TMI Blog2023 (12) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... intenance etc. The applicant therefore is engaged in two taxable supplies. What is pivotal is that the supply of service is possible only when the goods i.e. aircrafts are supplied. Hence, the contract is a composite supply which are naturally bundled and supplied in conjunction wherein the principal supply is that of aircrafts. What will be the appropriate classification and rate of tax of the said supply? - HELD THAT:- Since it is already held that the contract with Airbus for supply of aircraft is a composite supply, and that the principal supply being supply of goods viz aircraft, it is held that aircrafts are classifiable under CTH 8802 will attract GST @ 5% in terms of notification No. 1/2017-IT (Rate) dated 28.6.2017 entry no. 244. Value to be adopted, for the purpose of payment of GST - HELD THAT:- In this case, the applicant relying on clause 1 [which defines FIM] and clause 4.2 of the contract and clauses 1.3 and 2.3.7 of the SoW, is of the view that since the FIM were supplied free owing to a contractual obligation and also on account of the difficulty laced in indigenization, this will not form part of the value of supply - However, the issue of valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d directly by Airbus from Spain to MoD in a fly-away condition, for the remaining 40 aircrafts, Airbus Defence Space SAU and Tata Consultancy Services has entered into a contract with the applicant [as the Indian Aircraft Contractor (IAC) for manufacture and supply vide contract dated 29.10.2021 (hereinafter referred to as the contract ). 5. The relevant clauses of the contract dated 29.10.2021, entered into between Airbus Defence Space SAU, Tata Advanced Systems Ltd and Tata Consultancy Services Ltd, is reproduced below for ease of reference viz: Airbus SE means Airbus Societas Europaea, a European public limited-liability company with its registered office in Amsterdam....... Aircraft means the C-295 MW transport aircraft modified by the purchaser for installation of CSE and including associated role equipment technical literature: C295 Aircraft Programme means all activities to be undertaken by the purchaser in relation to the aircraft including the design, development, certification, manufacturing support; Free Issue Material means any material tool provided by purchaser to the supplier during the term of this Contract; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnataka GSTN 29AACCT5245KIZZ Any change in the place of the orders must be notified of the purchaser in writing by the supplier with sufficient prior notice. 3.1 SCOPE OF WORK 3.1.1. The Supplier s activities shall comply with the requirements of the Contract and associated Orders and shall include, as necessary and/or as requested by the Purchaser, but shall not be limited to:- (i) activities necessary to ensure compliance of the Item with the requirements of the Specification (including those in connection with continued airworthiness of the fleet, in service requirements and military qualification requirements as applicable) (ii) supply of all material, including, but not limited to raw material standards, sealants and adhesives. (iii) the manufacture, delivery (as defined in Article 7 Inspection, Delivery and Acceptance ) and support of the Items (as further defined in the Article 3.4 Support ) (iv) the design, manufacture and maintenance of Tooling as necessary to develop and manufacture the Items: (v) the supply of all relevant, updated and accurate documentation (including but not limited to documentation for certification, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a standard so as to meet the maintenance requirements of both the Purchaser and the Customer for as long as a minimum of five (5) Aircraft are in regular operation For the avoidance of doubt. following the expiry of the warranty period of the last Aircraft delivered, the Supplier shall be entitled to pack and store the Tooling and the Purchaser property but shall remain responsible for its custody, maintenance and set up at its own costs whenever reinstallation is required by the Purchaser. 4.2.1.4 If any action is taken by a third party in respect of any of the Purchaser s Property, the Supplier shall notify the Purchaser of such action and shall notify the third party that such Purchaser s Property is not the property of the Supplier. 4.2.1.5 All risks in such Purchaser s Property shall pass to the Supplier upon delivery thereof to the Supplier and shall remain with the Supplier until returned to the Purchaser 4.2.1.6 The Supplier shall return any Purchaser s Property upon request by the Purchaser and at the latest, upon expiry or termination of all the Orders for the performance of which such Purchaser s Property was loaned. 4.2.1.6 The supplier shall return any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rter in respect of FIM supplied by Airbus and will discharge applicable duties of customs on the FIM, at the time of import. The Applicant is entitled to raise invoice on Airbus for reimbursement of all the indirect taxes including the duties of customs paid on FIM. 9. Payment terms of the contract states that for manufacture and supply of aircrafts, Applicant will raise invoice on Airbus inclusive of applicable taxes. The said invoice will then be forwarded by the Airbus to MoD for payment. The payments under the contract are firm and fixed in currency basket of Euros, USD and INR. While the INR payments will be made by MoD directly to the applicant on behalf of Airbus, the payments in Euros and USD will be made by Airbus to the applicant. The payment schedule involves certain amounts received as advances on milestone basis and thereafter on per aircraft delivery basis. Airbus will obtain registration under Goods and Services Tax (GST ) in India. 10. On the aforementioned facts, the applicant vide his application dated 24.12.2021, sought ruling on the following questions viz (i) What is the nature of supply under the contract between the applicant Airbus (i.e. whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the applicant for setting up FAL and MRO facility. 14. In light thereof, the applicant has filed a fresh application and sought an Advance Ruling on the following questions: (i) What is the nature of supply under the contract between the Applicant and Airbus (i.e.. whether the same will qualify as supply of goods or supply of service ) . (ii) Given the nature of the activities undertaken by the Applicant under the contract, what will be the appropriate classification and rate of tax of the said supply? (iii) What is the value to be adopted for the purpose of payment of GST? (iv) What will be the time of supply for payment of GST? 15. The applicant has relying on sections 2(52) and 7 of the CGST Act, 2017, and judgements in the case of BSNL [2006 (3) TMI-1 SC] and JK tyre Industries Limited [2017 (10) TMI 258-Mad (HC)] made the following submissions: that whether a contract involves supply of goods or otherwise must be determined on true subject matter of the contract; that on perusal of the various clauses of the contract and detailed scope of work, the main responsibility of the applicant is to manufacture and supply 40 C 295 ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion of services in isolation will not result in discharge of the obligations under the contract. that they would like to draw the analogy from para 3 of letter no. 334/1/2008-TRU did 29.2.2008 which dealt with determination of principal supply of service when various services were bundled together to substantiate the submission; that they would like to rely on the Advance ruling in the case of M/s. Air Control and Chemical Engineering Co Ltd [2021 (1) TMI-542-AAR-Gujarat]. The applicant, therefore, is of the view that the contract with Airbus, is a composite supply of goods services, wherein the principal supply is manufacture supply of aircraft in airworthy condition; that the various services provided are only incidental or ancillary to the main supply of aircrafts. 19. Additionally, the applicant feels that since their activity will qualify as a composite supply with the principal supply being supply of goods, i.e. aircraft, the same is classifiable under CTH 8802 and will attract GST @ 5% in terms of entry 244 of notification No. 1/2017-IT (Rate) dated 28.06.2017. 20. The applicant has further stated that in terms of section 12(2), ibid, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient cannot form part of transaction value. 26. Personal hearing was held on 9.2.2023 and 29.8.2023 wherein Shri Rohit Jain, Advocate, Jignesh Ghelani, CA, Niraj Bagri, CA, K Ugendra, CA Harsh Rautela, PM, appeared and reiterated the facts as stated in the application. On being informed that their application is admitted they submitted that the rectification filed be treated as being withdrawn. They further sought time to file additional submission. 27. In their additional written submission, while reiterating their earlier submission, it was further slated as follows viz that the main responsibility was manufacture and supply of 40 aircrafts; that the activities under the contract are integral part of manufacture and supply of aircraft therefore it will not constitute a distinct supply of service by applicant to Airbus: that in the case of Patnaik Co [1965 (1) TMI 44-SC. it was held that a contract of sale is one whose main object is transfer of properly in delivery of possession of a chattel as a chattel to the buyer: that they also wish to rely on the case of T V Sundaran Iyengar Sons [1975 35 STC 24]. The Central India Machinery Manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing we believe is because the scope of work, binds the applicant to also provide certain support services as listed out in paragraph 16. 31. The submission that it is supply of goods by relying on Section 2(52), which defines goods to mean every kind of movable property other than money 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 ..is nor tenable argument. We find that this contract which encompasses both supply of goods and services is something which is routinely resorted to by business enterprises. Thus, what needs to be determined is whether the supply undertaken by the applicant involving both goods and services in terms of the contract is a composite supply in terms of section 8(a) or a mixed supply in terms of section 8(b) of the CGST Act, 2017. 32. Now, both the terms composite supply and mixed supply stand defined under section 2, viz (30) composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. Majority of service providers in a particular area of business provide similar bundle of services, Tor example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are - --- There is a single price or the customer pays the same amount, no matter how much of the package they actually recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support services; Aircraft manufacturers provide support services in conjunction with the supply of complete airworthy aircraft; That for effective enjoyment of supply of aircrafts, providing support services is a must; That the contract herein has a single contract price charged by the applicant for both supply of 40 airworthy aircrafts provision of support services; that the combined provision of both goods services is integral in fulfilling the scope of the work of applicant. We therefore hold that the supply of aircrafts provision of support services are naturally bundled supplied in conjunction with each other in ordinary course of business hence in terms of section 2(30) of the CGST Act, the aforesaid said supply is a composite supply. 36. Even otherwise in the instant case, the applicant s supply involves goods i.e. aircrafts and maintenance etc. which is a service. The contractual agreement between the applicant and Airbus requires the applicant to supply the aircrafts and provide for its maintenance etc. The applicant therefore is engaged in two taxable supplies. What is pivotal is that the supply of service is possible only when the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in two instalments, viz., 90 per cent of the value of the vehicle on completion against an On account bill, together with the Completion Certificate from the Inspecting Officer appointed by the Railway Board, and the balance of 10 per cent after delivery If clause (1) of the Standard Condition 15 is not inconsistent with anything in the Special Conditions. and as we shall presently notice it is not so-it clinches the issue in as much as it declares in unequivocal terms the invention of the contracting parties that on payment of the 90 per cent of the value, the vehicles in question will become the properly of the purchaser. Prima facie, the contract in question has all the essential attributes of a contract of sale of moveable. That is to say, here is an agreement to sell finished goods manufactured by the Sellers (Company) for a price, the property in the goods passing to the Purchaser, on completion and delivery pursuant to the agreement. The prices quoted under the present contract, is qua each aircraft. The ratio therefore is applicable. However, the differentiation is that the contract under question is of supply of aircrafts along with provision of support services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to Section 2(30), is supply of goods. Thus, the tax would be levied as if the transaction was one of supply of goods. 143. The provisions of composite supply in the CGST Act (and the IGST Act) play a specific role in the levy of GST. The idea of introducing composite supply was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of supplies altogether. This finds specific mention in the illustration provided under Section 2(30) of CGST Act, where the principal supply is that of goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are naturally bundled together, must be taxed as a composite supply. 145. This Court is bound by the confines of the IGST and CGST Act to determine it this is a composite supply, it would not be permissible to ignore the text of Section 8 of the IGST Act and treat the two transactions as standalone agreements. In a CIF contract, the supply of goods is accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8802 20 00 - Aeroplanes and other aircraft, of an unladen weight not exceeding 2,000 kg. u 2.5% - 8802 30 00 - Aeroplanes and other aircraft, of an unladen weight exceeding 2,000 kg. but not exceeding 15,000 kg. u 2.5% - 8802 40 00 - Aeroplanes and other aircraft, of an unladen weight exceeding 15,000 kg. u 2.5% - 8802 60 00 - Spacecraft (including satellites) and suborbital and spacecraft launch vehicles u 10% - Likewise, relevant extracts of notification No. 28.6.2017, is reproduced below for case of reference viz Rate of IGST on specified goods Schedule I to VI In exercise of the powers conferred by sub-section (1) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the rate of the integrated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods 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) ; and (b) . (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities, MRP. change control management, general services, etc. 5. Prepare and control the operative production plan (MRP) according Program Integrated Master Schedule delivered by airbus PMO 6. Manage overall Logistics (including Customs clearance), the supplier supply chain and the supplier warehouse logistics requirements 7. Provide quality inspection capabilities except flight test 8. Perform the work under Airbus DS s quality systems or Airbus SQA authorization 9. Perform quality assurance 10. Provide Metrological control capabilities 11. Manage all production work share, corrective actions, recovery plans 12. Provide consumables (i.e. sealant), standards other elements required for manufacturing, Airbus DS shall 1. Provide all the C-295 special tooling for MCAs Final assembly Line 2. Manage the Program at OEM level 3. Support and Coordination to prepare and monitor track the suppliers operative production plan (MRP) 4. Airbus DS will provide the technical data package to the applicable configuration 5. Perform Audit Assurance Quality of the Supplier production workshare under Airbus DS s Qualit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Authority for Advance Ruling, Chhattisgarh (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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost 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 course or furtheranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded 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. It is contended that there is a conscious omission by the Legislature to include value of free supply by recipient to evaluate the entire supply. The reference is made to case law reported in (2022) 10 SCC 700 Mohit Minerals Pvt. Ltd (supra). 27. However, when we examine the final GST Law, Section 15(2)(b) includes that any amount that the supplier is liable to pay in relation to such supply but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise on the date of issue of invoice or on the last date to issue invoice, whichever is earlier. The applicant submits that they are not supposed to pay GST on receipt of advance in the case of. supply of goods. They have also relied upon notification No. 66/2017-CT dated 15.11.2017 to substantiate this argument. 47. Section 12 of the CGST Act, 2017, states as follows: Section 12. Time of Supply of Goods [relevant extracts] (1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section. (2) The time of supply of goods shall be the earlier of the following dates, namely:- (a) the date of issue of invoice by the supplier or the last date on which he is required, under section 31, to issue the invoice with respect to the supply; or (b) the date on which the supplier receives the payment with respect to the supply: Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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