TMI Blog2020 (4) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent. Further the contracts are covered by the cross fall breach clause which means breach of one will be deemed as breach of other. The work of Taking Over/Time for Completion of the project and handing over to the Employer upon successful completion is to be completed within 38 months. From the terms of the contract it is crystal clear that the transportation services provided by appellant which are the part of Fifth service contract is not only integrally connected with Third contract of supply of goods but it is also connected with the other contracts (First, Second, Fourth and Sixth contracts) which are performed by the JV partners other than the appellant - The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant and the execution of turnkey project. The function relating to the supply of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the project. The supply of the goods and the supply of services are inextricab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant cannot equate the contract of supply and installation of certain part of the system with the whole contract in the present case of on-shore and off-shore supply of goods and services for complete execution of +320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur - Hence ratio of advance ruling in case of M/s. NR Energy Solutions India Pvt. Ltd. is not applicable to present case. The agreement for setting up for + 320KV, 2 X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu-North Trichur, Kerala) is a composite works contract as defined u/s 2(119) of GST Act and taxable @ 18% and hence: Transportation services provided by the appellant being part of the whole works contract will be taxable @ 18% as works contract services and will not be eligible for the exemption as provided in Serial no. 18 of the Notification No. 12/2017-Central Tax (Rate) dated the 28th June, 2017 and Notification No. 12/2017-State Tax (Rate) dated the 29th June, 2017. Order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Terminals between Pugalur and North Trichur. This involves supply of equipment and services, both on off-shore as well as on-shore basis. D. The Fifth Contract vide Ref. No. CC-CS/698 - SR2/HVDC - 3249/7/G10/R/NOA-V/7217 dated 22.03.2017 termed as on shore Service Contract (VSC part) (NOA-V) (hereinafter referred to as on-shore Service Contract/ Fifth Contract ). The scope of work under this contract as referred at 3.1 Clause of the Fifth Contract is as follows: a. Local transportation, insurance and other incidental services b. Installation charges c. Training charges E. The present query relates to the service activities involved in their Fifth Contract. The Appellant, through an independent Service Contract vide Ref. RPT-HVDC/C M/3429/CA-V/7217/BBU-03/18/533 dated 14.03.2018 (hereinafter referred to as Service Contract ) is entrusted with the responsibility of delivery of the goods at Customer s site. For this, the Appellant engages local transporters who issue consignment notes to the Appellant for such transportation of goods and issue their freight invoices on the Appellant. F. In turn, the Appellant discharges the GST liability under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customer without issuance of consignment note will be eligible for exemption from SGST as prescribed in Serial no. 18 in Notification no. 12/2017-State Tax (Rate) no. MGST 1017/C.R.103(11)/ Taxation-1 dated 29 June 2017? Observations of AAR: K. Vide the Maharashtra Advance Ruling Authority Order No. GST - ARA - 69/2018- 19/B - 164, Mumbai dated December 19, 2018 = 2019 (4) TMI 1623 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA (hereinafter referred to as AAR Ruling ) and received by the Appellant via email on 25 April 2019 (copy of order received on 30th April, 2019), the AAR Ruling was issued wherein both the questions put forth by the Appellant regarding the applicability of Exemption Notification were answered in negative. In order to reach such conclusions, the Ld. Member, AAR observed as follows: i. That the scope of work is a package, for performance of all other activities inter alia including port handling of the plant and Equipment including mandatory Spares (except +320kV HVDC Cable and some of its associated items) to supplied from abroad, loading, inland transportation and insurance for delivery at site, insurance, unloading, storage and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracts are linked by a cross fall breach clause deeming that any breach in either of the contracts is to be considered to be a breach of the other contract as well. Thus, it provides the recipient with an absolute right to either terminate both the contract or claim damages accordingly. That the cross fall breach clause , settles unambiguously that supply of goods, their transportation to the contractee s site delivery and related services are not separate contracts, but only form parts of an indivisible composite works contract supply, as defined under Section 2 (119) of the GST Act, with single source responsibility. viii. That the composite nature of the contract is clear from the facts that first Contract cannot be performed satisfactorily unless the goods have been transported and delivered to the contractee s site. The two contracts for supply of the goods and allied services are not separately enforceable. The recipient has not contracted for ex-factory supply of material, but for the composite supply, namely Works Contract for Supply for VSC based HVDC Terminal and DC XLPE Cable System. Reliance was placed on decision of Hon ble SC in case of M/s Indure Ltd. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the key determining factor for qualifying as a GTA is the issuance of a consignment note. In this regard, the Appellant submits that once a consignment note is issued, there can be no doubt that the service qualifies as a GTA service. Reference in this regard is made to the decision in the case of Bharathi Soap Works vs. CCE C, Guntur [2008 (9) STR 80 (Tri-Bang)] = 2007 (9) TMI 55 - CESTAT, BANGALORE wherein, on a similar issue of consignment note pertaining to the erstwhile Service Tax regime, it was held as follows. The transporters are bound to issue the consignment note or Bills or Challans as defined in Rule 4(8) of Service Tax Rules or any other serially numbered bills. Failure to do so would be a violation of law. 2.4 Similar effect was also given to the decision in the case of Essar Logistics Ltd. vs. CCE, Surat [2014 (33) STR 588 (Tri-Ahmd)] = 2014 (6) TMI 763 - CESTAT AHMEDABAD . 2.5 Further, in the decision of M/s. Om Telecom Logistics vs. CCE, Delhi (2018-TIOL-1430), Delhi CESTAT = 2018 (4) TMI 723 - CESTAT NEW DELHI , it was held that a person is to be categorized as a goods transport agent , only when he issues the consignment n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - SUPREME COURT , wherein the Honourable Supreme Court had held that an exemption notification should be read literally and the same is to be construed liberally if it is found that the notification is applicable to the assessee. In this regard, the relevant extract of the judgement is reproduced below: 10. An exemption notification should be read literally. A person claiming benefit of an exemption notification must show that he satisfies the eligibility criteria. Once, however, it is found that the exemption notification is applicable to the case of the assessee, the same should be construed liberally. 2.11 The Appellant further submits that, it is a settled principle of law that when the language is clear and unambiguous, the intention of the legislature is to be gathered from the language used. The court cannot add words to a statute or read words into it which are not there. In this regard, the relevant extract of the judgement is reproduced below: The court cannot add words to a statute or read words into it which are not there. The court cannot, on an assumption that there is a defect or an omission in the words used by the legislature, correct or make up a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /8 - 43 dated 04.06.2018 in case of Shri Dinesh Kumar Agarwal = 2018 (7) TMI 1691 - AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA , to observed that the first and second contracts have cross fall breach clause and thus, they are in nature of composite supply of works contract taxable @18%. Divisibility of Contracts 2.14 At the outset, the Appellant has entered into 6 separate contracts for different on-shore and off-shore supply of goods and services. More specifically, out the six contracts, the present issue relates to two contracts i.e. Third Contract and Fifth Contract for the supply of VSCs and the supply of services respectively. 2.15 On a plain perusal of the Third and Fifth Contract, it can be clearly seen that there are separate clauses, terms/conditions which are expressly outlined in the contract governing contract price, scope of work, lead partner, other partners, joint ventures, performance securities, bank guarantees, price components, pricing mechanism, raising of invoices, time period for completion of services, duration of the contract, etc. 2.16 In this regard, it is submitted that as exclusive clauses and conditions are clearly outlined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... +ii+iii) INR 2,797, 437, 352 2.18 Further, given that the transaction with the customer is on ex-works basis where the ownership in the goods is transferred at the premises of the Appellant, it can be said that the Fifth Contract would commence only when the ownership in the goods is transferred to the customer. 2.19 Therefore, in light of the above, it is evident that each of the activities to be carried on by the Appellant under the aforementioned two contracts are independent and distinct. Accordingly, the two contracts cannot be regarded as one single contract. 2.20 Both the contracts have different scope of work, separate consideration and separate invoices. Therefore, in no circumstances, the two contracts can be said to form one composite contract. 2.21 Reliance in this regard is placed on the case of lshikawajma-Harima Heavy Indus. Ltd. Vs Dir. Of Income Tax, Mumbai 2007 (6) STR 3 (S.C.) = 2007 (1) TMI 91 - SUPREME COURT , the assessee was to develop, design, engineer and procure equipment, materials and supplies, to erect and construct storage tanks and some other services for Petronet LNG in India. The contract, inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering Division v. Income Tax, (2014) 365 ITR 1 = 2014 (4) TMI 975 - DELHI HIGH COURT , wherein the Hon ble Delhi High Court relied on the decision of Ishikawajima (supra) and held that the impugned contract for different scope of works ranging from supply of equipment to the services, is not a composite contract and the same can be split for the purposes of taxation. 2.23 Moreover, the Hon ble High Court of Kerala in a matter concerned with an identical issue in the case of the Appellant [Siemens India Limited vs. State of Kerala 2003 (132) STC-0418] = 2002 (9) TMI 806 - KERALA HIGH COURT , held that when two separate contracts have been entered into by either parties, identifying two separate works viz. supply and service, then it is wrong in holding the same as indivisible contract. In this regard, the relevant extract of the judgement is reproduced below: After hearing the parties, and after going through the records, we are of the opinion that the matter has to be considered again by the assessing authority. The assessing authority takes the view that in this case, there is indivisible contract. So far as this case is concerned, according to us, it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to the charges payable for the supervising engineer. It is clear from a reading of this contract that the parties intended to sell the goods, viz., titanium anodes had also entered into another arrangement for the supervision of the erection and installation of the anodes, as also the maintenance for which separate charges were payable. 2.25 Thus, in view of the abovesaid decision, it is submitted that the view of the Ruling Authority that the Third Contract is a composite supply of works contract as defined u/s 2 (119) of the GST Act, of which transportation is merely a component and not a separate supply is erroneous. In the present case, the contractual terms of both the contacts for supply of goods and services are different from each other with different prices and conditions thereof. Hence, the Third Contract is merely for the supply of goods and is distinct vis-a-vis the terms and conditions as stipulated in the Fifth Contract. Thus, the Service Contract for the transportation of goods supplied as per Third Contract is not to fulfil the terms of the composite supply under works contract as suggested by the Ruling Authority. 2.26 In this regard, it is submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of bundled service would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. 2.31 The Education Guide also clarifies that in cases of composite transactions, the nature of such transaction would be determined by the application of the dominant nature test. Further, the Education Guide lays down the manner to determine whether services are bundled in the ordinary course of business or not. In this regard, the Education Guide specifies that the same would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below: - The perception of the consumer or the service receiver. If large number of serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended. As per the said term, works contract inter alia includes a contract for building, construction, fabrication, completion, erection, installation 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. The extract of Section 2(119) of the CGST Act is reproduced below: (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; 2.35 On a plain reading of the Section 2 (119) of the CGST Act, it can be clearly seen that the term works contract is in relation to immovable property. Given this, it is relevant to refer to the term immovable property . 2.36 The term immovable property is not defined under the GST law. Therefore, it would be relevant to refer to the meaning of the said term used in other legislations as well as judicial pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xing of the plants/ systems to a platform/foundation is meant only to give stability to the plant/ system and keep its operation vibration free. - The setting up of the plant/ system itself is not intended to be permanent at a given place. 2.41 In view of the aforesaid judgments, the Appellant submits that the aforesaid parameters/factors governing determination of immovable property are per se not fulfilled by the Appellant as the goods specified in the contracts are not such that would be attached to the earth and are not intended to be affixed permanently. Further, in the present case, specific goods supplied by the Appellant are installed only for the purpose of better functioning of the said goods and are capable of being removed and transferred from one place to another. Hence, the fact that the said goods are firmly but not permanently attached to the land, clearly means that the goods in question do not per se come under the ambit of immovable property. Underlying intention of the parties to the agreement are final and conclusive 2.42 As elaborated above in detail, the Appellant reiterates that the Third and the Fifth Contract are separate and distinct co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular range of contracts were awarded to the Appellant. The same does not necessarily mean or imply that they are interlinked or cannot exist independent of each other. It is further submitted that as a cardinal principle of interpretation of contracts, a commercially sensible construction of a contract must be favoured. 2.45 It is thus submitted that, the interpretation by the Ruling Authority of the contract being in the nature of composite supply of goods and services is merely a semantic and syntactical analysis of a commercial contract, which has led to a conclusion that flouts the commercial sense of the business. Thus, the contract should be interpreted in a way where it must be made to yield to business sense. 2.46 Reliance is also placed on the decision of the Hon ble Supreme Court in VISA International Limited v. Continental Resources (USA) Limited, [2009 (2) SCC 55] = 2008 (12) TMI 793 - SUPREME COURT , wherein it was held that what is required to be gathered is the intention of the parties from the surrounding circumstances including the conduct of the parties and the evidence, such as exchange of correspondence between the parties etc. 2.47 Appellant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the understanding of the Ruling Authority is flawed as the intentions of the parties are clear to the extent that Third and Fifth Contract are independent in nature. Decisions relied upon by Ruling Authority are inapplicable in the present case 2.50 It is submitted that Department has placed reliance on the decision of Hon ble Apex Court in M/s Indure Ltd. V. CTO in Order dated 20.09.2010 in C.A. No. 1123 of 2003 = 2010 (9) TMI 883 - SUPREME COURT to observe that both the contracts i.e. Third and Fifth Contract having cross fall breach provisions, are in the nature of composite supply of works contract, therefore taxable at the rate of 18% GST. 2.51 The Appellant submits that the reliance place on the decision in Indure s case is erroneous as the facts and legal issue involved therein are completely different from the present case. The main issue in the Indure s case was whether the import of MS Pipes and supply thereof by assessee was an inseparable part of the Contracts entered by the assessee with the other party, and the consequent eligibility to claim benefit of Section 5(2) of the Central Sales Tax Act, 1956 ( CST Act ). On the contrary, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect understanding of the contractual terms and statutory provisions governing the concept of place of supply . It has erroneously observed that there is no supply of goods in the present case as there is no place of supply. With the understanding that the Third Contract involves movement and/ or installation at the site, the Ruling authority has observed that the place of supply shall be location of the goods at the time when movement of goods terminates for delivery to the recipient or moved to the site for assembly or installation in terms of Section 10 (1) (a) and (d) of the IGST Act. 2.57 The Appellant submits that the present on-shore contract for supply of goods is on the basis of ex-works price, wherein the place of supply is the premise of the Appellant who is the supplier. In this regard, firstly, it is pertinent to analyze the definition of place of supply as given in Section 10 of IGST Act: 10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,- (a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract would not have been on ex-works, but on cost+ insurance + freight basis. However, the same is not the case here. Thus, the observations of the Ruling Authority that there is no place of supply in case the goods are cleared from the factory premises of the Appellant is wrong. 2.62 Reliance in this regard is place on the decision of CCE, Nagpur v. Ispat Industries, 2015 (324) ELT 670 (SC) = 2015 (10) TMI 613 - SUPREME COURT in relation to the erstwhile Service Tax law, wherein it was held that the buyer s place cannot be place of removal in case of the Ex-works contract. Drawing an analogy from the said decision, it can be said that the buyer s place cannot qualify to be the place of supply . Thus, the actual place of supply in the present case is the Appellant s premise as oppose to the buyer s premise considering the contract being ex-works in nature. The ownership of the goods to be supplied stands transferred once the goods are cleared from the Appellant s premise. Thereafter, the transportation activity is handed over to the third party and the charges are collected from the customers in this regard. Hence, the Ruling Authority has erroneously held that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed decision is erroneous as the facts and legal issue involved therein are completely different from the present case. 5. In the case of lndure, the issue which came up for determination was when can a transaction of sale be considered as one in the course of import as contained in Section 5 (2) of the Central Sales Tax Act, 1956 ( CST Act ). In this regard, the Hon ble Apex Court observed that there must be an integral connection or inextricable link between the first sale following the import and the actual import, provided by an obligation to import arising from the statute, contract or mutual understanding or nature of the transaction which links the sale to import. 6. The Apex Court held that the Department has failed to establish that the imported goods were not used in the plant of National Thermal Power Corporation. Further, it was held that the assessee had imported the goods into India for completion of the project and that the benefit claimed under Section 5 (2) of the CST Act was allowed. In this regard, the relevant extract of the decision is reproduced below: Conversely, in order that the sale should be one in the course of import, it must occasion the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous reading of various clauses of first contract and second contact, it can be safely concluded that the agreement for setting up for+ 320KV, 2 X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh ) and Southern region (Pugalur, Tamil Nadu-North Trichur, Kera/a) Specification No: CC-CS/698- SR2/HVDC 3249/7/G10/R International Competitive Bidding 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. and Anr vs. Commercial Tax Officer and Ors on 20 September, 2010 CA. No. 1123 of 2003. 9. The Appellant submits that the observations made by the Ruling Authority is erroneous as the aforesaid extract as contained in the Impugned Order does not find any mention in the Ruling Order No. GST-ARA-36/2017-18/B-43 dated June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies that in cases where an object is installed/fastened to the land for better/improved efficiency running of the said object, and not for the benefit of land, such object will not be considered as immovable property. Further, it has been held that if fixing of a plant to a foundation is only for providing stability to the plant and where there is no intention to make such plant permanent, the foundation provided would not change the nature of the plant and make it an immovable property. 16. Reliance in this regard can also be placed on the judgement of the Hon ble Supreme Court in the matter of Sirpur Paper Mills vs. CCE, Hyderabad [1998 (1) SCC 400] = 1997 (12) TMI 109 - SUPREME COURT - copy attached as Annexure 5, wherein in case of a paper making machine, it was held that merely because the machinery was attached to the earth for operational efficiency, it does not automatically become an immovable property. If the appellant wanted to sell such goods, it could always remove it from the base and sell it. Hence, in this case as well, there was no movement indeed, however, the machine was capable of being moved which was enough for the machine to not be classified as an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1691 - AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA which is not applicable in the appellant s case. 21. Further, it is pertinent to mention that in a similar case the same Ruling authority while deciding the case of M/s. NR Energy Solutions India Pvt. Ltd. (GST-ARA-83/2018-19/B-03 dated 8.01.19) = 2019 (6) TMI 1171 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - copy attached as Annexure 7 had taken a divergent view and held that supply of Relay Protection Panels and Substation Automation System {SAS), complete design, manufacture, packing, insurance, transport and delivery to sites, training, installation, testing and commissioning of protection panels with SAS compatible to IEC 61850 protocol, to control and operate the 220 KV, 132 KV 33 KV feeders, Power Transformers and equipment cannot be treated as works contract. 22. In view of the aforesaid submissions and clarifications relied upon, the Appellants submits that the goods installed at the Project site are not permanently affixed to the earth and can be dismantled/removed upon termination of the contract entered into with customers if any or at the time of carrying out repairs on the said goods. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed by members of JV. Out of these 6 contracts two contracts i.e. third and fifth contract are required to be executed by the Appellant as a JV s Associate. The Third Contract (hereinafter referred to as on-shore Supply Contract/ Third Contract ) provides for supply of equipment and materials including mandatory spares except +320kV HVDC Cable (including some of its associated items) from within India and Type Testing (as applicable), required for the complete execution of +320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur. The Fifth Contract termed as on shore Service Contract (VSC part) (NOA-V) (hereinafter referred to as on-shore Service Contract/ Fifth Contract ) provides for the subject package, for performance of all other activities inter-alia including port handling of the plant and Equipment including mandatory Spares (except +320kV HVDC Cable and some of its associated items) to be supplied from abroad, loading, inland transportation and insurance for delivery at site, insurance, unloading, storage and handling at site, installation including civil works, testing and commissioning including Performance T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by way of transportation of goods- c. by road except the services of- iii. a goods transportation agency; iv. a courier agency; d. by inland waterways NIL NIL Applicant submitted before the Advance Ruling Authority that an exemption from payment of GST has been provided for services by way of transportation of goods by road other than services of GTA and a courier agency in terms of the said notification. Applicant in support of his exemption claim has strongly relied on the fact that he has not issued consignment notes to the service recipient and thus not a GTA as defined in the said notification. Applicant also submitted that support taken by the Advance Ruling Authority of Advance Rulings of other States are not binding and Contract under consideration is not a works contract as it does not result in an immoveable property. The applicant has separate contracts for supply of goods and services and cross fall breach clause in the two contracts does not alter the nature of contracts to composite supply. Applicant supported his above contention by various judgment documents which are reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (119) of the GST Act, with single source responsibility. That the composite nature of the contract is clear from the facts that first Contract cannot be performed satisfactorily unless the goods have been transported and delivered to the contractee s site. The two contracts for supply of the goods and allied services are not separately enforceable. The recipient has not contracted for ex - factory supply of material, but for the composite supply, namely Works Contract for Supply for VSC based HVDC Terminal and DC XLPE Cable System. Reliance was placed on decision of Hon ble SC in case of M/s Indure Ltd. Vs. CTO in Order dated 20.09.2010 in C.A. No 1123 of 2003 = 2010 (9) TMI 883 - SUPREME COURT and also on AAR Order No. GST-ARA-36/2017-18/B-43 dated 04.06.2018 in case of Shri Dinesh Kumar Agarwal = 2018 (7) TMI 1691 - AUTHORITY FOR ADVANCE RULINGS MAHARASHTRA . It is held that the first and second contracts have cross fall breach clause and thus, are in nature of Composite Supply of Works Contract , therefore should be taxable @18%. 30. Aggrieved by the order of Maharashtra Authority for Advance ruling, the appellant has filed present appeal before us. Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Trichur associated with HVDC Bipole link between Western region (Raigarh . Chhattisgarh) and Southern region (Pugalur, Tamil Nadu-North Trichur, Kerala) Specification No: CC-05/698-SR2/HVDC-3249/7/G10/R International Competitive Bidding. Clauses - 2.0 AWARD OF CONTRACT AND ITS SCOPE -- 2.1 We confirm having accepted the Bid of the JV of SIEMENS AG and SUMITOMO (referred to at para 1.4, 1.7 and 1.9 above) read in conjunction with all the specifications, terms and conditions of the Bidding Documents including Record Notes of Clarification Meetings referred to at para 1.3, 1.5 and 1.6 above (hereinafter referred to as Bidding Documents ) and specific confirmations recorded in the Record Notes of Post Bid Discussions (referred to at para 1.10 above), and award on you, the On-Shore Supply Contract-I (also referred to as the Third Contract ) for the subject package, for supply of equipment and materials including mandatory spares except +320kV HVDC Cable (including some of its associated items) from within India and Type Testing (as applicable), required for the complete execution of +320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Puga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) on the Other Partner of the JV i.e. SUMITOMO on behalf of the JV of SIEMENS AG and SUMITOMO, vide our Notification of Award Ref. No. CC-CS/698-SR2/HVDC-3249/7/G10/R/NOA-11/7214 dated 22.03.2017 for award of Off-Shore Contract-ll (also referred to as the Second Contract ) for the subject package, for design, engineering, manufacture and CIF supply of +320kV HVDC Cable and some of its associated items including mandatory spares (if any), Type Testing and Training to be conducted outside India, required for the complete execution of the +320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu- North Trichur, Kerala), as set forth in the Bidding Documents; (c) on the Other Partner of the JV i.e. SUMITOMO on behalf of the JV of SIEMENS AG and SUMITOMO vide our Notification of Award Ref. No. CC-CS/698-SR2HVDC-3249/7/G10/R/NOA-IV/7216 dated 22.03.2017 for award of On-Shore Supply Contract-II (also referred to as the Fourth Contract) for the subject package, for supply of some items including mandatory spares (if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance by the Employer as per the requirements stipulated in the Bidding Documents. It is expressly understood and agreed by the IV that any default or breach by the JV partners under the First Contract and/or Second Contract and/or the Fourth Contract and/or the Sixth Contract and/or breach by the Associate of JV- SIEMENS-I under the Fifth Contract shall automatically be deemed as a default or breach of this Third Contract also and vice-versa, and any such default or breach or occurrence giving us a right to terminate the First Contract and/or Second Contract and/ or Fourth Contract and/ or Fifth Contract and/or the Sixth Contract, either in full or in part, and/or recover damages under those contract(s), 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 Third Contract as well. However, such default or breach or occurrence in the First Contract and/or Second Contract and/or Fourth Contract and/or Fifth Contract and/or the Sixth Contract shall not automatically relieve you any of your obligations under this Third Contract . It is also expressly unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 7.0 The schedule for Taking Over/Time for Completion of the Facilities by the Employer upon successful completion of the +320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh ) and Southern region (Pugalur, Tamil Nadu- North Trichur, Kerala) and the Additional Time for Completion for all contractual purposes in line with the provisions of the Bidding Documents shall be as follows: Sr. No. Completion (Taking Over) of: Duration from the effective date of contract Time for Completion 1. +320KV, two 1000MW Voltage Source Converter (VSC) based HVDC transmission system between Pugalur (Tamil Nadu) and North Trichur (Kerala) a. Monopole 1 and associated Cable system b. Monopole 2 and associated Cable system 38 months 38 months Additional Time for Completion#: 30 weeks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this Notification of Award (NOA) shall also include all such items which are not specifically mentioned in the Bidding Documents and/ or the JV s bid but are necessary for the successful completion of the scope under the Contract for S320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur 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 As per para 1.4 above and as tied up in Clarification Meetings, we have also notified the following Notifications of Awards: m (a) on the Lead Partner of 11/ i.e. SIEMENS AG on behalf of JV of SIEMENS AG and SUMITOMO vide our Notification of Award Ref. No. CC-CS/698 SR2/HVDC-3249/7/G10/R/NOA-1/7213 dated 22.03.2017 for award of Off-Shore Contract-l (also referred to as the First Contract ) for the subject package, covering inter-alia, all works to be performed in countries outside India including CIF supply of all equipment and trials including mandatory spares except +320kV HVDC Cable(including some of its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply of some items including mandatory spares (if any) for +320kV HVDC Cable system from within India and Type Testing (as applicable), required for the complete execution of +320KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu- North Trichur, Kerala), as set forth in the Bidding Documents. (e) On the Other Partner of the JV i.e. SUMITOMO on behalf of the JV of SIEMENS AG and SUMITOMO vide our Notification of Award Ref. No. CC-CS/698-SR2/HVDC-3249/7/G10/R/N0A-VI/7218 dated 22.03.2017 for award of On-Shore Services Contract-Ir (also referred to as the Sixth Contract ) for the subject package, for performance of all other activities inter-alia including port handling of the plant and Equipment including mandatory Spares for +320kV HVDC Cable and some of its associated items to be supplied from abroad, loading, inland transportation and insurance for delivery at site, insurance, unloading, storage and handling at site, installation including civil works, testing and commissioning including Performance Testing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y) as per the following break-up: Sr. No. Price Component Amount I Local Transportation, Insurance and other Incidental Services (VSC Portion) INR 623,073,872 II Installation Charges (VSC Portion) INR 2,174,363,480 III Training Charges Total for Fifth Contract (i+ii+iii) Included INR 2,797,437,352 3.2 Notwithstanding the break-up of the Contract Price, the Contract shall, at all times, be construed as a single source responsibility Contract and any breach in any part of the Contract shall be treated as a breach of the entire contract. 4.0 You are required to furnish, at the earliest, the Performance Securities for an amount equal to 10% (Ten percent) of the Contract Price as detailed at APPENDIX (NOA)-2 , in line with provisions of the Bidding Documents. 5.0 All the bank guarantees shall be furnished from eligible bank(s) as described in the Bidding Documents. 6.0 The schedule for Taking Over/Time for Compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate clauses, terms/conditions which are expressly outlined in the contract governing contract price, scope of work, lead partner, other partners, joint ventures, performance securities, bank guarantees, price components, pricing mechanism, raising of invoices, time period for completion of services, duration of the contract, etc. As exclusive clauses and conditions are clearly outlined in the Third and Fifth Contract respectively, the two contracts are separate and distinct in nature. The Third Contract contains terms governing supply of goods and the Fifth Contract contains terms governing supply of services. Further, given that the transaction with the PGCIL is on ex-works basis where the ownership in the goods is transferred at the premises of the Appellant, it can be said that the Fifth Contract would commence only when the ownership in the goods is transferred to the PGCIL. Therefore, in light of the above, it is evident that each of the activities to be carried on by the Appellant under the aforementioned two contracts are independent and distinct. Accordingly, the two contracts cannot be regarded as one single contract. Both the contracts have different scope of work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the para 2.2 of the Fifth contract i.e. onshore service contract it is mentioned that, Notwithstanding the award of work under six separate Contracts in the aforesaid manner, the JV shall be overall responsible to ensure the execution of all the six Contracts to achieve successful completion and Taking Over of the works covered under the package and Operational Acceptance by the Employer as per the requirements stipulated in the Bidding Documents. It is expressly understood and agreed by the JV that any default or breach by the JV partners under the First Contract and/or Second Contract and/ or the Fourth Contract and/ or the Sixth Contract and/or breach by the Associate of JV-SIEMENS-1 under the Third Contract shall automatically be deemed as a default or breach of this Fifth Contract also and vice-versa, and any such default or breach or occurrence giving us a right to terminate the First Contract and/ or Second Contract and/or Third Contract and/or Fourth Contract and/or the Sixth Contract , either in full or in part, and/or recover damages under those contract(s), shall give us an absolute right to terminate this Contract at your risk, cost and responsibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the cross fall breach clause which means breach of one will be deemed as breach of other. The work of Taking Over/Time for Completion of the project and handing over to the Employer upon successful completion is to be completed within 38 months. 40. The Contractee is aware of such interdependence of the two contracts. Although there is breakup of contract price for supply of goods supply of services and also awarded under two separate contract agreements, clauses under both of these contracts make it abundantly clear that notwithstanding the breakup of the Contract Price, the contract shall, at all times, be construed as a single source responsibility and the Applicant shall remain responsible to ensure execution of both the contracts to achieve successful completion. Thus these two contracts for supply of goods supply of services are naturally bundled under the whole contract. It is expressly understood and agreed by the appellant along with JV partners that while entering into Fifth contract of supply of services that any default or breach by the IV partners under the First Contract and/or Second Contract and/ or the Fourth Contract and/ or the Sixth Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and installation of equipment and commissioning of project. Though as per the contention of the appellant, goods formed a predominant part of the contract, the obligation of the appellant under both the contract ceases only after the turnkey project becomes operational and after the final payment is made both for supply of material and for erection of the system. The appellant is entrusted with the work mainly for their expertise in erection and installation of the plant and the execution of turnkey project. The function relating to the supply of material and the rendering of services of erection and installation are integrally connected and interdependent. The terms of supply clearly show that the implementation schedule is not only for supply but also for erection, testing and commissioning of the project. 43. Thus, from the above it is seen that the supply of the goods and the supply of services are inextricably linked with each other. The contract awarded in substance and essence is a composite contract as defined in section 2 (30) of the C.G.S.T. Act, 2017 for supply of goods and services. The term composite supply is given under clause 30 of Section 2 of the CGST Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o taxable supplies are arising from one indivisible contract or from two separate contract is immaterial till these two supplies are naturally bundled and one supply being principal supply other being ancillary supply to principal supply. Even if the considerations for two taxable supplies are separately quoted or there is single consideration for two supplies, both types of scenarios are covered under composite supply till the conditions as mentioned above for composite supply are fulfilled (i.e. naturally bundled supplies and one being principal supply and other ancillary supply to principal supply). The entire transaction of providing the goods and the services is naturally bundled and hence this is clearly a case of composite supply of goods and supply of services. 45. The appellant on the issue of divisibility of contract has relied on judgments which are M/s, lshikawajma-Harima Heavy Indus. Ltd. Vs Dir. Of Income Tax, Mumbai 2007 (6) STR 3 (S.C.) = 2007 (1) TMI 91 - SUPREME COURT , M/s. Linde Engineering Division v. Income Tax, (2014) 365 ITR 1 = 2014 (4) TMI 975 - DELHI HIGH COURT, M/s. Siemens India Limited vs. State of Kerala 2003-(132)-STC-0418 = 2002 (9) TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts lacked jurisdiction to subject these transactions to tax under the AP VAT Act treating them as intra-state sales. The assessing authority also examined the question whether there can be a sale in transit, or a sale in the course of import, in a transaction of works contract. He held that, from the nature of the contracts awarded, it could be seen that the petitioner was required to supply the goods as per the supply contract; they were also required to execute the works themselves; the intention of both the contractor and the contractee was completion of the works involving supply of goods as well as labor and therefore the transaction is a works contract. The Court observed- .. In turn-key projects, more particularly of the kind involved in this batch of Writ Petitions, the same person has been entrusted with the responsibility of procuring material, and of erection and installation of equipment. While in-built safeguards are provided in all the contracts to ensure quality of the material, and effective performance of the erection contract, the supply contracts, in substance, do not absolve the petitioners-contractors of their obligations of erection and installation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are; M/s VISA International Limited v. Continental Resources (USA) Limited, [2009 (2) SCC 55] = 2008 (12) TMI 793 - SUPREME COURT , Union of India v. Mahindra and Mahindra [1995 (76) E.L.T. 481 (S.C.)] = 1995 (3) TMI 88 - SUPREME COURT and Mirah Exports Pvt. Ltd. vs. Collector of Customs [1998 (98) E.L.T. 3 (S.C.)] = 1998 (2) TMI 124 - SUPREME COURT Rajasthan Spg. Wvg. Mills ltd. vs. Commissioner of C. Ex., Jaipur [2001 (131) E.L.T.594 (Tri.-Del.)] = 2001 (4) TMI 118 - CEGAT, COURT NO. I, NEW DELHI , S.S. Associates vs. Commissioner of C. Ex., Bangalore [2010 (19) S.T.R. 438 (Tri.-Bang.)] = 2009 (12) TMI 152 - CESTAT, BANGALORE . The sum substance of these decisions is that the Department cannot question the commercial wisdom of the parties entering into an agreement and must proceed on the basis that what is stated in the contract reflects the true nature of the intent and transaction and that it is therefore impermissible for the tax authorities to go behind the language of the contract or act contrary to it without producing evidences. In this respect we refer to the Supreme Court judgment in the case of Bhopal Sugar Industries Ltd vs. Sales Tax Officer, Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions relied upon by the applicant in support of his claim are not applicable to the facts of the case considering the fact that the nature of supplies under contracts being composite supply under Goods and Services Tax Act, and the supply of transportation services cannot be considered in isolation in determining the levy of tax. 2. Another contention made by the appellant is that the Contracts entered into by the Appellant are not composite supply of services as work contract and Services provided by the Appellant are not in relation to immovable property 49. Before deciding the taxation of aforesaid composite supply as per section 8 of GST Act we have to see whether the contracts/agreement before us is a works contract as defined in clause (119) of section 2 of the CGST Act or otherwise. The definition of works contract is reproduced below. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n defining the term immovability which are M/s. Sirpur Paper Mills vs. CCE, Hyderabad [1998 (1) SCC 400] = 1997 (12) TMI 109 - SUPREME COURT , Commissioner of Central Excise v. Solid and Correct Engg. Works Ors. [2010 (175) ECR 8 (SC)] = 2010 (4) TMI 15 - SUPREME COURT , M/s. Sri Velayuthaswamy Spinning Mills v. The Inspector General of Registration and the Sub Registrar [(2013 (2) CTC 551)] = 2013 (3) TMI 681 - MADRAS HIGH COURT , M/s. Perumal Naicker v. T. Ramaswami Kone and Anr. (AIR 1969 Mad 346) = 1967 (9) TMI 147 - MADRAS HIGH COURT . After going through same, we find that the following principles emerge:- If a machine is attached for operational efficiency, it does not become immoveable property. The degree and nature of annexation is an important element for consideration; for where a chattel is so annexed that it cannot be removed without great damage to the land, it affords a strong ground for thinking that it was intended to be annexed in perpetuity to the land. The English law attaches greater importance to the object of annexation which is determined by the circumstances of each case. One of the important considerations is founded on the interest in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m comprising of a variety of different structures which are installed after a lot of prior work which involves detailed designing, ground work. Appellant has also submitted few photographs of the project which clearly shows that the structure is attached to the earth with the help of civil work. The photographs indicate the magnitude of the work done. Further foundations in cement concrete, cement concrete walls as well as cement concrete structures are constructed during the execution of the project. The mode of annexation shows that the groundwork, being the necessary foundation, is an important part of the project. The object of annexation, as said earlier, cannot be to make it movable from one place to the other. It simply cannot be equated to the Asphalt mix (the issue in Solid Concrete Engg case) which was intended to be moved from one place to other. Hence considering the scope of the work and the facts revealed by the photographs, it can be very well said that completion of the installation, erection of the total project is resulting into immovable property. Hence the total project assigned to the appellant is nothing but composite supply of works contract as envisaged u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such Drilling Machine and Mudguns are not equipment which are usually shifted one place to another nor it is practicable to shift them frequently. 55. The court also referred to its own judgments in the case of Quality Steel Tubes (P) Ltd. 75 ELT 17 (SC) = 1994 (12) TMI 75 - SUPREME COURT and Mittal Engineering Works (P) Ltd. 1996 (88) ELT 622 (SC) = 1996 (11) TMI 66 - SUPREME COURT . In the case of Quality Steel Tubes (cited supra), the court held that goods which are attached to earth and thus become immovable did not satisfy the test of being goods within the meaning of the Act. It held that tube mill or welding head is immovable property. In the case of Mittal Engineering Works, the issue was whether mono vertical crystallizers is goods (in which case it would be excisable or immovable property). The mono vertical crystallizers is fixed on solid RCC Slab. It consists of bottom plates, tanks, coils, drive frames, supports etc. It is a tall structure rather like a tower with a platform. It was decided by the Court that the said product has to be assembled, erected and attached to the earth by a foundation and therefore not goods but immovable property. 56. We shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) = 1996 (11) TMI 66 - SUPREME COURT and Duncans Industries Ltd vs State Of U.P. Ors on 3 December, 1999 = 1999 (12) TMI 857 - SUPREME COURT . are squarely applicable to the present case since the nature of contracts and its execution show without any doubt that the complete setup of the project in between Pugalur and North Trichur is permanent with a view to operate the project by PGCIL and not to dismantle and remove the same for any purpose at any point of time in future. 57. Further in additional submission the appellant has relied on the Order of Advance Ruling Authority in case of M/s. NR Energy Solutions India Pvt. Ltd. (GST-ARA-83/2018-19/B-03 dated 8.01.19) = 2019 (6) TMI 1171 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA and submitted that- The Advance Ruling Authority had taken divergent view and held that supply of Relay Protection Panels and Substation Automation System {SAS), complete design, manufacture, packing, insurance, transport and delivery to sites, training, installation, testing and commissioning of protection panels with SAS compatible to IEC 61850 protocol, to control and operate the 220 KV, 132 KV 33 KV feeders, Power Transformers a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
