TMI Blog2021 (4) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule-VI are not supplies made to a recipient nor done in conjunction with each other and hence the entire supplies based on the Tender is not a Composite Supply - there is no merit in the claim of the appellant that the supplies based on the entire tender is a Composite supply of Works Contract and the benefit of entry S.No.3(v) of notification No.11/2017-C.T.(Rate) dated 28.06.2017 is not available for the entire tender. As per the contract agreement for wet-leasing, it is an activity consisting of leasing of M Ps in working condition, providing skilled and unskilled manpower, spares, consumables for the entire period of leasing during which the leased goods are reflected in the books of the lessor. The lease charges are paid on a quarterly basis to the appellant based on the productivity. The M Ps are transferred to ICF at the, end of the lease period. Just because, there is a transfer of property in goods after the lease period, the activity is not a works contract. The activity of wet-Leasing is squarely classifiable under SAC 9973 Leasing or rental services with or without operator as held by the LA. Therefore the benefit of entry at 3(v)(a) of Notification No.11/2017-C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been given an opportunity of being heard. 2. Under Section 103 (1) of the Act, this Advance ruling pronounced by the. Appellate Authority under Chapter XVII of the Act shall be binding only (a). On the applicant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for advance ruling; (b). On the concerned officer or the jurisdictional officer in respect of the applicant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the said advance ruling have changed. 4. Under Section 104 (1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void sb-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made. At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 19.08.2017 was entered into between Integral Coach Factory, Chennai, Government of India, and the Appellant, describing the terms and conditions of the works awarded to the Appellant. Few supplemental agreements were entered as per the terms of the LOA and the main contract dated 19.08.2017. On introduction of Goods and Service Tax [GST] the rate of tax on goods and services are notified vide notification No. 1/2017-CT(R) dated 28th June 2017 and Notification no. 11/2017-CT(R) dated 28th June 2017 [Similarly Notification No. GO.62 [rate of tax on goods), Notification No. GO.72 (rate of tax on services) of TM]. The appellant claim that the nature of works awarded is that of works contract which in terms of Section 7 of CGST Act, 2017 read with Schedule II to the said Act, is supply of services. Accordingly, the rate of tax is to be determined in terms of Notification No. 11/2017-CT(R] as amended. 2.4 The Appellant made an application to ORIGINAL AUTHORITY on the following questions: 1. Whether the works awarded to the applicant is composite supply of services? 2. Whether the benefit of sl.No.3(v) of notification no.11/2017- Central Tax (Rate) is applicable to subject w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The authority for advance ruling though clearly has recorded the fact that the LOA dated 29.06.2017 is one agreement and also agreed that it is composite supply, it has bifurcated LOA into four parts whereby from Schedule I, II and III as one part and Schedule IV, V and VI as separate parts. The impugned order has considered Schedule I, II and III of the LOA as composite supply works contract and ruled that it is eligible for the concessional rate as provided in Serial No. 3 (v](a) of notification No. 11/ 2017-CT[R). On the other hand, it is ruled that scope of works at Schedule V, though composite supply it is not works contract and thereby the benefit of concessional rate under SI. No. 3(v)(a) is not eligible. The said ruling requires modification for the following reasons; a. The scope of works under Schedule V is part of the same tender for works on turnkey basis; b. The scope of works under Schedule V is part of the same LOA and part of total turnkey project; c. Segregating a portion of the work and giving separate treatment is not in terms of Section 8 of CGST Act, 2017 and SGST Act, 2017. Based on the above grounds the ruling denying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Goods and Services Tax Act, 2017, provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of - (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession As can be seen that the factory in question is that of Government of India, Department of Railways Further the annual maintenance is that of Schedule I and Schedule III of LOA items, Further the coach building factory is for internal consumption of Indian Railways it is not for any business or commerce or industry. Further the contract in the preamble it is said the performance of the said works is an act in which the public are interested. Which means said construction and setting of modernized factory is not for commerce, industry or any other business or profession. Thereby the appellant would alternatively be eligible for the benefit of concessional rate of tax under the SI. No, 3 (vi)(a) of the said no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the matter is little complex and requires detailed explanations to be provided, which would be little difficult to explain in case of a virtual personal hearing and requested to be heard in person. The appellant was addressed again seeking willingness to participate in Virtual hearing. The appellant vide their e-mail dated 9th September 2020 requested to be heard in person and also stated that since they would be required to travel from Pune, they requested to post the matter for hearing once the inter-state movement is relaxed. In view of the restrictions existed, the appellant was again asked to partake in virtual hearing which was again declined by the appellant. They requested to be heard in person and also requested to intimate the date of hearing well in advance, to plan their travel from Pune accordingly. In-person hearing was fixed to be heard on 03.02.2021 and the appellant was heard. 5.2 The Authorised representatives appeared for the in-person hearing. They stated that though the order of the Lower Authority is dated 22.01.2019, they received it late and they had filed the appeal within the Statutory time-limit. On merits of the case, they furnished as additional s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected. issuing of contracts on lumpsum basis involving various elements covering goods and services together and clearly laying down the scope and coverage of each element is a very common business practice in the construction and infrastructure industry and can be called as naturally bundled. They have been allotted with the entire work under a single contract. Although the same is divided in different schedules and agreements, the ultimate purpose is to complete the entire set up of factory for manufacture of stainless-steel railway coaches. The eventual objective is to complete the project in entirety, wherein the bundling of various supplies are naturally bundled being a common practice and are supplied in conjunction with each other. since this transaction is naturally bundled with two or more supplies, as per section 8, tax shall be levied at the rate applicable to the Principle supply . Principle supply in a bundle can be decided based on the supply which has a predominance element and other supplies to such bundle are ancilla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied covered in the contract are supplied in conjunction with each other. Merely dividing the responsibilities or work through different agreement does not change the colour of the original contract. Attention is drawn to the Page No. 3 of the agreement, Clause 5 of the agreement providing for the payment procedure, clause (1) provided in Pg.No.10 of the agreement, which gives the other documents forming part of the agreement to state that this agreement emanates from the same tender based on the letter of acceptance issued and they form an integral part of the agreement and they do not have a choice to pick or choose or accept and execute only the partial portion of the tender. In fact, it states that the various terms conditions as specified in the tender documents and the LOA would form part of this agreement meaning thereby that all the obligations and responsibilities casted in the tender LOA equally applies to this agreement also. For instance, Chapter No. V of the tender documents provide for the special conditions for the contract in pg. 28 of the tender document. These special conditions are commonly provided for and are commonly applicable to entire work ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be said to be an individual independent contract in themselves and the ultimate objective of the contract does not change due to such bifurcation. If they fail to fulfil all their contractual obligations as agreed on lumpsum basis till successful setting up of the whole project, they would be liable for forfeiture of all the amounts received under the contract. Hence, the entire contract could be construed as -complete only if all the activities mentioned in different schedules and agreements gets completed. The Supreme Court in the erstwhile Service tax regime had held that when there is lump sum contract and the same are broken into several wrap up contracts, it would still be one turkey contract. Reliance is placed in the case of ISHIKAWAJMA-HARIMA HEAVY INDUS. LTD Versus DIR. OF INCOME TAX, MUMBAI 2007 (6) S. T.R. 3 S.C.), wherein the Hon ble Supreme Court of India has held that the terms of contract should be read as a whole to determine the true nature of such contract. Further it is trite that a document has to be read as a whole to understand and interpret its contents. The said submission has been echoed by Hon ble Supreme Court in the case of Super Poly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant in relation to construction of shed, provision of M Ps in ICF Shell/ Furnishing Division, retro-fitment/ re-conditioning/ re-sitting/ disposal of obsolete M Ps of shell division including wet leasing and associated Electrical works on turn-key basis for the construction of modernized steel railway coaches manufacturing factory is composite supply of service. The benefit of Si. No. 3(v)(a) and 3(vi)(a) of Notification No. 11/2017- Central Tax (Rate) as amended and similarly State GST Act, as amended is applicable to the subject works are available to them. Based on the above additional submissions, they requested the Hon ble Appellant Authority for Advance Ruling to modify the impugned order passed by the authority for advance ruling as prayed in the appeal application. DISCUSSIONS: 6. We have carefully considered the submissions made by the Appellant, the order of the Lower Authority and the applicable statutory provisions. Prima - facie, we find that the original ruling which is currently appealed is passed in the month of January 2019(22.01.2019). The appellant has stated the date of communication of the ruling as 05.11.2019 and the appeal is filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to subject works. The Lower Authority has ruled that the works undertaken as per Schedule-I, II and III is a composite supply of works contract and the benefit of Sl.No. 3(v) of Notification No. 11/2017-C.T.(Rate) is applicable; Supply in the agreement for wet leasing as per Schedule V are composite supply of services and not works contract and therefore not eligible for the benefit under Sl.No. 3(v)(a) of the notification; The agreement for comprehensive Annual Maintenance Contract under Schedule VI is not eligible for entry at serial No. 3 (v)(a). The appellant in the present appeal had required the following issues to be decided: a. Whether the activities under tender agreement for wet leasing of Robotic spot-welding machine and laser cutting and welding machine as per Schedule V(a) V(b) are eligible for concessional rate under Sl.No 3(v)(a) or 3 (vi) of Notification No.11/2017-CT(Rate) dated 20.06.2017 as amended and corresponding entry under state notification. b. Whether the activities under tender agreement for comprehensive Annual Maintenance Contract under Schedule VI(a) and VI(b) are eligible for serial no. 3 (v)(a) or 3 (vi) of Notification No.11/2017-C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1414. Now these general conditions are also common for the entire contract and no vivisection is made for the same. The appellant had further claimed that in respect of the Maintenance agreement for the works under Schedule VI, in the event of the same is not considered as a part of the composite supply as claimed by them, still they are eligible for the benefit under S1.No. 3 (vi)(a) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended which has been rejected by the LA, for the reason that the factory is meant for manufacture by ICF which is an activity of industry. 8.1 We find that the issues to be decided by us in the case at hand are : Whether all the works awarded through the LOA together is a Composite supply of Works Contract Service in as much as the tender floated is for construction of shed, provision of M Ps in ICF Shell / Furnishing Division, retro-fitment / re-conditioning / re-sitting / disposal of obsolete M Ps of shell division including wet leasing of M Ps and associated Electrical works on turn-key basis and thereby the benefit of sl.No.3(v) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 is available to works under Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -rooting and disposal of Condemned M P s) The agreements for the wet leasing -Schedule V(a) (Robotic Spot-Welding Machine for a period of 10 years); V(b) (Wet Leasing of Laser Cutting and Welding Machine for a period of 10 years). before signing of the contract agreement containing Schedule I, II, III IV The agreement for the CAMC-Schedule VI(a)(Mechanical) and (b)(Electrical) -shall be entered into after the completion of the warranty period and under Para 6- Performance Guarantee, Performance Guarantee for Schedule-I,11 III and that for Schedule V are separately stated at Para 6.1 and 6.2 of the LOA. From the Tender Document the following are seen: As per Clause 14 of Chapter I the period of Completion of the entire work is 24 months The Approximate cost of the work as per Chapter -II of the Tender Notice is the total of Mechanical Engineering, Civil Engineering and Electrical Engineering amounting to ₹ 243.28 Crores para 2.8 of Chapter V-Special Conditions of Contract, the Scope of LOA for the work will not include CAMC for five years from the completion of Warranty . However, the CAMC portion will be binding on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Schedules of the composite tender, will be considered for commercial evaluation As per D(iv) of Price Schedule at Chapter IX- Total cost for commercial evaluation of the tender shall be calculated as -Rates quoted in Schedule-I+ Rates quoted in Schedule-II+ Rates quoted in Schedule-III+ NPV calculated for Schedule V+ NPV calculated for Schedule VI- Schedule IV 8.3 From the facts as enumerated above, we find that a Composite tender on turn-key basis has been floated by ICF for i. Construction of shed, provision of M Ps in ICF Shell/ Furnishing Division with retro-fitment/ re-conditioning / re-sitting and associated Electrical works (Schedule-I, II, III); ii. Uprooting and disposal of obsolete M Ps of shell division (Schedule-IV); iii. Wet-Leasing of M Ps for a lease period of 10 years at the end of which the title of the M Ps are to be transferred to ICF(Schedule-V); iv. Comprehensive Annual Maintenance after the warranty period (Schedule-VI) The Value of tender is the cost of Mechanical, Civil and Electrical works as per Schedule-I,II and III. For commercial evaluation of the bids the NPV in respect of., Schedule V Schedule VI are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M Ps is for a period of 10 years; Construction, supply, installation, commissioning, etc is to be completed within 20 months of LOA and Comprehensive AMC is to be supplied for 5 years after the warranty period. Therefore, we find that the supplies under the Tender in Schedule-I to Schedule-VI are not supplies made to a recipient nor done in conjunction with each other and hence the entire supplies based on the Tender is not a Composite Supply. The facts of the case laws relied upon by the appellant are factually different, in as much as in those cases all the supplies based on the tender are made by the bidder to the tenderer and the supplies are made in conjunction to each other as required under the extant provisions of the Law and the said decisions are not applicable to the appellant in the case at hand, as facts are different. Only supplies under Schedule-I, II and III are naturally bundled and supplied in conjunction with each other and is a composite supply of works contract. Therefore, we hold that there is no merit in the claim of the appellant that the supplies based on the entire tender is a Composite supply of Works Contract and the benefit of entry S.No.3(v) of notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant has claimed that they are eligible for the benefit of entry Sl.No. 3 (vi)(a) of the Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended. The LA has rejected this claim for the reason that factory is meant for manufacture by ICF which is an activity of industry. The appellant claims that in the instant case, the Integrated Coach Factory is intended for the purposes of building coach which is not for commerce or industry or business since it is being done by Government of India for the purpose of Indian Railways whose predominant objective is to service general public and not business or commerce or industry or profession and Government cannot be said to be engaged in business or commerce when the President of India through its representative is signing the subject contract. The relevant entry is examined as below: Sl.No. Chapter Section, Heading Group or Service Code (Tariff) Description of Services Rate (per cent) Condition 3. Heading 9954 (Construction Service) (vi) Composite supply of works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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