2018 (11) TMI 1573 – AUTHORITY FOR ADVANCE RULING, WEST BENGAL – 2019 (20) G. S. T. L. 110 (A. A. R. – GST) – Erection of a series of transmission towers and commissioning of the transmission line – Supply of a bundle of goods and services – Works contract – Composite supply or not – whether the Tower Package, which includes the erection of a series of transmission towers and commissioning of the transmission line, is an immovable property?
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Held that:- Neither the risk in the goods passes to PGCIL at the factory gate nor that the JV will get any payment, other than the advances paid, until and unless the goods are dispatched. Evidently, property in the goods does not pass to PGCIL at the factory gate. The JV needs to move the goods and deliver them at the work site before claiming 60% of the payment for execution of the First Contract. The balance amount is to be paid in phases till completion of erection of all towers of the transmission line.
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It is immediately apparent t
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ing made under two separate agreements, they are not executable separately. The First Contract for supply of goods cannot be executed unless tied up with the Second Contract. Unless and until supplies under both the contracts are made and the Tower Package is commissioned, PGCIL is not treating either of the contracts as successfully completed and reserves the right to initiate actions for breach of contract.
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It is thus a single source contract for bundled supplies of goods and services for construction, erection and commissioning of the Tower Package – an immovable property.
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The Applicant is executing an indivisible composite contract for construction, erection and commissioning of an immovable property, namely the Tower Package, execution of which involves bundled supply of both goods and services. It is, therefore, works contract, as defined under Section 2(119) of the GST Act – The contract for the Tower Package, being works contract is service in terms of paragraph 6(a
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nd in-transit insurance. GST is to be paid on the entire value of the works contract, including the supply of materials, transportation, intransit insurance, erection, commissioning etc.
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The exemption under serial no. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28/06/2017 is, therefore, not applicable in the present context. – Case No. 25 of 2018 Order No. 22/WBAAR/2018-19 Dated:- 26-11-2018 – VISHWANATH AND PARTHASARATHI DEY MEMBER Applicant s representative heard Sonam Bhandari, FCA 1. The Applicant, stated to be engaged in the manufacturing, installation and other ancillary services of integrated transmission towers has entered into a Joint Venture (hereinafter referred to as JV ) with M/s C & C Constructions Ltd, Gurgaon, and, as JV has executed a contract with M/s Power Grid Corporation of India (hereinafter referred to as PGCIL ) for construction and commissioning of 400 kV D/C (Quad) Jigmeling-Alipurduar line (Indian portion – NER) under transmission syste
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= 2018 (5) TMI 964 – AUTHORITY FOR ADVANCE RULINGS, WEST BENGAL in which this Authority has held that EMC Ltd has not contracted separately for ex-factory supply of materials, but for the composite supply, namely works contract service for construction, erection and commissioning of the Tower Package, of which freight and transportation is merely a component and not a separate and independent identity, and GST is to be paid at 18% on the entire value of the composite supply, including supply of materials, freight and transportation, erection, commissioning etc. The Applicant states that while the modus operandi of entering into a contract with PGCIL is similar to that adopted by EMC Ltd, insofar as the contract with PGCIL has been split up into two separate parts – one for ex-factory supply of materials (hereinafter referred to as the First Contract ), and the other for supply of allied services like erection of towers, testing and commissioning of transmission lines etc. (hereinafter
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location without major damage, and such shifting of towers is not an uncommon event. Transmission towers are, therefore, not immovable property. Judgments passed by the High Courts and the Supreme Court in the cases of Essar Telecom Infrastructure Pvt Ltd [(2012) 25 STR 16 (Kar)] = 2011 (4) TMI 234 – KARNATAKA HIGH COURT; Sri Velayuthaswamy Spinning Mills (P) Ltd (WP Nos. 4434, 4435, 13652, 13653 of 2009) = 2013 (3) TMI 681 – MADRAS HIGH COURT; Solid & Correct Engineering Works [(2010) 252 ELT 481 (SC)] = 2010 (4) TMI 15 – SUPREME COURT are referred to by the Applicant in support of his Argument. 3. On a careful reading of the contracts between the JV and PGCIL it is seen that, in the present context, the contractual obligation between the JV and PGCIL is for construction, erection and commissioning of the Tower Package and not for the erection of a standalone tower. It includes fabrication and supply of all types of transmission line towers and accessories, supply of earth wire, h
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owers that the Applicant would like the question to be confined to. It is clearly a supply of a bundle of goods and services that result in construction, erection and commissioning of the Tower Package. It, therefore, needs to be ascertained whether the Tower Package, which includes the erection of a series of transmission towers and commissioning of the transmission line, is an immovable property. 4. Immovable property is not defined under the GST Act. The term goods is defined under Section 2(52) of the GST Act as all kinds of moveable properties other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. Property other than goods, money and securities should, therefore, be considered as immovable property under the GST Act. However, in the absence of a definitive explanation under the GST Act, recourse is being taken to other allied A
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fastened to anything attached to the earth, or forming part of the land and not agreed to be severed before supply or under a contract of supply. 5. In Triveni Engineering & Industries Ltd [(2000) 120 ELT 273 (SC)] = 2000 (8) TMI 86 – SUPREME COURT OF INDIA the Apex Court observes that while determining whether an article is permanently fastened to anything attached to the earth both the intention as well as the factum of fastening has to be ascertained from the facts and circumstances of each case. In S/S Triveni N L Ltd [RN – 910, 911 & 912 of 2001 (All)] = 2014 (4) TMI 842 – ALLAHABAD HIGH COURT Allahabad High Court observes that permanently fastened to anything attached to the earth has to be read in the context for the reason that nothing can be fastened to the earth permanently so that it can never be removed. If the article cannot be used without fastening or attaching it to the earth and is not removed under ordinary circumstances, it may be considered permanently faste
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ment in perpetuity with no plan for removal or shifting in the foreseeable future. The Tower Package being constructed is, therefore, an immovable property. 7. The Applicant has referred to several case laws and judgments in support of the argument that the Towers, so constructed under contract, are not immovable property . a) In Sri Velayuthaswamy Spinning Mills P Ltd (supra) the Madras High Court based its judgment on Section 3 of the Transfer of Property Act, 1882, and held that a windmill is a moveable property, being of the view that if a thing is embedded in the earth or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached, it becomes an immovable property. On the other hand, if the attachment is made for the beneficial enjoyment of the chattel itself, which in this case is the windmill, then it remains a chattel even though fixed for the time being so that it may be enjoyed. This view of the Madras High Court does not take into c
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not, has held that such an attachment without necessary intent to making it permanent cannot be an immovable property. The emphasis is on the intention of the party. The Apex Court observes that the machine in question can be moved and has indeed been moved after the road construction and repair project, for which it was installed, is completed. However, if a machine is intended to be fixed permanently to a structure embedded in the earth, the moveable character of the machine, according to the Supreme Court, becomes extinct. In the present context, it has already been pointed out that the series of transmission towers are being erected under the Tower Package with no intention of removing or shifting them in foreseeable future. They are, therefore, clearly intended to be fixed permanently to the foundation embedded in the earth. The moveable character of the towers, therefore, becomes extinct. c) In the case of Essar Telecom Infrastructure Pvt Ltd (supra), the Karnataka High Court, d
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se in perpetuity. In contrast to the time-bound nature of the agreements for using building spaces for erecting mobile towers, the Tower Package is not being constructed with the contemplation of such relocation. The judgment of Karnataka High Court in the matter of Essar Telecom Infrastructure P Ltd (supra) is, therefore, not applicable in the present context. 8. The Applicant further argues that separate contracts, executed with the explicitly defined separate scope of work and price, should be construed as separate distinct agreements with each of the supplies being separate supplies and refers to several judgments in support of his argument. The cases referred to are: Hindustan Aeronautics Ltd [(1984) SCR (2) 248] = 1983 (12) TMI 259 – SUPREME COURT OF INDIA; Gannon Dunkerley & Co [(1959) SCR 379] = 1958 (4) TMI 42 – SUPREME COURT OF INDIA; Associated Hotels of India [(1972) SCR (2) 937] = 1972 (1) TMI 80 – SUPREME COURT OF INDIA; Power Grid Corporation of India Ltd [(2007) 112
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ctee. In this connection the Applicant refers to a Ruling of Karnataka Authority for Advance Ruling (hereinafter referred to as KAAR ) in the case of M/s Giriraj Renewables Pvt Ltd. wherein the contract is for setting up a solar power plant, where the contractee imports the solar photovoltaic module (PV Module) and supplies them free of cost to the contractor at the work site. The Ld KAAR observes that the contractor cannot, therefore, claim that he is supplying the PV Module and the other supplies are ancillary to this principal supply. As the goods belong to the contractee at the time of provisioning the services, it cannot be said that the supplies of materials and services are naturally bundled and a composite supply. Drawing an analogy the Applicant argues that ex-works supply of materials results in the transfer of title of the goods to PGCIL at the factory gate, and all subsequent activities, including transportation etc., are services performed on the goods supplied by the cont
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ex-works price component of the fabricated tower parts/tower shall be paid on completion of their erection. Final payment of the balance 10% shall be made after the erection of all the towers of the transmission line subject to submission of an unconditional and irrevocable bank guarantee covering the above 10% amount, valid till scheduled date for testing and commissioning of the transmission line. If there is an increase in Contract price due to price adjustment, 90% of it shall be paid on receipt of the respective shipment at the site. Appendix-3 to the First Contract describes the Insurance Requirements. It mandates the JV to provide insurance cover for the transit risk from the manufacturing works of the JV to the project warehouse at final destination and also the risk from the date of receipt at the site and till the date of operational acceptance, indicating that PGCIL does not own up risk in the goods till they are applied to construction, erection and commissioning of the Tow
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ation of the goods at the time when movement of the goods terminates for delivery to PGCIL or moved to the site for assembly or installation [refer to Section 10(1)(a) & (d) of the IGST Act, 2017]. The First Contract, however, does not include the provision and cost of such transportation and delivery. It, therefore, does not amount to a contract for supply of goods unless tied up with the Second Contract. In other words, the First Contract has no leg unless supported by the Second Contract. It is no executable contract unless tied up with the Second Contract. The contractee is aware of such interdependence of the two contracts. Although awarded under two separate agreements, clauses under both of them make it abundantly clear that notwithstanding break-up of the contract price, the contract shall, at all times, be construed as a single source responsibility contract and the Applicant shall remain responsible to ensure execution of both the contracts to achieve successful completio
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wo neatly separable contracts, where provisioning of services under the Second Contract begins subsequent to transfer of property in the goods to PGCIL under the First Contract, but are indivisible contracts for the bundled supply of goods and services. The ruling of KAAR in the matter of M/s Giriraj Renewables Pvt Ltd is, therefore, not relevant in the present context. It is thus a single source contract for bundled supplies of goods and services for construction, erection and commissioning of the Tower Package – an immovable property. 11. The Applicant s reference to several judgments of the apex court is also of little relevance since they are all delivered in the context of situations prior to the 46th Amendment to the Constitution, and are focused on devising the parameters to distinguish between a contract for the sale of goods and works contract. A careful reading of these judgments reveals that the prevailing view of the Apex Court at that time was that no straitjacket formula
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a three-member Constitution Bench of the Apex Court sums it up, describing works contract as a composite contract involving contracts for both service and sale of goods irrespective of dominant intention. Rejecting the traditional view espoused by several earlier judgments of the same court, wherein the focus lied on examining the substance of the contract, Apex Court now holds that the distinction between a contract for the sale of goods and contract for service has almost diminished in the matter of such composite contracts. All that is required is the existence of a contract for construction, erection, commissioning etc. of an immovable property, and execution of the contract must involve the transfer of property in goods (as goods or in some other form), whether or not the goods have been transferred by way of accretion. In its judgment dated 06/05/2014 in Kone Elevator India Pvt Ltd [Writ Petition (Civil) No. 232/2005 and other cases = 2014 (5) TMI 265 – SUPREME COURT], a five mem
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ction, 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. Discussion in the preceding paragraphs establishes that the Applicant is executing an indivisible composite contract for construction, erection and commissioning of an immovable property, namely the Tower Package, execution of which involves bundled supply of both goods and services. It is, therefore, works contract, as defined under Section 2(119) of the GST Act. 13. The contract for the Tower Package as above, being works contract is service in terms of paragraph 6(a) to Schedule II to the GST Act. Activities covered under Schedule II are to be treated as a supply of the nature described under section 7(1)(d) of the GST Act. Reference to Circular No. 47/21/2018-GST dated 08/06/2018 of CBIC or the e-flyer is, theref
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