2024 (1) TMI 702 - AAR - GST

Valuation - work contract service - transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on High Seas Sale basis would be covered under Entry No. 8(b) of Schedule III of the CGST Act or not - to be excluded from the value of work contract service for charging GST or not - Levy of GST on the goods sold on high seas sale basis to IOCL - applicable rate of tax on such goods supplied. Whether the transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on HSS basis in terms of Contract No. 44AC9100-EPCC-1 would be covered under Entry No. 8(b) of Schedule III of the CGST Act? - HELD THAT - In terms of Schedule III read with section 7(2) of the CGST Act 2017 supply on High Sea Sale 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. Whether sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on HSS Sale basis in terms of the contract shall be excluded from the value of works contract service for charging GST? - HELD THAT - The applicant in terms of the contract is liable to provide the goods supplied on HSS basis and 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 pan of the transaction value for payment of GST - the value of the imported goods would form a part of the Transaction value under section 15 ibid for computing the value of work contract service for charging GST and that it cannot be excluded under the guise of free supply as is being canvassed by the applicant. Whether the transaction of sale of goods on high seas sale basis by the Applicant to IOCL in terms of Contract No. 44AC9100-EPCC-1 would be treated as works contract and whether Applicant is liable to charge GST on the goods sold on high seas sale basis to IOCL? If yes what will be the applicable rate of tax on such goods supplied? - HELD THAT - The transaction of sale of goods on high sea sale basis by the applicant to IOCL in terms of contract No. 44AC9100-EPCC-1 would fall under schedule -III as mentioned supra at the time of supply of imported goods which as we have already held is not leviable to GST.

Summary

Issues Involved:
1. Whether the transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on High Seas Sale (HSS) basis would be covered under Entry No. 8(b) of Schedule III of the CGST Act and excluded from the value of work contract service for charging GST.
2. Whether the transaction of sale of goods on high seas sale basis by the Applicant to IOCL would be treated as works contract and whether the Applicant is liable to charge GST on the goods sold on high seas sale basis to IOCL, and if yes, the applicable rate of tax.

Summary:

Issue 1:
The applicant, Tecnimont Pvt. Ltd., entered into a turnkey EPC contract with IOCL for the execution of an Acrylic Acid Unit and Butyl Acrylate Unit. The contract included both the supply of imported materials and EPC work. The applicant contended that the contract identified two separate supplies and that the sale of goods on HSS basis should be treated as neither a supply of goods nor services under Schedule III of the CGST Act, thereby exempt from GST.

The judgment clarified that the contract is a single, indivisible turnkey EPC contract and dividing it into separate supplies is not legally tenable. The supply on HSS basis is indeed covered under Entry No. 8(b) of Schedule III and is not subject to GST. However, the value of such HSS supply forms part of the transaction value under section 15 of the CGST Act for computing the value of the works contract service for charging GST. The court referenced the judgment in Kone Elevator India Private Limited and the Chhattisgarh High Court's decision in M/s. Shree Jeet Transport to support this conclusion.

Issue 2:
The applicant argued that the sale of goods on HSS basis should not be treated as part of the composite supply of works contract services and thus should not attract GST. The judgment reiterated that the contract is a composite works contract involving the transfer of property in goods and services for the execution of the project. As per Schedule II of the CGST Act, such composite supplies are treated as a supply of services and are subject to GST.

The court dismissed the applicant's argument of double taxation, referencing the Supreme Court judgment in Mohit Minerals, and clarified that the sale of imported goods on HSS basis is exempt from GST, but the value of these goods forms part of the transaction value for the works contract service.

Ruling:
1. The transaction of sale of goods by Tecnimont Pvt. Ltd. to IOCL on HSS basis is covered under Entry 8(b) of Schedule III of the CGST Act. However, the value of such HSS supply forms part of the transaction value for computing the value of works contract service for charging GST.
2. The transaction of sale of goods on HSS basis by the applicant to IOCL is covered under Entry 8(b) of Schedule III of the CGST Act, 2017, and is neither a supply of goods nor services.