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2021 (9) TMI 673 - AAAR - GSTClassification of supply - independent supplies or composite supply with the principle supply being the supply of goods - supply of goods and services from each cost centre C, D, E and G - Naturally bundled services or not - contract with M/s BMRCL for supply of 150 numbers of Standard Gauge Intermediate Cars which are to be integrated into the existing 3-car trains of Bangalore Metro Rail Project Phase I - contract also places on M/s BEML Ltd the obligation and responsibility of commissioning and installation of the cars, attending to the defects/deficiencies - HELD THAT:- From the commencement of GST law in July 2017, M/s. BEML have treated the Cost Centres C, D, E and G, as independent Cost Centres and have been paying GST for the supplies undertaken by each of the said Cost Centres in terms of the contract, at the rates applicable to the nature of supply. In the instant case, there is no doubt that there are multiple supplies of both goods and services being undertaken as part of this contract. While the supply from Cost Centre C is a supply of goods i.e the Standard Gauge Intermediate Cars, the supply by Cost Centre D is primarily a service of commissioning and installation of the Cars supplied by Cost Centre C. Similarly, the supply from Cost Centre E is a service of joint inspection and completion of defects/deficiencies observed during integration test and joint inspection. The supply of spares from Cost Centre G is purely a supply of goods. There is no dispute on the nature of supply by each of the above-mentioned Cost Centres. The bone of contention is whether the supplies by Cost Centres C, D, E and G are to be termed as a composite supply or not. For a supply to be consider as a composite supply, its constituent supplies should be so integrated with each other that one cannot be supplied in the ordinary course of business without or independent of the other. In other words, they are naturally bundled. Naturally bundled services or not - HELD THAT:- The term `naturally bundled' has not been defined in the GST Act. The concept of the “Naturally Bundled”, as used in Section 2(30) of the CGST Act, 2017, lays emphasis on the fact that the different elements in a composite supply are integral to the overall supply and if one of the elements is removed the nature of supply will be affected. There is no such concept in this contract - In this case, although there is only one contract, the different activities done by the Cost Centers C, D, E and G as part of the contract, are clearly specified and identifiable. The scope of works undertaken by each Cost Centre C, D, E and G are entirely independent and specific to that cost center and is not associated with any other Cost Centre. The work undertaken by the Cost Centre D commences only on completion of all the milestone activities of Cost Centre C. Similarly, the work undertaken by Cost Centre E and G commence only on completion of all the milestone activities of Cost Centers D and E respectively. Therefore, it is evident that each Cost Centre is independent and every milestone supply made from the Cost Centre is, an independent transaction. The lower Authority has erred in interpreting the creation of cost centres as per the contract as artificial creations to enable cash flow. When interpreting the nature of a contract, the form of the agreement is not important, it is rather the substance which has to be seen. The parties may use any words they like to suit their intention and it is therefore imperative that the agreement may not be taken as it is but its nature/substance has to be seen to arrive at the correct conclusions - In this case, although a single contract has been made for supply of goods and services, the clear-cut demarcation of activities of supply of goods and supply of services to each Cost Centre clearly demonstrates the intention of the contracting parties that each of the cost centres C, D, E and G is an independent supply centre undertaking either a supply of goods or a supply of service. The mere fact that a number of tasks have been entrusted to the Respondent through a single contract would not make it as 'composite supply' in terms of Section 2(30) of the CGST Act, 2017 - the obligations of supplies envisaged in this contract are distinct and separable and hence the separate activities of supply of goods and supply of services have to be viewed independently on its own merits. The supplies made by Cost Centres C, D, E and G to M/s BMRCL are to be considered as independent supplies of goods and services as described below: Cost Centre C - Delivery and Receipt of indigenous manufacturing - treated as Supply of Goods - applicable rate of GST is 5% upto 30-09-2019. Cost Centre D - Commissioning and acceptance of trains/ cars in depot - treated as Supply of services - applicable rate of GST is 18%. Cost Centre E - Taking over of unit/ train for revenue service - treated as Supply of services - applicable rate of GST is 18%. Cost Centre G - Supply of unit exchange spares, mandatory spares and consumable spares and special tools, testing and diagnostic equipment - treated as Supply of goods - applicable rate of GST is 18% / 28% as applicable.
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