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TMI Blog2024 (1) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation Ltd. (IOCL) on HSS Sale basis in terms of the contract shall be excluded from the value of works contract service for charging GST? - HELD THAT:- The applicant, in terms of the contract, is liable to provide the goods [supplied on HSS basis] and hence the submission that this value is not to be included in the transaction value in respect of works contract service is legally not tenable more so since the applicant is contractually bound/liable to supply both the goods and the services. Therefore, in terms of section 15, ibid, the value of such imported goods would form a pan of the transaction value for payment of GST - the value of the imported goods would form a part of the Transaction value under section 15, ibid, for computing the value of work contract service for charging GST and that it cannot be excluded under the guise of free supply, as is being canvassed by the applicant. Whether the transaction of sale of goods on high seas sale basis by the Applicant to IOCL in terms of Contract No. 44AC9100-EPCC-1 would be treated as works contract and whether Applicant is liable to charge GST on the goods sold on high seas sale basis to IOCL? If yes, what will be the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to IOCL at the price agreed in the contract. The applicant raises a custom invoice with respect to goods sold to IOCL under HSS without charging GST. IOCL then files a bill of entry as the importer of the said goods and discharges customs duty and IGST by clearing the goods for warehousing or home consumption. The applicant treats this as a separate supply of goods distinct from the works contract supplies. 6. The letter of acceptance issued by IOCL to the applicant mentions the specific scope of work to be executed and the Schedule of Rates for identified supplies including goods imported from outside India. 7. It is the applicant's say that the contract No. 44AC9100-EPCC-1 entered into with IOCL, identifies two separate set of supplies for the turnkey project (i) works contract for EPC work pertaining to EPCC-1 project and [ii] supply of imported materials for the same project. 8. With respect to consideration mentioned in para 4(i) supra, the applicant informs that they will charge GST @ 18% as work contract services. 9. The applicant further states that in terms of Schedule-Ill of CGST Act, 201 7, no GST is leviable on supply of imported goods on HSS basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old under HSS basis to IOCL; special conditions of contract with respect to milestone payment of the consideration; the HSS agreement with IOCL; that only the value of goods component is included in the custom invoice; the applicant then issues an invoice on IOCL for supply of goods on HSS basis; IOCL files Bill of Entry as an importer of goods and appropriately discharges IGST after taking the transaction value of HSS as its assessable value; that the sale of imported goods forms a distinct and separate category of supplies, and is clearly identified from the rest of the EPC work to be performed in terms of the contract: that the intent of the parties is to treat such supplies as distinct and divisible from the rest of the EPC contract; that they wish to rely on the case of Power Grid Corporation of India Limited [2007 108 ITD 340 Hyd,], Gannon Dunkerley Company [1958 AIR 560, 1959 SCR 379], BSNL [2006 (2) STR 161], Mahindra and Mahindra [1995 (76) E.L.T. 481 (SC)], Mirah Exports Pvt. Limited [1998 (98) E.L.T. 3 (SC)] and Bhopal Sugar Industries Limited [1977 AIR 1275, 1977 SCR (3)]. 12. The applicant further submits that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it Minerals [2022 (61) GSTL 257 (SC)]. 14. In view of the above, the applicant has sought advance ruling on the below mentioned questions viz 1. Whether the transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on High Seas Sale basis in terms of Contract No. 44AC9100-EPCC-1 would be covered under Entry No. 8(b) of Schedule III of the CGST Act and shall be excluded from the value of work contract service for charging GST? 2. Whether the transaction of sale of goods on high seas sale basis by the Applicant to IOCL in terms of Contract No. 44AC9100-EPCC-1 would be treated as works contract and whether Applicant is liable to charge GST on the goods sold on high seas sale basis to IOCL? If yes, what will be the applicable rate of tax on such goods supplied? 15. Personal hearing in the matter was held on 29.08.2023 wherein the applicant was represented by Shri Sanjeev Nair, Advocate and Shri Uday Prabhupatkar. They reiterated their submission made in the application and further stressed that it was a divisible contract relied upon the minutes to stress the point that supply of imported component is a separate supply. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gistered office at Tecnimont House, Chincholi Bunder. 504. Link Road. Malad (W). Mumbai-400 064 India (hereinafter referred to as collectively referred to as the CONTRACTOR , which expression shall include his/their/its executors, administrators, representatives and permitted assigns/successors and permitted assign) of the OTHER PART. WHEREAS The Owner desires to have executed the work of 'EPCC-1 Package for Acrylic Acid A Butyl Acrylate Unit of Acrylic /Oxo-Alcohol Project al IOCL Dumad Complex. Near Gujarat Refinery, Vadodara, Gujarat of INDIAN OIL CORPORATION LTD (Tender No.: 44AC9100-EPCC-1) more specifically mentioned and described in the Contract documents (hereinafter called the WORK , which expression shall include all amendments therein and/ or modifications thereof) and has accepted the tender of the CONTRACTOR for the said work. ARTICLE-2 WORK TO BE PERFORMED 2.1 The Contractor shall perform the work upon the terms and conditions and within the term specified in the Contract documents. ARTICLE-3 COMPENSATION 3.1 Subject to and upon the terms and conditions contained in the Contract documents, the Owner shall pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckage, of Acrylic/Oxo-Alcohol Project at IOCL Dumad Complex (near Gujarat refinery! comprising of following two units namely: 1. AA UNIT (90KTA) 2. BA UNIT (150 KT A) 1.0 LUMPSUM PRICE 1.1 The Contract value (also termed as 'Contract Price' or 'Lumpsum Price) is fixed Lumpsum price of INR 1872,00,48,047.50 INR Eighteen Hundred Seventy-Two Crore Forty-Eight Thousand Forty-Seven and Paise Fifty only) comprising of: 1.1.1 INR 1470.30.56.131.00/- (Indian Rupees Fourteen Hundred Seventy Crore]. Thirty Lakh Fifty Six Thousand One Hundred Thirty one only). 1.1.2 Foreign Exchange Component of Euro 45,518,322.00 (Euro Forty Five Million Five Hundred Eighteen Thousand Three Hundred Twenty Two Only (1.6. converted EURO 1 = INR 88.25 as on the date of opening of price bid INR 401,69,91,916.50) based on terms and conditions of the Contract. 1.1.3 Custom Duty SNS on Foreign Component INR 32,89,75,280.89 (INR Thirty Two Crore Eighty Nine Lakh Seventy Five Thousand Two Hundred Eighty and Paise Eighty Nine Only) which is reimbursable as per contractual terms and conditions. 1.1.4 The Total Price payable under the contract shall be restricted to the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under various heads, the total payment to the Contractor for performance of this Contract shall be limited to Lumpsum Price mentioned at para 1.1 above. 4.0 TAXES DUTIES 4.1 Goods Service Tax (GST): Goods Service Tax (GST) levied on and paid by the Contractor/ Supplier on any Indigenous material sold and supplied by the Contractor to Owner under the Contract shall be reimbursed by Owner subject to the extent of Input lax Credit documents furnished by Contractor to Owner for availing Input Tax credit benefits. Contractor's responsibility is only to provide Input Tax documents to Owner. 4.2 CUSTOMS DUTY a) Clearance at Port. Airport. Demurrage/ Warfage, if any, transportation to the site and loading/unloading will be in the CONTRACTOR'S scope as per contract provisions. b) OWNER'S liability towards Custom Duty shall be limited to the C F value of imported supplies into India for permanent incorporation in the works indicated in FORM SP-1 of Schedule of Prices. c) The Custom Duties. Social Welfare Surcharge. IGST and Cess be paid extra as per the Terms and Conditions of subject Tender and subject to celling prescribed therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply under Clause 3.0.2.1 shall be made out by the Supplier in favour of the OWNER and the materials shall be consigned to the OWNER. Where the CONTRACTOR is the supplier, the invoices shall be drawn by the CONTRACTOR as the Supplier. (b) The Supplier's invoices for imported materials shall include the cost of all predelivery tests and third party inspections, but shall not include the CONTRACTOR'S procurement charges. (c) The Supplier's invoices for indigenously supplied materials shall include all predelivery tests, but shall not include the CONTRACTOR'S procurement charges. (d) The invoices for indigenously supplied materials shall also include the taxes, duties and other levies on the supply which are reimbursable by the OWNER. Reimbursement shall, however, he subject to the satisfaction of the conditions and provision of the documents required to qualify for the reimbursement. 3.0.2.3 The CONTRACTOR shall be responsible at his own cost and initiative within the scope of services, to take delivery of the materials from the port of delivery in India in respect of imported materials and from the factory or ware-house or other place(s) of deliv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f items to be imported with requested details vide email dated 16.02.2022. The price to be indicated in the list of imported items will be as per the value of the imported material to he sold by M/s Tecnimont to IOCL on High Sea Sales agreement. However, at the bidding stage M/s Tecnimont had envisaged imports clearance in their own name and accordingly the detailed billing break up for imported supplies will now undergo change owing to adoption of MOOWR scheme but the total Value of Imported items will remain same as per SP-1 and approved billing break-up. IOCL also clarified that Insurance Policy obtained for Oxo project, will also he required to submit to Customs for clearing under MOOWR and hence invoice/bill of lading should he containing some linkage with the Oxo project. IOCL also informed that GST is exempt on High Sea Sale transaction. M/s Tecnimont Private Limited scope of work as per contract shall remain same. i.e. order placement/payments etc. to vendor, transportation of goods to site warehouse etc. Only following methodology shall he followed: 1. Foreign supply contract will be carved out from the main contract and a separate work order for im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng GST TDS on it. This MOM shall be part of amendment to DLOA/Contract. [emphasis supplied] 20. The applicant's contention primarily is that the contract entered into with IOCL, identifies two separate set of supplies under the turnkey EPC contract, viz [i] supply of imported materials for the project; and [ii] works contract for EPC work pertaining to EPCC-1 project. Coupled with the above contention is the next submission that in respect of [i] supra, the transaction is exempt under Schedule-III of CGST Act, 2017 and in respect of [ii], supra, the applicant will charge GST @ 18% as work contract services. 21. Works contract service, is defined u/s 2(119) of the CGST Act, 2017, as under (119) 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; For a supply to fall within the ambit of works contract service, [in terms of the flyer no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (ii) the concept of dominant nature test or, for that matter, the degree of intention lest or overwhelming component test for treating a contract as a works contract is not applicable; (iii) the term works contract as used in Clause (29A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone; and (iv) once the characteristics of works contract are met within a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract. 63. Considered on the touchstone of the aforesaid two Constitution Bench decisions, we are of the convinced opinion that the principles stated in Larsen and Toubro (supra) as reproduced by us hereinabove, do correctly enunciate the legal position. Therefore, the dominant nature lest or overwhelming component test or the degree of labour and service test are really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. Involvement of the skill has been elaborately dealt with by the High Court of Bombay in Otis Elevator (supra) and the factual position is undisputable and irrespective of whether installation is regulated by statutory law or not, the result would be the same. We may hasten to add that this position is stated in respect of a composite contract which requires the contractor to install a lift in a building. It is necessary to state here that if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Schedule III to the CGS T Act, 2017, and section 7, ibid, states as follows: SCHEDULE III [ See section 7] Activities or transactions which shall be treated neither as a supply of goods nor a supply of services 8. (a) Supply of warehoused goods to any person before clearance for home consumption; (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.] Explanation 1.- For the purposes of paragraph 2, the term court includes District Court. High Court and Supreme Court. Explanation 2.- For the purposes of paragraph 8. the expression warehoused goods shall have the same meaning as assigned to it in the Customs Act. 1962 (50 of 1962). Section 7. Scope of supply.- [relevant extracts} (1) For the purposes of this Act, the expression - supply includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the Slate Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act. if charged separately by the supplier: (b) 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: (c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of or before delivery of goods or supply of services: (d) interest or late fee or penalty for delayed payment of any consideration for any supply: and (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. Explanation -For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. (3) The value of the supply shall not include any discount which is given- (a).. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 (for brevity the CHGST ) and the order dated 4-1-2021 (Annexure P/6) passed by the Authority for Advance Ruling, Chhattisgarh (for brevity the AAR ) to be illegal wherein it was held that Goods and Services Tax (for brevity the GST ) would be leviable on the value of diesel provided by the service recipient Free of Cost (for brevity FOC ). (c) The petitioner is a Goods Transport Agency (for brevity the GTA ) service provider, .. As per the proposed terms of agreement, it was agreed that the petitioner would provide trucks/trailers along with driver for transportation of goods belonging to the service recipient on a day-to-day and non-exclusive basis and further as per Clause 2 of the draft agreement, the service recipient will be responsible for providing fuel in the trucks/trailers supplied by the petitioner on free of cost basis (FOC) thereby it was agreed that component of fuel would not be the responsibility of the petitioner, who is a GTA, in the scope of service recipient . .. .. .. 2.2............... It is expressly clarified that the value of fuel which is in the scope of the Company shall by no means be interpreted as additional consideration pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice, by plain and simple interpretation would point out the entire business and survival is premised and interdependent on the vehicles for transportation of goods. The obvious factor would be the vehicle cannot run without fuel. Therefore, the design of the entire activity of GTA is based on supply of fuel to the respective vehicles. In absence of fuel, the the entire business activity would stand arrested to provide service. Therefore, the need of fuel is glued for survival of a GTA. If the GTA has stitched up to provide service by obtaining fuel on FOC basis by contract with recipient Company, this phenomenon would transcend the activity which reflects a broader shift in name of contract, therefore, the revenue has power to remove the lid to find out the object and purpose. 22. In the instant case, the scope of supply as defined in section 7 of the GST Act purports all forms of supply of services made or agreed to be made for consideration in the course or furtherance of business . The words used in Section 7(1)(a), in course or furtherance of business would point out about service to be provided by the transporter as a GTA. The contention of petitioner that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C by service recipient to the GTA. If we look into the facts by other angle, the expenses to fill the diesel in vehicle in furtherance of supply of service in normal condition was to be incurred by the GTA and it was his liability to fulfill such supply. However, in this issue, the expense of fuel has been agreed to be incurred by the recipient by agreement and value of diesel is excluded to evaluate the value of supply. The statutory provision of Section 15(2)(b) takes within its sweep to value, which is incurred by recipient. Therefore even by agreement in between the GTA and service recipient, this statutory liability cannot be sidelined and the merited attention of the statute sets a red line. Therefore, in the instant case, the value of service agreed to be provided necessarily will depend on the nature of service and the nature of business. The petitioner who can survive to run the business of goods transport on fuel therefore cannot claim that the diesel is supplied by the service recipient free of cost, as such, it cannot be included as the fuel is an integral part used in providing the Transportation Service and is essential for GTA provider. Without fuel the entire busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner entirely survives on transportation. Since the transportation inter-alia is an inter- dependent on supply of fuel, it would be a crucial component to run the business of GTA. If such integral part of survival of reins are held by service recipient, in such a case, it would be actually doing the substance addition of GTA survival. Therefore, the Circular dated 8th June 2018 on which the petitioner tried to rely upon would not be of any help especially considering the nature of business and the provisions of Section 7(1)(a) and 15(2)(b) of CGST Act. 31 ..................... In view of the observations made in foregoing paragraphs the initial order passed by the AAR on 04.01.2021 shall revive and it is observed that though the diesel was provided free of cost by the service recipient, it would nevertheless be added to the value for the purpose of GST.. In the aforementioned judgement, though the recipient of the supply was legally bound via the agreement to provide for free diesel, yet the Hon'ble High Court, held that the free supply of diesel would form part of the transaction value, for the purpose of GST. 29. Our finding, further stands substantiated, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther observed that the applicant has to undertake and perform all services and formalities necessary for clearance of the imported goods/materials from under bond from Customs. Needless to add, that it is the applicant who is contractually obliged to procure the imported goods in terms of the contract for the said turnkey EPC project. 31. The submission of the applicant as listed in para 11 supra, to substantiate that the contract is divisible further stress about the intent of the parties to the said contract, is viz the bifurcation of the contract value with respect to supply of imported goods into India and sold under HSS basis to IOCL; special conditions of contract with respect to milestone payment of the consideration; the HSS agreement with IOCL; that only the value of goods component is included in the custom invoice; the applicant then issues an Invoice on IOCL for supply of goods on HSS Basis; IOCL files Bill of Entry as an importer of goods and appropriately discharges IGST after taking the transaction value on HSS as its AV. On going through section 15 of the CGST Act, 2017, supra, and judgement of the Hon'ble High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 2; and (b) supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration. As is already stated the contract entered into by the applicant with IOCL, is a turnkey EPC contract, to commission an Acrylic Acid Butyl Acrylate Unit of Acrylic/Oxo-Alcohol Project, which is a composite works contract in terms of section 2(119), ibid. In terms of Sr. No. 6 of Schedule II, such composite works contracts, involving transfer of property in goods (whether as goods or in some other form) involved in the execution of the said project is a composite supply in terms of Schedule II, would be treated as supply of service and leviable to GST accordingly. 34. The next argument that the applicant submits that if tax is levied on the transaction of sale of goods on USS basis under works contract service it would amount to double taxation which is impermissible. To substantiate his argument, the applicant has relied upon the judgement of Mohit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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)] 16, the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as- (a) a supply of goods and not as a supply of services; or (b) a supply of services and not as a supply of goods. No such power can be noticed with respect to interpreting a composite supply of goods and services as two segregable supply of goods and supply of services. 147. We are in agreement with the High Court to the extent that a tax on the supply of a service, which has already been included by the legislation as a tax on the composite supply of goods, cannot be allowed. As is evident, the facts in Mohit Minerals, supra is at complete variance from the facts relating to the applicants case. The reliance therefore is not legally tenable. 36. Lastly, the applicant in his synopsis |refer para 1.5] which is reproduced in paragraph 4, supra, has stated that Rs. 14,70,30,56,131/-, out of the lumpsum price of Rs. 18,72,00,48,047.50, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. Explanation .-For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce. (2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India. (3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India. (4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State. (5) Parliament may, by law, formulate the principles for determining the place ..... X X X X Extracts X X X X X X X X Extracts X X X X
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