaid tower package being on-shore Supply Contract [ex-works supply of equipment and materials including mandatory / availability spares from within India, type testing under the scope of Applicant as per the division of work indicated in the JV agreement, required for the complete execution of the Project] and on-shore Services Contract [performance of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Sr. no. 3 prescribes the applicable rate of tax on construction services. For the sake of brevity, the relevant text of the same is reproduced hereunder. 11.1 Rate of GST on intra-State supply of specific services with Service Code Tariff (SAC) Government of India Ministry of Finance (Department of Revenue) Notification No. 11/2017-Central Tax (Rate) New Delhi, the 28th June. 2017 G.S.R.(E).- In exercise of the powers conferred by sub-section (1), [sub-section (3) and subsection (4)] ] of section 9, sub-section (1) of section 11, sub-section (5) of section 15[,]2 sub-section (1) of section 16[and section 148] 3 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby notifies that the central tax, on the intra-State supply of services of description as specified in column (3) of the Table below, falling under Chapter, Section or Heading of scheme of classification of services as specified in column (2), shell be levied at the rate as specified in the corresponding entry in column (4), subject to the conditions as specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person supplying such service through electronic commerce operator.......... ...... ........ (xii) Construction services other than (i), (ia), (ib), (ic), (id), (ie), (if), (vii), (viii), (x) and (xi) above. Explanation. - For the removal of doubt, it is hereby clarified that, supply by way of services specified at items (i), (ia), (ib), (ic), (id), (ie) and (if) in column (3) shall attract state tax prescribed against them in column (4) subject to conditions specified against them in column (5) and shall not be levied at the rate as specified under this entry. 9 -]]]] 11. 2 The Scheme of Classification of Services as provided in the Annexure to Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 supra, the SAC relating to the works of railways reads as under: ANNEXURE : SCHEME OF CLASSIFICATION OF SERVICES S.No. Chapter, Section, Heading or Group Service Code (Tariff) Service Description (1) (2) (3) (4) 1 Chapter 99 All Services 2 Section 5 Construction Services 3 Heading 9954 Construction services 4 Group 99541 Construction services of buildings 5 995411 Construction services of single dwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssification. 2. The Explanatory notes for the said Scheme of Classification of Services is based on the explanatory notes to the UNCPC, and as recommended by the committee constitute for the purpose, is annexed. 3. The explanatory notes indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. These may be used by the assessee and the tax administration as a guiding tool for classification of services. However, it may be noted that where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description. ------- EXPLANATORY NOTES FOR SUPPLY OF SERVICES UNDER GST [Chapter 99] 9954 Construction services This heading includes: i. General construction services for all complete constructions. ii. Specialized construction services i.e.. services related to parts of buildings or civil engineering works, rather than the complete construction object. ............... ............... ............... 995423 General construction services of long-distance underground/overland/submarine pipelines, communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he construction, supply, installation and commissioning of daily plant on turnkey basis, the ratio of the same regarding leviability of GST @ 18% is squarely applicable in the instant case of composite work contract service. 12. Thus, having arrived at the considered conclusion that the instant activity of the applicant of construction, erection and commissioning of the said+/-800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh from Raigarh which includes the services of transportation, insurance and freight, is a composite works contract service classifiable under construction services falling under SAC 9954, attracting GST @18%, we do not find any reason to discuss the alternate opinion expressed by the applicant of the said service being in the nature of business support services. We also hold that there exist no grounds whatsoever, in the case in hand warranting exemption as specified under SI. No. 18 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017, which exclusively covers services by way of transportation of goods. As regards the second part of the first question raised by the applicant regarding the supply of goods under the Third Contract being the principa ..... 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