TMI Blog2021 (1) TMI 1098X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 as amended by Notification No.1/2018-Central Tax (Rate) dated 25.01.2018/ Odisha State Tax (Rate) dated 28.06.2017 as amended. Whether in the present case, the supply being undertaken or proposed to be undertaken by the applicant would qualify to be a supply of composite supply or works contract ? - HELD THAT:- On perusal of the SIOM agreement (supply, installation, operation and maintenance) Equipment Price Schedule for Cluster C, we see that the contract value for cluster C (urban Local Bodies in Balasore, Bhadrak, Jajpur, Baripada) is ₹ 42.35cr and the contract pricing is different for Equipment of Materials and O M Fee (operation and maintenance fee). Out of ₹ 42.35 cr, the price of Equipments is ₹ 38.23 Cr and the price for O M Fee is ₹ 4.12Cr only. Thus the contract price has clearly bifurcated the contract into a supply of goods and supply of services. Further clause No. 13 of the agreement deals with TERMS OF PAYMENTS. The said clause of the agreement envisages that separate payment for capital subsidy O M Fee. There appears to be a clear bifurcation in the agreement with respect to price of Equipments and O M Fees - the agreement that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, supply of goods and not supply of services . Further, the activity performed by the applicant is not related to the immovable property at any point of the time and hence the said activity does not qualify to be a works contract . Whether Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant as per SIOM Agreement and Escrow Agreement from Odisha Government / ULBs for the Green Field Public Street Lighting System in the State of Odisha is not liable to GST and if liable to GST, then at what rate of GST? - HELD THAT:- In view of Section 15 (2)(e) of the CGST Act, the value of supply shall include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. On perusal of the agreement/contract, we see that the capital subsidy received/ receivable by the applicant in the instant case is the actual cost incurred by the project SPV (the applicant in the instant case) in the project as approved by the Authority ULBs. It is not a subsidy which generally means grant/grant-in-aid or a benefit given to an individual, business or institution, usually by the government. It is also not a subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way Honda Showroom, NH-5, Bhubaneswar-752101 (herein after referred to as the Applicant ) having a GSTIN : 21ABBCS4607C1Z0, is a company filed an application for Advance Ruling under Section 97 of CGST Act, 2017 and Section 97 of the OGST Act, 2017 in FORM GST ARA-01 discharging the fee of ₹ 5,000/- each under the CGST Act and the SGST Act. 1.0 The Applicant having assigned with GSTIN number 21ABBCS4607C1Z0 sought for an advance ruling in respect of the following questions. Q1. Whether Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant as per SIOM Agreement and Escrow Agreement from Odisha Government /ULBs for the Green Field Public Street Lighting System in the State of Odisha is not liable to GST and if liable to GST, then at what rate of GST? Q2. What shall be the GST rate for the balance 10% of the Project Capital Expenditure and O M Fees received as Annuity Fee over the period of 7 years by the Applicant as per SIOM Agreement considering the Si. No. 3(vi) of the notification No. 11/2017 Central Tax (Rate), dt. 28-06-2017 as amended by Notification No. 31/2017 Central Tax (Rate), dt. 13-10-2017 and corresponding n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Street Lighting System as well as the Centralized Control Monitoring System. 2.3 It was submitted that for such installation, the Applicant is entitled to receive a consideration, in the form of Capital Subsidy, being 90% of the total capital expenditure incurred by the Applicant in supplying, installing and commissioning of the equipment. The balance 10% of the total capital expenditure along-with O M fees is receivable as Annuity fees , and is recovered by the Applicant by raising quarterly invoices on the ULBs. After the Greenfield Public Street Lighting System has been commissioned, the Applicant is required to undertake the Operation and Maintenance of the system till the end of the term of the Agreement. 2.4 The Applicant submitted that 90 per cent of Project Capital Expenditure received as capital subsidy is not consideration as defined in Section 2(31) of the CGST Act. Under Paragraph 13.1(a) (i) of the Agreement, both the Authority and the ULBs have jointly agreed to provide the Applicant with the consideration, being 90% of the total capital expenditure incurred for the project. As per Para 1.3 of Escrow Agreement, the ultimate responsibility for depositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply must be by way of erection, commissioning, installation, completion, fitting out, or maintenance; (iv) The aforesaid activities must be carried out in respect of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession. 2.9 As regards determination of time of supply under GST, it has been submitted that as per Section 9(1) of the Act, GST is leviable on the value of supply as determined by Section 15 of the Act. Time of supply of Services as per Section 13 is the earlier of the following dates, namely the date of issue of invoice by the supplier, if the invoices are issued within the period prescribed under sub-section (1) of section 31, or the date of receiving of payment whichever is earlier. The applicant submitted that the timing for raising of GST Invoice of Annuity fee shall be at the time of sending Bill for claiming the payment to the Authority/ ULB. 2.10 The applicant submitted that its supply is a Composite Supply of Works Contract as defined in sub section (119) of section 2 of the Central Goods and Services Tax Act, 2017, which is provided to a Local Authority, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re observe that the issue before us is squarely covered under Section 97(2) of the CGST Act, 2017 and therefore we admit the application for consideration. 4.1 It has been argued by the applicant, through the written submission and also at the time of personal hearing, that the impugned supply is a supply of works contract service which is being supplied to Government of Odisha represented by the Directorate of Municipal Administration and the Urban Local Bodies . It has also been argued that Capital Subsidy (90% of Project Capital Expenditure) received as per SIOM Agreement and Escrow Agreement from Odisha Government/ULBs for executing the Green Field Public Street Lighting System is not liable to GST. Further, the applicant submitted that 10% of the Project Capital Expenditure would merit entitlement for concessional rate of GST @ 12% [CGST @ 6% + SGST @ 6%] in terms of Serial Number 3(vi) of Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 (as amended). 4.2 We find that the questions before us to answer are (a) Whether Capital Subsidy (90% of Project Capital Expenditure) received by the Applicant for execution of the Green Field Public Street Lighting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, we find that in the agreement submitted by the applicant, the major part of the contract is supply of goods. The price of these goods supplied to the client by the applicant constitutes 90.23% of total contract price. Further we find that the goods that are supplied are used by the applicant to provide services like installation, commissioning and maintenance etc. Without these goods the services cannot be supplied by the applicant and therefore we find that the goods and services are supplied as a combination and in conjunction and in the course of their business where the principal supply is supply of goods. Therefore, the instant supply squarely falls under the definition of composite supply where the principal supply is supply of goods . Thus we find that there is a composite supply in the subject case since in the subject case there is no building, construction, fabrication, completion, erection etc of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of the contract. 4.7 Besides, as per para 1(c) of Schedule II of the CGST/OGST Act, any transfer of title in goods under an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion controller, server cluster, control centre, enterprise middleware system, enterprise management information system and call centre. The entire street lighting system should be capable of being controlled from the Central Control and Monitoring System. 4.10 The applicant further submitted that the street light poles and feeder panels are attached to the earth permanently and the LED Luminaires, outreach arms, etc. are also permanently fastened to the street light poles for their use. Thus, the Greenfield Street Lighting System qualifies as an immovable property. It was also stated that at the end of the term of the Agreement (7 years), the Applicant is under the obligation to transfer all the rights, interests and property in the equipment installed by it, including any goods used in providing the operation and maintenance services. Further, after the Greenfield Public Street Lighting System has been commissioned, the Applicant is then required to undertake the Operation and Maintenance of the system till the end of the term of the Agreement. The applicant has also explained what a Greenfield Public Street Lighting System central control, monitoring system and automatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplier who receives the subsidy. In their case, the Authority from whom the subsidy received/receivable is a State Government (Govt. of Odisha). Further, it was also submitted that capital subsidy is not a consideration as defined in Section 2(31) of the CGST Act and therefore, the applicant is not liable to pay GST on the capital subsidy . 4.13 In view of Section 15 (2)(e) of the CGST Act, the value of supply shall include subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. On perusal of the agreement/contract, we see that the capital subsidy received/ receivable by the applicant in the instant case is the actual cost incurred by the project SPV (the applicant in the instant case) in the project as approved by the Authority ULBs. It is not a subsidy which generally means grant/grant-in-aid or a benefit given to an individual, business or institution, usually by the government. It is also not a subsidy which typically given to remove some type of burden and to promote a social good or an economic policy for overall interest of the public. The so called capital subsidy cannot be a subsidy by any str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier of the following dates, namely the date of issue of invoice by the supplier, if the invoices are issued within the period prescribed under sub-section (1) of section 31, or the date of receiving of payment whichever is earlier. According to their understanding, the timing for raising of GST Invoice shall be at the time of sending Bill for claiming the payment to the Authority/ ULB. 4.17 Since in the subject case there is a composite supply where the predominant supply/principal supply is supply of goods , we are of the opinion that the applicant should raise invoice as per the provisions of Section 31 of the CGST Act, 2017. 5.0 RULING Question No.1 Whether Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant as per SIOM Agreement and Escrow Agreement from Odisha Government / ULBs for the Green Field Public Street Lighting System in the State of Odisha is not liable to GST and if liable to GST, then at what rate of GST? Answer:- Capital Subsidy (90 per cent of Project Capital Expenditure) received by the Applicant is liable to GST. The GST will have to be paid on the goods at the appropriate rate after classification under ..... 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