9911796707
TMI Blog2025 (2) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... finery Division), P. O. Jawahar Nagar, Vadodara, Jawahar Nagar PIN 391320 [ for short - 'IOCL'] invited bids for execution of EPC package (EPCC-09) for Catalytic De-Waxing Unit ('CDWU') for its Petrochemical and Lube Integration Project ('LuPech') on open tender basis. The successful bidder is contractually obligated to execute the work on lump sum turnkey basis with single point responsibility. 2.2 The applicant submitted bid for the project, which after evaluation was accepted by IOCL and they were issued a letter of acceptance. The contract dated 6.9.2022 entered thereafter with IOCL comprises of the following documents viz: * Fax of acceptance No. RHQ/PJ/LUPECH (J18)/2020-21/ EPCC-09/ FOA-13 dated 30.06.2022 ('FOA'); * Work order No. 27984081 dated 15.07.2022; * Tender documents as defined in the General Instructions to the tenderers along with Addendums/Corrigendums; * The draft contract for sale of imported goods on a high seas sale basis. 2.3 The applicant's scope of work in terms of the tender states as follows viz * Supply of imported components on a high seas sale basis; * Project management, consistency checks * Residual process engineering: * Detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E FOR CATALYTIC DEWAXING UNIT FOR PETROCHEMICAL AND LUBE INTEGRATION PROJECT "LUPECH" (J-18) PROJECT AT IOCL GUJARAT REFINERY, INDIA [TENDER REFERENCE NUMBER 077154C/T/Lupech(J18)/LSTK-9 AND TENDER ID. 2021_REFHQ-145728-1] HAS BEEN ACCEPTED 1. THE TOTAL LUMP-SUM CONTRACT VALUE [SP-O] SHALL BE INR 587,55,48,702 [RUPEES FIVE HUNDRED EIGHTY-SEVEN CRORES FIFTY FIVE LAKHS FORTY EIGHT THOUSAND SEVEN HUNDRED AND TWO ONLY] & USD 734,934 [SEVEN HUNDRED AND THIRTY FOUR THOUSAND NINE HUNDRED AND THIRTY FOUR ONLY) THE TOTAL LUMP SUM CONTRACT VALUE SHALL BE INCLUSIVE OF ALL TAXES AND DUTIES EXCEPT QUOTED IN FORM SP-3 OF THE TENDER. TAXES AND DUTIES QUOTED IN SP-3 SHALL BE PAID AS PER THE TERMS AND CONDITIONS OF THE TENDER. 5. THE IMPORTED GOODS SHALL BE SOLD TO IOCL ON PRINCIPAL-TO-PRINCIPAL BASIS OUTSIDE INDIA AND BILL OF ENTRY SHALL BE FILED IN THE NAME OF IOCL UNDER MANUFACTURE AND OTHER OPERATION IN WAREHOUSE REGULATIONS, 2019. THE PAYMENT OF CUSTOMS DUTY, CESS AND IGST SHALL BE REGULATED AS PER PROVISIONS OF THE CUSTOMS ACT 1962 AND CUSTOMS TARIFF ACT 1975. THE OWNERS RESPONSIBILITY FOR PAYMENT OF CUSTOMS DUTY AND RELATED TAXES AND DUTIES [SWS ON CUSTOMS DUTY, IGST) FOR IMPORTS FOR THE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the GST regime, the entire works contract, is treated as a supply of service in terms of para 6(a) of Schedule II of the CGST Act, 2017. The guiding principles however, for what will be considered as a part of supply under the works contract, remains the same. 5. The next argument is that a single document/instrument can contain multiple contracts and identical contracts; that it is a settled law that a single document/instrument may contain within it several contracts; that whether a single document/instrument contains one or more contracts or vice versa should be determined having regard to the terms and conditions stated therein & not by the fact that there is one document/instrument etc.. 6. The next averment is that in terms of section 19 of the Sale of Goods Act, 1930, when parties to a contract agree that the property in goods is transferred while the goods are in transit or on a high seas sale [HSS] basis then such contract can be construed as a contract of sale simpliciter; that such goods will not form part of the works contract; that the essential pre-condition of the works contract, that property should get transferred in execution of the works contract, is not bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of duty & Integrated Goods and Service Tax (under Section 5 (1) of the Integrated Goods and Services Tax Act, 2017 read with Section 12 of the Customs Act and Section 3 of the Customs Tariff Act, and later such imported & duty paid goods are erected, commissioned and installed by the same supplier in such circumstances [a] Whether a supply of goods can be subjected to GST twice, first as supply of goods at the time of importation in the hands of the recipient / importer and a second time as a component of supply of service in the hands of the supplier of EPC contract service at the time of incorporation of the imported goods in a works contract by way of erection, commission and installation? [b] Whether the value of goods sold on a high seas can be added to the value of a works contract merely because such duty and IGST paid goods are incorporated in the works contract by way of erection, commission and installation? 10. Personal hearing in the matter was held on 24.4.2024 wherein the applicant was represented by Shri S.L. Kapadia, Chartered Accountant, Shri Rajesh & Ms. Lalitha Vishwanath. They reiterated their submission made in the application and further sought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r conditions related to supply of imported material and the customers intention to avail benefit of MOOWR) 15-07-2022 6. IOCL entered into a contract with thyssenkrupp Uhde India Private Limited 06-09-2022 7. Work Order No. 27984081 (refers to tender conditions related to supply of imported material and the customers intention to avail benefit of MOOWR) 15-07-2022 8. Work Order no 18033064 (refers to tender conditions related to supply of imported material and the customers intention to avail benefit of MOOWR) 17-02-2023 9.1 Order placed for imported material no. 1 25-01-2023 9.2 Imported material sold on High Seas Sale basis vide High Seas Sale Agreement dt 09-01-2024 09-01-2024 93 Goods cleared from Customs by IOCL 14-02-2024 9.4 Goods taken to MOOWR location 14-02-2024 10.1 Order placed for imported material no. 2 14-02-2023 10.2 Imported material sold on High Seas Sale basis-vide High Seas Sale Agreement dt 17-04-2024 17-04-2024 10.3 Goods cleared from Customs by IOCL 10-06-2024 10.4 Goods taken to MOOWR location 10-06-2024 Sr no 1 to 8 are briefly discussed in para 3.2 of our statement of facts. Of the events have taken place after the Appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant was never 'liable to pay the amount; that per the terms of the contract, the applicant had agreed to supply the imported component, the payment of which was made by the applicant to the foreign vendor; that IOCL has not paid directly to the vendor any money whatsoever; * that the two conditions i.e. supplier's liability to pay and recipient incurring the same, is not fulfilled for section 15 (2) (b) to apply in this present dispute; * that in respect of the imported component sold to IOCL on HSS basis, the duty of customs & IGST was assessed in accordance with the sections 5 & 7 of the IGST Act, 2017 read with sections 7 & 12 of the CGST Act, 2017; that the fact that the supply has already been subjected to tax is indisputable; * that in these circumstances, the levy of GST would be attracted only if there is a further supply by the recipient for consideration; * that, the imported component is not 'consumed' by the appellant in the course of EPC contract; that in-fact the same is installed in the plant erected and commissioned; that the ruling of the Chhattisgarh High Court in Shree Jeet Transport (2023) 79 GSTL 172 is therefore, easily distinguishable. * t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 5,87,55,48,702; Work order No. 18033064 dated 17.2.2023 is relating to work order amount of Rs. 565,23,773.94; that the total LSTK (lump sum turn key) value shall be Rs. 5,87,55,48,702 and USD 7,34,934, which when converted into INR (Indian Rupees) is Rs. 56523773.94 [ in terms of clause 2.2(i) of work order No. 18033064 dated 17.2.2023 is 01 USD INR 76.91 only]. 18. The applicant's contention primarily is that the contract with IOCL, identifies two separate set of supplies under the turnkey EPC contract, and hence according to them is a divisible contract viz [i] that IOCL had invited a single bid for the entire expansion project quoting a lumpsum price; [ii] that in the same tender it is reiterated that there will be two contracts [a] for supply of imported components which shall be on HSS basis (high sea sale basis); [b] second component shall be erection, commissioning of the CDWU unit. 19. Works contract service, is defined under section 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, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (294) in Article 366 of the Constitution to undo the base of the Constitution Bench decision in Gannon Dunkerley's-I case. 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 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 test" or "overwhelming component test" for treating a contract as a works contract is not applicable; (iii) the term "works contract" as used in Clause (294) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stallation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site 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 compos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other Operations in Warehouse Regulation, 2019 [MOOWR] by fictionally dividing an otherwise single turnkey contract into [a] supply of goods and [b] supply of services. 22. Now, moving on to the first question on which the applicant has sought ruling as to whether the contract is a divisible contract or single and a composite contract. 23. At the cost of repetition, it is an undisputed fact that the applicant has entered into a turnkey contract for 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. Under this single turnkey contract consequent to an addendum, the applicant has entered into two work orders with IOCL. It is also stated in the FOA that the total lump sum value shall be Rs. 5875548702 and USD 734934 [ie Rs. 56523773.94]. 23. Now, work order No. 27984081 dated 15.7.2022, describes the Scope of work as follows viz Bidder shall execute the work on Lump Sum Turn Key Basis (LSTK) with single point responsibility. The scope of work includes Project Management, Consistency Checks.. Residual Process Engineeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle order 27984081 is placed to the applicant [including imported material]; that 10% milestone payment pertaining to foreign supply has already been released to party along with GST; that as per tender condition with reference to MOOWR, separate purchase order shall be placed for imported material indicated in clause no. 2.1.1 of LSTK SCC; that a separate PO 18033064 has been generated for foreign supply component as per tender condition & no separate GST would be payable on such items. 25. Thus, it is clear that both the work orders which form part of the contract i.e. supply 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, cannot be executed independently. There cannot be supply of goods without a place of supply. As the goods to be supplied involves movement and/or installation at the site, the place of supply shall be the location of the goods at the time when movement of the goods terminates for delivery to the recipient, or moved to the site for assembly or installation, in terms of section 10 (1) (a) & ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CONTRACTOR, constitute a firm contract for the sale and supply to the OWNER of all materials as determined by the CONTRACTOR within the scope of services to be necessary to establish, commission and operate (so far as concerns mandatory spares) the Plan Unit at the price of materials specified in the Price Schedule/Form SP-1A and SP-18. 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. (b) All materials imported into India shall be consigned either to the OWNER or to the CONTRACTOR as the consignee of the materials. (c) If the material is consigned to the OWNER, the title to the materials shall vest in the OWNER as soon as the materials are placed free on board (FOB) for consignment or ultimate consignment to India for delivery to the OWNER. (d) If the material is consigned to the CONTRACTOR, the material sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... characteristics have been elucidated by a three-Judge Bench in Larsen and Toubro (supra) thus:- ""As the very title of Article 366 shows, it is the definition clause. It starts by saying that in the Constitution unless the context otherwise requires the expressions defined in that article shall have the meanings respectively assigned to them in the article. The definition of expression "tax on sale or purchase of the goods" is contained in clause (294). If the first part of clause (294) is read with sub-clause (b) along with latter part of this clause, it reads like this: "tax on the sale or purchase of the goods" includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. The definition of "goods" in clause (12) is inclusive. It includes all materials, commodities and articles. The expression "goods" has a broader meaning than merchandise. Chattels or movables a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 test" or "overwhelming component test" for treating a contract as a works contract is not applicable; (iii) the term "works contract" as used in Clause (294) of Article 365 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 with in a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract. 29. In view of the foregoing, we find that the contract entered into by the applicant with IOCL is not a divisible contract, notwithstanding the fact that the turnkey contract, as mentioned above constitutes two different work orders, the performance of which is interconnected and interdependent. 30. The applicant has thereafter sought a ruling on whether the component of imported goods will be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods nor a supply of services. Thus, the question of levy of GST on such supply, does not arise. 34. 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. We therefore do not wish to entertain the question it being beyond the jurisdiction of this Authority. 35. However, we would like to address the next portion of the question ie whether it would be taxable as a service at the time of incorporation in the works contract ie when the erection, commission and installation of goods. Now, additions and inclusion, as far as valuation under CGST Act, 2017, is concerned, is governed by section 15 of the CGST Act, 2017, which states as follows: [relevant extract] Section 15. Value of Taxable Supply.- (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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an on behalf of IOCL. This is primarily to avail the benefit of Manufacture and other Operations in Warehouse Regulation, 2019 [MOOWR]. The applicant, in terms of the contract, is liable to provide the goods [supplied on HSS basis to IOCL] and thereafter in terms of the work order these goods are supplied back by to the applicant as "Free Issue Materials" [Clause 13 of work order No. 27984081 dtd 15.7.2022 & work order no. 18033064 dated 17.2.2023.]. 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 part of the transaction value for payment of GST. 36. The applicant during the course of personal hearing on 28.10.2024 & consequently in their rejoinder dated 30.10.2024 has raised an averment that the imported component was purchased by them; that subsequently it was supplied to IOCL; that the cost of the same was paid by them & not by IOCL & hence the question of invoking 15 (2) (b), ibid, does not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to the vehicle in lieu of freight. The said fuel would be issued by the Company for exclusive usage, as a consumable, in the underlying transportation only and the ownership of the fuel would at no point be transferred to the Transporter or to the vehicle engaged................ 7. The question falls for consideration is that "whether diesel filled by the service recipient FoC in the truck of the GTA can be added to value of supply being rendered by the GTA for the purpose of levy of GST under the CGST Act, 2017?" 13. The AAR by its order dated 4-1-2021 held that the cost of fuel though is not included in the scope of work of the petitioner and the diesel is provided FOC by the service recipient would nevertheless would be added to the value of taxable service for the purpose of GST on application of Section 15 (1) read with Section 2 (31) of the CGST. It was further held that since fuel was an essential ingredient without which the transport service cannot be rendered, the cost of fuel cannot be ignored. 14. The petitioner having not satisfied with such ruling, filed an appeal before the Appellate Authority i.e. AAAR wherein the AAAR passed an order dated 28-2-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation. Section 2 (31) of the CGST 2017 mandates that "consideration" in relation to supply of goods or services includes - (a) any payment whether in money or otherwise made or to be made; (b) monetary value of any act or forbearance for the inducement of supply of goods or services. Reading of section 2 (31) along with scope of supply as defined u/s 7 (1) (a) makes it clear that the petitioner who is a GTA wanted to transport the goods for recipient. The recipient is not a GTA or engaged in business of transport. Consequently it is the petitioner GTA "in course" or "furtherance of business" has agreed to supply the goods or service for consideration. When it is the primary business of the GTA, in order to allow running the vehicles by fuel, it is a potential combination. If that part of responsibility is delegated by way of an agreement to the recipient, in such a case, the recipient would step into the shoes of GTA as its component and would be playing central role in setting narratives. 23. ... ...... ...... ...... ...... ....Section 7 of the Act explains that expression "supply" would include all forms of supply made or agreed to be made for consideration in furtheranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. 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) Section 15 (2) of the CGST Act. The provision to be added as per model GST Law in clause (b) of Section 15 (2) reads as under "(b) 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 being valued.... The submission that free supply by the service recipient has been excluded as per final GST Law. Therefore, the legislative history in the draft GST Law is required to be seen. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m & that statutory liability cannot be evaded. The averment made during the course of personal hearing held on 28.10.2024 and in the rejoinder to the oral and written submission dated 30.10.2024, that the above judgement is distinguishable since the imported component is not consumed, is not a legally tenable argument. The imported components, as per the appellant are installed in the plant erected & commissioned for IOCL. Distinguishing the judgement on the sole ground that for 15 (2) (b) to apply, the component needs to be consumed, is not a plausible argument. We therefore, reject the same. 38. Our finding, also stands substantiated, while going through the scope of work, mentioned in detail in paragraph 2.3 supra. The argument therefore, that it is a divisible contract entailing [a] supply of imported goods and [b] supply of services is not borne out from the reading of the contract and the relevant documents thereof. 39. On going through the scope of work, it is further observed that the applicant has to undertake and perform all services and formalities necessary for clearance of the imported goods/materials for and on behalf of IOCL Needless to add, that it is the applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act merely because such duty & IGST paid goods are incorporated in the works contract by way of erection, commission & installation. We find the argument to be legally incorrect owing to the Sr. No. 06 of Schedule II to the CGST Act, 2017, which states as follows viz: 6. Composite supply The following composite supplies shall be treated as a supply of services, namely:- (a) works contract as defined in clause (119) 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
