In Re: M/s. Emco Limited
GST
2018 (12) TMI 649 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – 2019 (20) G. S. T. L. 401 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – AAR
Dated:- 25-7-2018
GST-ARA-16/2018-19/B-74
GST
SHRI B.V. BORHADE, AND SHRI PANKAJ KUMAR, MEMBER
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by EMCO LIMITED, the applicant, seeking an advance ruling in respect of the following question :
1.1 The question/ issue before Your Honor is whether GST is leviable on the transportation charges levied by the Applicant on PGCIL?
1.2. In case the GST is payable, what would be the rate of GST to be charged on such charges?
At the outset, we wou
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n and Distribution Sector. The Company has two divisions namely (i) Transformer division and (ii) Project division. The Transformer division manufactures widest range of transformers which are used in the power industry. The Project division has two Strategic business units (i) Sub-station SBU (ii) Manufacturing Tower and Transmission Line SBU. Sub-station SBU focuses on turnkey projects in the Transmission & Distribution area strengthening the substation and distribution network and Transmission Line SBU offers a wider portfolio of products and solutions for Transmission and Distribution of Power.
2. The Applicant, as part of its activities under the Project division has entered into following contracts with Power Grid Corporation of India Limited (hereinafter referred to as 'PGCIL') as under:
(i) Supply of Towers and Transmission line Products; (referred to as 'Supply contract'/'First Contract')
(ii) Services contract (referred to as 'Service contract' /'Second Contract'); and
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ce contract, PGCIL agrees to pay the Applicant the contract price along with all the taxes and duties as applicable on the same.
The Applicant issues separate invoices to PGCIL for (i) for the supply of goods (ii) supply of services. With respect to the services, the Applicant issues separate invoice for each service.
3. The Applicant, for the purposes of transportation of goods, avails the service of a Goods Transport Agency (GTA) Who transports the said goods to the location of PGCIL. The Applicant also pays tax under reverse charge on the said services availed from a GTA.
4. In view of the above, the issue for determination before the Authority for Advance Ruling AAR') is whether GST is leviable on such freight charges being recovered and if so at what rate.
STATEMENT CONTAINING THE APPLICANT'S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE, IN RESPECT OF THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED
2. ISSUE FOR DETERMINATION
2.1 The question/ issue before
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n
18
9965
Services by way of transportation of goods-
(a) by road except the services of-
(i) a goods transportation agency;
(ii) a courier agency;
(b) by inland waterways.
NIL
NIL
3.2. As understood from above, supply of services by way of transportation of goods by road (unless provided by a GTA or courier agency) are exempt from GST and thereby not subject to tax.
3.3. As per clause (ze) of the above Notification, 'Goods Transport Agency' is defined to mean-
“any person who provides service in relation to transport of goods by road and issue consignment note, by whatever name called”
3.4. It is submitted that the Applicant does not issue any consignment note in the course of providing the transportation services to PGCIL. This being the case, the Applicant is of the view that it does not qualify as a 'Goods Transport Agency'. The Applicant is also not a courier agency and accordingly, the transportation services provided by the Applicant may not be subject to GST.
3.5.
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onstitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;
TAXABILITY OF COMPOSITE SUPPLY [SECTION 8 OF THE CGST ACT]
3.7. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely: –
a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax,
3.8. Upon reading of the above provisions, it can be seen that in cases where two or more taxable supplies of goods or services or both are naturally bundled in the course or furtherance of business the supply would qualify as Composite supply. Further, as per Section 8 of CGST Act, the Composite supply would be treated as a supply of 'Principal supply' for the purposes of CGST Act and
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e of supply;
* Majority of suppliers provide such a bundle;
* One supply is main and other is ancillary
3.12. In respect of the above position in law, it would be important to determine whether the transportation services provided by the Applicant would qualify as a 'taxable supply' or not in terms of the facts mentioned above and also whether such services form part of a Composite supply, if any especially since a Composite supply only covers two or more taxable supplies.
4. RELEVANT CLAUSES OF THE AGREEMENT BETWEEN EMCO Ltd. AND PGCIL
Reference is sought to the underlying agreement under Exhibit A between the Applicant and PGCIL. The relevant clauses of the same are reproduced hereunder for ready reference:
SUPPLY CONTRACT –
THIS CONTRACT AGREEMENT No. CC-CS/651-SR1/TW-3573/3/G10/CA-1/7292(also referred to as 'Ex-works Supply Contract/the First Contract') is made on the 8th June 2017;
Article 2 – Contract Price and Terms of Payment
2.1 Contract Price:
The employer her
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, delivery, , unloading, handling, Storage, erection (of all equipment and material) including associated Civil works, detailed survey including route alignment, profiling, tower spotting, optimization of tower locations, soil resistivity measurement and geotechnical investigation (including special foundation locations viz. pile/well foundation locations, whenever applicable and covered under BPS), Check survey, classification of foundation for different type of tower and casting of foundation for tower as per POWERGRID's foundations drawing, tack welding of bolts and nuts including supply and application of zinc rich plant, fixing of insulator strings, stringing of conductors and earth wires/OPGW along with all necessary line accessories; Stringing Power line crossing section under Live Line Condition (wherever applicable); painting of towers & supply and erection of span markers, obstruction lights (wherever applicable) for aviation requirements (as required), testing and commission
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dation locations, whenever applicable and covered under BPS), check survey, classification of foundation for different type of tower and casting of foundation for tower as per POWERGRlD's foundations drawing, tack welding of bolts and nuts including supply and application of zinc rich plant, fixing of insulator strings, stringing of conductors and earth wires/OPGW along with all necessary line accessories; Stringing Power line crossing section under Live Line Condition (wherever applicable); painting of towers & supply and erection of span markers, obstruction lights (wherever applicable) for aviation requirements (as required), testing and commissioning of all equipment and materials, etc. for complete execution of the Tower Package TW05 for +-800kV Raigarh – Pugalur Transmission Line Part-V associated with HVDC Bipole Link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu)- North Trichur (Kerala) as detailed in the Contract document (“the facilit
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able on invoice raised by Applicant towards freight and other incidental expenses outsourced by the Applicant?
* If GST is payable, applicable rate of tax on the said transportation service?
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
1. Issue for determination-
1.1 The question/ issue before Your Honor is whether GST is leviable on the transportation charges levied by the Applicant on PGCIL?
1.2 In case the GST is payable, what would be the rate of GST to be charged on such charges?
Dealer's Contention:
As per notification No. 12/2017 dated 28.06.2017 Entry No. 18, exempt services by way of transportation of goods by road except inter alia by GTA.
As understood from above, supply of services by way of transportation of goods by' road (unless provided by a GTA or courier agency) are exempt from GST and thereby not subject to tax.
Department's Submission:
Composite supply means a supply made by a taxable perso
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s where two or more taxable supplies of goods or services or both are naturally bundled in the course or furtherance of business the supply would qualify as Composite Supply. Further as per Section 8 of CGST Act, the Composite supply would be treated as a supply of 'Principal Supply' for the purposes of CGST Act and would be taxed accordingly.
3. A 'Principal Supply' would mean the predominant element of supply involved in the Composite supply. The composite supply can, therefore, be broadly divided into two parts (i) Principal Supply i.e. predominant element (ii) other ancillary supplies.
4. As observed from above, a supply would qualify as a Composite supply only in cases where such supply consists of two or more taxable supplies. Therefore, it is crucial to analyze the term 'Taxable supply' as defined under Section 2(108) of CGST Act. The same is reproduced hereunder: 'taxable supply means a supply of goods or services or both which is leviable to tax under this Act.
M/s. Powe
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– SUPREME COURT OF INDIA
3. Judgement of Supreme Court of India Hindustan Sugar Mills Etc vs State of Rajasthan And Others on 22nd August, 1978 = 1978 (8) TMI 186 – SUPREME COURT OF INDIA
4. Advance ruling Judgment of M/s. Emc LTD dt.12.02.2018
In the light of the above, contract is a composite contract (indivisible) and GST should be levied on total contract price including material, supply, service, freight etc. GST should be levied on fabricated galvanized steel structure tower (HSN Code: 7308) at the rate of 18 percent.
04. HEARING
The case was taken up for Preliminary hearing on dt. 26.06.2018 with respect to admission or rejection of present application when Sh. Harsh Shah, Advocate along with Sh. Jigar Vachharajani Advocate, Sh. Amit Singh, GM Transmission, Mr. Ganesh Tawari, Company Secretary and Mr. Suresh Disale, Manager Tax appeared and made submissions as per contentions made in ARA. Jurisdictional Officer, Sh. S. D. Tandale, Dy. Commissioner of S.T. (E- 643) LTU-0
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s activities has entered into following contracts with Power Grid Corporation of India Limited (hereinafter referred to as 'PGCIL') as under:
(i) Supply of Towers and Transmission line Products; (referred to as 'Supply contract'/ 'First Contract')
(ii) Services contract (referred to as 'Service contract'/ 'Second Contract');
In this case applicant's submission is that it has entered into two separate contracts one for supply of goods and other for supply of services. As regards supply of services applicants has stated that goods that are sold ex-factory basis and thereafter they were transported to the project site for which separate consideration has been decided.
As per second contract entered into with PGCIL in respect of various services to be undertaken upto successful commissioning of the project which includes planning, transportation of goods, loading and unloading etc for which seprate invoices and consideration has been stipulated. For the purpose of transportation of g
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ice and should be taxed accordingly.
In order to examine this view of the applicant we examine the terms of the contract executed between the applicant and the PGCIL. The contract document reads as under:-
Contract agreement for-
Tower Package TW05 for + 800KV HVDC Raigarh- Pugalur Transmission Line Part-V associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu)- North Trichur (Kerala).
Now we refer to relevant clauses of contract to understand the exact nature of works undertaken by the applicant.
1.Supply contract- THIS CONTRACT AGREEMENT No. CC-CS/651-SR1/TW-573/3/G10/CA-1/7292(also referred to as 'Ex-works Supply Contract/the First Contract') is made on the 8th June 2017;
2.0 Of the contract -AWARD OF CONTRACT AND ITS SCOPE
2.1 We confirm having accepted your Bid (referred to at para 1.3 & 1.5 above) read in conjunction with all the specifications, terms & conditions Of the Bidding Documents (referred to at pa
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r applicable);
(iii) Supply of Earthwire.
(iv) Supply of Tower Earthing.
The scope of work under this Notification of Award (NOA) shall also include all such items which are not specifically mentioned in the Bidding Documents and/or your bid but are necessary for successful completion of your scope under the Contract for the construction of Tower Package TW05. +800kV HVDC Raigarh- Pugalur Transmission Line Part-V associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu)- North Trichur (Kerala) unless otherwise specifically excluded in the Bidding Documents or in this NOA.
2.2 The Notification for Award of Contract for performance of all other activities, as set forth in the Bidding Documents, viz. inland transportation, insurance, delivery, unloading, handling, storage, erection of all equipment and material) including associated civil works, detailed survey including route alignment, profiling, tower spotting, opt
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alled the “Second Contract” or “Services Contract”).
Notwithstanding the award of work under two separate Contracts in the aforesaid manner, you shall be overall responsible to ensure the execution of both the Contracts to achieve successful completion and taking over of the works under the package by the Employer as per the requirements stipulated in the Bidding Documents. It is expressly understood and agreed by you that any default or breach under the 'Second Contract ' shall automatically be deemed as a default or breach of this First Contract' also and vice-versa, and any such default or breach or occurrence giving us a right to terminate the 'Second Contract' either in full or in part, and/or recover damages there under, shall give us an absolute right to terminate this Contract, at your risk, cost and responsibility, either in full or in part and/or recover damages under this First Contract' as well. However, such default or breach or occurrence in the 'Second Contract', shall
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tisgarh) and Southern region (Pugalur, Tamil Nadu – North Trichur (Kerala)Contract Agreement No. CC-CS/651-SRVIW-3573/3/G10/CA-II/7293
Scope of work WHEREAS the Employer desires to engage the Contractor for providing all the services inter-alia including inland transportation, insurance, delivery, unloading, handling, storage, erection (of all equipment and material) including associated civil works, detailed survey including route alignment, profiling, tower spotting, optimization of tower locations, soil resistivity measurement & geotechnical investigation (including special foundation locations viz. pile/ well foundation locations, whenever applicable & covered under BPS), check survey, classification of foundation for different type of tower and casting of foundation for tower footings as per POVVERGRIDs foundations drawing, tack welding of bolts and nuts including supply and application of zinc rich paint, fixing of insulator strings, stringing of conductors and earth wires/ OP
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e Contractor of its obligations hereunder. The Contract Price shall be the aggregate of INR 80, 43,90,567 / (Rupees Eighty Crores Forty Three Lakh Ninety Thousand Five Hundred Sixty Seven Only), or such other sums as may be determined in accordance with the terms and conditions of the Contract. The break-up of the Contract price is as under.
SI. No.
Price Component
Amount (in IRS.)
1.
Transportation, Insurance and other Incidental Services
5,95,56,644/-
2.
Installation Services
74,48,33,923/-
Total for Services Contract
80,43,90,567/-
Article 5:- Notwithstanding the award of work under two separate Contracts in the aforesaid manner, the contractor shall be overall responsible to ensure the execution of both the Contracts to achieve successful completion and taking over of the works under the package by the Employer as per the requirements stipulated in the Bidding Documents. It is expressly understood and agreed by you that any default or breach under the 'First Contract'
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can be safely concluded that the agreement for setting up Tower Package TW05 for +800KV transmission Line Project is a single indivisible contract. As the contract consists of two or more taxable supplies of goods and services and their combination, is a composite supply as defined u/s 2(30) of the GST Act. For the proposition of law that the first contract and the second contract is one single individual contract, we may find support from the decision of Supreme Court of India in case of M/s. Indure Ltd. & Anr vs Commercial Tax Officer & Ors. on 20 September, 2010 C.A. NO. 1123 of 2003 = 2010 (9) TMI 883 – SUPREME COURT OF INDIA.
Wherein Court held as below:
9. The total contract was agreed to be divided into two separate contracts, (i) supply contract, and (ii) erection contract, with a cross-fall breach clause wherein breach of either of the contracts would entitle the owner/ contractee (N.T.P.C) to cancel the other contract also.
10. In the said meeting itself, it was agreed b
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te works contract as defined u/s 2(119) of the GST Act. We reproduce the section as below:
2(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;
As averted above, the contract executed between the parties is for complete execution of the Tower package Tower Package Tw05 for + 800RV/HVDC Raigarh- Pugalur Transmission Line Part-V associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu) – North Trichur (Kerala).
As such we do not find any difficulty to arrive at conclusion that the subject contracts are for commissioning of immovable property wherein transfer of property in goods (whether as goods or in some o
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