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TMI Blog2025 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of erection, commission and installation or not. Whether the contract is a divisible contract or single and a composite contract? - HELD THAT:- The contract entered into by the applicant with IOCL is not a divisible contract, notwithstanding the fact that the turnkey contract, constitutes two different work orders, the performance of which is interconnected and interdependent. Whether the component of imported goods will be taxable at the time of supply at the time of importation or as a service at the time of incorporation in the works contract ie when the erection, commission and installation of goods takes place? - HELD THAT:- In terms of Schedule III, read with section 7 (2) of the CGST Act, 2017, supply on HSS basis, is treated as neither a supply of goods nor a supply of services. Thus, the question of levy of GST on such supply, does not arise. Now the taxation of goods post HSS sale to IOCL, at the time of importation, is not within the jurisdiction of this Authority as it is a matter to be decided by the jurisdictional Customs Authority in terms of Customs Act, 1962 and Customs Tariff Act, 1975. It is not required to entertain the question it being beyond the jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the transaction value for computation of value of works contract service. iii) The value of imported goods will form the part of transaction value for computation of value of works contract service. iv) The value of goods sold on a HSS basis will have to be added to the transaction value for computation of the value of a works contract. X X X X Extracts X X X X X X X X Extracts X X X X ..... ment clearance); * Pre-commissioning and mechanical completion of plant; * Preparation of plant specific operating manuals, start-up, commissioning, and performance guarantee test runs (PGTFt); * Training of owner's operation and maintenance (O&M) personnel, consumables (chemicals and lubricants) for 6 (six) months operation; * Contract closure activities of Catalytic De-Waxing Unit ('CDWU'), control room, substation, laboratory and interconnected systems for the units as detailed in the bidding documents and interconnecting systems as per bidding documents; * Final invoice/billing and handing over of the facilities with final and "as built" drawing/documentation, supply of spares with necessary support and services during defect liability period and supply of Chemicals, desiccant/ adsorbent, catalysts, etc. for initial charge & replenishment of any loss of these during commissioning upto handing over safter successful PGTR of the facilities. 2.4 Further, in the fax of acceptance, which forms part of the contract, it is stated as follows: YOUR BID AGAINST THE TENDER FOR THE SUBJECT WORK EPCC-09 (ENGINEERING, PROCUREMENT CONSTRUCTION, AND COMMISSIONING] PACKAGE FOR CATA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as explained the history of 'works contract' in India, by relying on the judgement of the Hon'ble Supreme Court in the case of 'Gannon Dunkerley 1958 (4) TMI 42-SC, taxation of works contract post 46th amendment to the Constitution of India & pre-GST regime. The applicant has further also relied on various judgements viz Builders Association of India 1989 2 SCC 645, Associated Cement, BSNL 2001 4 SCC 593, L&T Ltd. 2013 (9) TMI 853, M/s. Kone Elevator India P Ltd. 2014 (5) TMI 265 SC. The applicant has further summarized the crux of the aforementioned judgements, as under: * that there must be a works contract; * that the goods should have been involved in the execution of the works contract; * that the property in those goods must be transferred to a third party either as goods or in some other form; for sustaining the levy of tax on goods, deemed to have been sold in the execution of works contract. 4. It is the applicant's case that in the GST regime, the two major deviations in the works contract is [a] that the works contract should result in an immovable property; that it is a sine qua non for supply to qualify as a works contract; & [b] that under the GST regime, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower Transmission Ltd. 2021 (48) GSTL 354 (Tri-Ahmd), and PES Engineers P Ltd TS-202-AAR; * that it is for the parties to agree on terms and conditions of supply; that they can decide when the property in the goods will get transferred; that levy of GST will be attracted at the point when transfer of property/sale takes place; that once GST is paid on the said goods, it cannot again be included in the value of the goods. 9. In view of the aforesaid, the applicant has sought advance ruling on the below mentioned questions viz 1. Whether the contract between the Applicant and IOCL is a divisible contract or a single and composite contract? 2. If the contract between the Applicant and IOCL is treated as an indivisible and a single composite contact whether the component imported goods will be taxable as a supply of goods at the time of importation or as a service at the time of incorporation in the works contract i,e. when the erection, commission and installation of goods takes place 3. When imported goods are sold by the supplier to a recipient on a high seas sale basis and such goods are cleared from customs by the recipient (as the importer on record) on payment of duty & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il dated 21.6.2024 to the Registry provided a chronology of events viz: CHRONOLOGY OF EVENTS Sr. No. Particulars Date Tender Stage (Pro-award stage) 1. Tender for supply of Catalytic Dewaxing Unit (CDWU) for Petrochemical And Lube Integration Project 'LuPech" (J18)" at IOCL Gujarat Refinery, Vadodara, Gujarat, India BIDDING DOCUMENT NO. 077154C/T/LuPech (J18)/ LSTK-9) 31-12-2021 2. Addendum to bidding document specifying that imported goods are to be sold on a High Seas Sale basis and contains draft High Seas sale agreement With this addendum, during tender stage itself, IOCL has divided the complete scope into two supply contracts. 1) items to be sources from outside India and sold to IOCL on High Seas Sale basis before entering Indian tax territory, and 2) turnkey component within India. 12-02-2022 3. Tender filed by Thyssenkrupp Uhde India Private Limited (then Thyssenkrupp Industrial Solutions India Private Limited) 28-02-2022 Project Execution Stage 4. Tender awarded to thyssenkrupp Uhde India Private Limited vide Fax of Acceptance RHQ/PJ/LUPECH (J18y 2020-21/ EPCC-09/ FOA-13 30-06-2022 5. Work Order No. 27984081 (refers to tender conditions relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present dispute the transaction envisages an outright/ physical sale by delivery/transfer of document; * that the ruling was in the context of a domestic transaction while in the present case the transaction is in the course of import and on a high seas sale basis: * that such transactions are governed by The Indian Bill of Lading Act, 1856; * that the considerations under the said Act is different to the one under the Sales Tax Act; * that for determining the taxability, the relevant point of time is when the goods are removed/made available to the recipient; that as per the terms of the contract this event occurs when the goods are placed on board a vessel (FOB) or by endorsing the bill of lading in favour of IOCL while the goods are on high seas; * that the imported component was purchased by the applicant and subsequently supplied to IOCL; that the cost of the same was paid by the applicant & not by IOCL; that the question of invoking clause (b) of section 15 (2), ibid, does not arise; * that section 15 (2) (b), can be invoked only if the supplier was liable to pay the amount but the same was paid for by the recipient; that in this case the applicant was nev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular form of contracting arrangement wherein the EPC contractor is made responsible for all the activities right from design, procurement, construction, commissioning, and consequently handover of the project to the end-user or owner. As per dictionary.com 'turnkey' means relating to or resulting from an arrangement under which a private contractor designs and constructs a project, building, etc., for sale when completely ready for occupancy or operation. Likewise, Turnkey contracts, places the responsibility for designing, engineering, procurement, and construction of the entire project on a single contractor. Such contracts further ensure that following completion, the client receives a ready-to-use facility. Further these contracts are usually 'fixed price' contracts. 17. To put things in perspective, we observe that IOCL had floated a tender for supply of catalytic dewaxing unit [CDWU] for petrochemical & Lube Integration Project 'LuPech" (J18) at IOCL Gujarat Refinery; that IOCL thereafter made an addendum to bidding document specifying that the imported goods are to be sold on HSS [high sea sale basis]; Work Order No. 27984081 is relating to work order amount of Rs. 5,87,55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State sales tax laws and whether the contract was a works contract or a contract for sale of goods was dependent on the dominant intention as reflected from the terms and conditions of the contract and many other aspects. In certain cases, the court has not treated the contract to be a works contract by repelling the plea of the assessee after taking into consideration certain special circumstances. No straitjacket formula could have been stated to be made applicable for the determination of the nature of the contract, for it depended on the facts and circumstances of each case. As the works contract could not be made amenable to sales tax as the State Legislatures did not have the legislative competence to charge sales tax under Entry 48 List II of the Seventh Schedule of the Constitution on an indivisible contract of sale of goods which had component of labour and service and it was not within the domain of the assessing officer to dissect an indivisible contract to distinguish the sale of goods constituent and the labour and service component. The aforesaid being the legal position, the Parliament brought in the Forty-sixth Amendment by incorporating Clause (294) in Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work order no. 27984081 dated 15.7.2022 and work order no. 18033064 dated 17.2.2023, entered by the applicant with IOCL, is for execution of the work of EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. While arguing that the contract entered into identifies two separate set of supplies [i] works contract for EPC work pertaining to EPCC-1 project; & [ii] supply of imported materials for the said project, the applicant ignores a major factor viz that it is a lumpsum turnkey EPC contract. Therefore, to divide a turnkey EPC contract into two parts, is legally not tenable. Though they have entered into two different work orders, as listed above, ongoing through the workorders provided along with the application, we find that the work orders are similarly worded except for the amounts. It is an undisputed fact that IOCL, post issue of tender documents, had a re-think and issued an addendum by carving out the foreign supply of goods [HSS] as a separate work, primarily to avail the benefit of Manufacture and other Operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), Pre-commissioning & Mechanical Completion of Plan, Preparation of plant specific operating manuals, Start-up, Commissioning and Performance Guarantee Test Runs (PGTR), Training of Owner's O&M Personal, consumables (Chemicals & Lubricants) for 6 (Six) months of operation, contract closure activities of the Catalytic de-waxing Unit (CDWU), Control room, Substation, Laboratory and interconnecting system as per Bidding documents, and Final invoice/billing and handing over of the facilities with Final and "As Built" drawing/documentation, supply of spars with necessary support and services during defect liability period and supply of Chemicals, desiccant/adsorbent, Catalysts (Other than free issue), Tool & Tackles, Consumables, Lubricants, Refrigerants, for initial charge and replenishment of any loss of these during Commissioning up to handing over after successful PGTR of the facilities. On going through the scope of work in respect of work order no. 18033064 dated 17.2.2023, we find it to be verbatim the afore-mentioned scope of work. 24. Further, under work order no. 27984081 dated 15.7.2022 for Rs. 5875548702/-, under the 'Header text' it is mentioned that single order 2798408 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ALS MATERIALS These General Conditions of Contract shall, on issue of the Letter of Acceptance to the CONTRACTOR, constitute a firm and indivisible contract for the sale and supply, to the OWNER, of all materials required for incorporation in the permanent works as determined by the CONTRACTOR, within the scope of work, to be necessary to establish, commission and operate (so far as concerns mandatory spares) the Plant Unit delivered on CIF basis at Indian port of CONTRACTOR's choice in respect of imported materials and delivered ex-factory in respect of other materials, at the price of materials specified in the Price Schedule. It is hereby clarified that the said contract shall include a contract for the sale and supply within the price of materials (and any recoveries in respect thereof under any policy of insurance) of all materials required for the replacement of any defective materials and any materials lost, damaged or destroyed during transit, storage, fabrication, erection or otherwise prior to the issue of the Completion Certificate. (a) These General Conditions of Contract shall, on issue of the Letter of Acceptance to the CONTRACTOR, constitute a firm contract for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fax of acceptance, work order nos. 27984081 & 18033064, being a turnkey contract, leads us to the conclusion that the turnkey contract entered by the applicant with the IOCL, is a works contract as defined u/s 2 (119) supra. Further, there is nothing on record either in the application or in the additional submission averring that the EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India, is not an immovable property. 28. The aforementioned view is also substantiated in the Constitution Bench judgement in the case of M/s. Kone Elevator India Pvt. Ltd., supra, wherein it was held as follows: 38. Reference to the aforesaid authorities is for the purpose that post the constitutional amendment, the Court has been interpreting a contract of work, i.e.. works contract in the constitutional backdrop. In certain cases, which involve transfer of property and also an element of service in the context of work rendered, it has been treated as works contract. 39. The essential characteristics have been elucidated by a three-Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present. It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term "works contract" because nothing in Article 366(294) (b) limits the term "works contract" to contract for labour and service only. 42. At this juncture, it is condign to state that four concepts have clearly emerged. They are (i) the works contract is an indivisible contract but, by legal fiction, is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e moving further, we would like to reproduce the relevant extract of sub section (2) of section 7 and Schedule-III of the CGST Act, 2017: Sub section (2) of section 7[relevant extract] (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b)… ….. …… …… …… ………… …… …… …… …… …… …… …… shall be treated neither as a supply of goods nor a supply of services. SCHEDULE III Activities or transactions which shall be treated neither as a supply of goods nor a supply of services: [relevant extract] 1……………………………………. 2..………………………………….. 8(a)....…………………………….; 8(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. What will be included and excluded in the value of supply, is governed by sub-sections 15 (2) & (3) of the CGST Act, 2017. In terms of sub-section 15 (2), ibid, the value of supply shall include any amount that the supplier is liable to pay in relation to such supply 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. The EPC contract, we find, encompasses both the supply of goods and services. At the cost of repetition, the contract is for executing EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. Further, a-reading of the contract with the two work orders and amendment to the contract, depicts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (for brevity 'the AAAR') as no decision was rendered in terms of Section 101 (3) of the Central Goods and Service Tax Act, 2017 (for brevity the CGST') and the Chhattisgarh Goods and Service Tax Act, 2017 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 to provide transportation service, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for goods transport. Naturally, it would be the obligation for the GTA to run the vehicles and this factor needs a merited attention. The provision of Section 15 (2) (b) has been tried to be by-passed by the agreement wherein the diesel was agreed to be supplied FOC 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proposed GST Law specially taking into consideration the nature of business by GTA, the service provider. 30. Again when we examine the nature of business of the petitioner, who is a GTA, the nucleus of survival of business shows that the business of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foregoing. 41. Though the third question is similar to the second question in so far as whether the supply of goods can be subjected to GST twice, first as supply of goods at the time of importation and secondly as component of supply of service in the hands of the supplier of EPC contract, in this case, the time of supply in respect of imported goods is when the goods land in the customs frontier. However, as per the turnkey EPC contract, the applicant is providing a works contract service which encompasses the supply of goods and the service in setting up the EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. The liability of the applicant to pay tax on works contract service in respect of this supply of service, shall arise at the time of supply in terms of section 13, ibid. Therefore, the argument that the imported goods supplied on HSS basis are subject to tax twice first as supply of goods at the time of import & secondly as component of supply of service belies fact, since what is supplied under the works cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported items amounting to Rs. 56523773.94. The applicant's averment is that only the imported items would not form part of the services and that in respect of supply of indigenous items, they would be charging GST @ 18% as works contract service. This clearly shows that the applicant is treating the 'domestically procured goods' and the 'imported goods' under the same contract, for the purpose of setting up of the plant on a different footing, without any plausible intelligible differentia. It is trite law that equals cannot be treated as un-equals. Doing so would invite the wrath of holding the process to be manifestly arbitrary. Therefore, the submission of treating both the domestically procured goods and imported goods on different footing, is legally incorrect and fails on merit too. 44. In the light of the above, we rule as under: RULING 1. The contract between the Applicant and IOCL is a not a divisible contract but a single and composite contract. 2. The component of imported goods will form part of the transaction value for computation of value of works contract service. 3. [a] As is mentioned in Sr. No. 2 above, the value of imported goods will form the part of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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