TMI Blog2021 (9) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... uge 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 ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. - KAR/AAAR-08/2021 - - - Dated:- 3-9-2021 - SHRI. D.P. NAGENDRA KUMAR, AND SMT. SHIKHA C., MEMBER Represented by : Smt. Nivdange Shweta Shankarrao, Assistant Commissioner, Bangalore South Division-1, South Commissionerate. PROCEEDINGS (Under Section 101 of the CGST Act, 2017 and the KGST Act, 2017) 1. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for different Cost Centres depending on the nature of the works is as under: Cost Centre Cost Centre Wise Schedule of Activity Description Total Apportioned Amounts of CGST Centre Items / Schedule for release of part payment for the supply contract *Foreign Currency Indian Rs. Euro Japanese Yen INR Column A1 Column A2 Column B A Preliminaries General Requirements for Rolling Stock including Design which is incidental to Supply of Rolling Stock 6,27,328 4,02,22,560 6,15,09,360 B Delivery and Receipt of offshore manufactured Cars in depot - - - C Delivery and Receipt of Indigenous manufactured Cars in depot 5,26,94,600 3,37,86,94,450 5,16,67,85,150 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. 6. The value/cost of the supplies specific to each Cost Centres are separately stipulated in the Contract and milestones have been identified for raising of invoices for individual supplies. The Respondent Company is raising separate invoices based on the nature of transactions mentioned in different Cost Centres and accordingly charging GST on separate supplies. The Respondent Company is at present levying tax @ 12% on the supply of Standard Gauge Intermediate Cars and 18% on other supply of services as supplied by the respective Cost Centre. The table below indicates the treatment of different supplies as goods or services and the details of tax charged by the Respondent Company for such supplies made through their different Cost Centres: Cost Centre Description of activity Supply GST rate levied by BEML A Preliminaries General Requirements for Rolling Stock including Design which is incidental to Supply of Rolling Stock Goods 5% 12% w.e.f. 01.10.19 C Delivery and Receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of supply for the entire Contract considering supplies made by Cost Centre C as principal supply? 9. The respondent company submitted before the Authority for Advance Ruling that the supply of goods and services from each cost centre should be treated as independent supplies for the reason that the contract categorically stipulates that the scope of each of the cost centres are independent of each other and the obligations and responsibilities of each of the Cost Centres should be based on their independent scope of works. They submitted that the supplies relatable to Cost Centre A are incidental to supplies made by Cost Centre C; that the activities undertaken by Cost Centre C clearly falls in the ambit of supply of goods. They submitted that Cost Centre D is involved primarily in the activity of commissioning and installation of the metro rails; that the supply made by Cost Centre D is a supply of service as covered under the definition of 'service' under section 2(102) of the CGST Act. The Cost Centre E undertakes the activity of rectifying the defects observed during trial runs and submission of related documentations in relations thereto; that the scope of sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submissions made by M/s. BEML that they have gone by the terms of agreement and billed M/s. BMRCL precisely as per the terms of the agreement. It is only in June,2019, M/s. BMRCL contested that supply as a whole was a Composite supply and lesser rate of GST are applicable. 11.2. The Appellant submitted that each and every transaction should be viewed as a separate transaction, though it may be part of larger contract; that each contract or agreement is unique and any analysis should be made within the framework of the agreement taking into account the facts and figures. They submitted that the AAR has not taken into account scope of the terms and conditions of the agreement for any analysis and has given findings which are contrary to the agreed terms and conditions; that the goods/services delivered need to be assessed on merits and appropriate classification needs to be done and merit rate of tax to be paid; that even in the absence of any written agreement or contract or MOU, the goods/services/goods and services should be assessed as they are presented at the time of supply/delivery. 11.3. The Appellant submitted that there was no way that M/s. BEML and M/s. BMRCL could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axability of supply would have to be determined on a case to case basis looking at the facts and circumstances of each case. Where a supply involves supply of both goods and services and the value of such goods and services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods and services separately. Thus, it is clear that as long as value of goods and services are shown separately, the goods and services would be liable to tax at the rate as applicable to such goods and services separately. In the instant case, the agreement in question has clear and categorical bifurcation of supply of goods and supply of services, castings prepared based on Bill of Material/Man-hours and other accepted norms of costing, separate rates of taxes as applicable, separate obligations and responsibility, milestones to each Cost Centre mutually agreed by both the parties. Therefore, the supplies are to be classified, assessed and applicable taxes are to be paid on merits and not by treating the contract as merely composite supply, when facts and figures contrary to such a view are on record. 11.6. The Appellant also submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not decided based on the facts and circumstances unique to the case on hand. 11.8. The Appellant submitted that, the crucial fact that the contract categorically stipulates that the scope of each of the cost centers are independent of each other and the obligations and responsibilities of each of the Cost Centers should be based on their independent scope of works is not taken into account while giving Advance Ruling. The Appellant submitted that the AAR relied on para 6 of the Attachment B wherein it is mentioned that - this contract is divided into various activities as detailed in Annexure FB-2 of the pricing document and the activities are conveniently named to enable cash flows to the contractor according to the several phases involved in the supply of the intermediate cars in terms of this contract , and accordingly held that since the agreement itself states that the milestones are only artificial creations to enable cash flows to the Respondent, this is treated as a naturally bundled supply with the supply of intermediate cars; that, the AAR failed to appreciate the factual position that the Respondent Company being a PSU, would have not created Cost Centers A, B, C, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dled supply. But, when Cost Centre G makes separate supply as per terms of contract, the finding that supply from Cost Centre C to G is naturally bundled supply appears to be not correct, as supplies may take place or may not take place. The disclosure of the Respondent Company that the bundling of supply is not relevant in the facts of the present case as the interdependence of each transaction is absent is ignored by the AAR without examining facts and circumstances of the case, borne out from the documentary evidences. 11.11. The Appellant submitted that the AAR finds the Contract as a whole as a single contract for supply of 'Supply of 150 Nos. Standard Gauge Intermediate cars as per the requirements of BMRCL compatible with and suitable for integration with existing trains of Bangalore Metro rail Project Phase I; that in para 28.1 of the AAR order, the Authority has recorded that the contract is a single contract for both supply of goods and also for services related to those goods supplied, like installation, integration, commissioning, training and maintenance; that splitting of the entire contract is for the purposes of milestones in the completion of the contract an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge Shweta Shankar rao and the Respondent Company was represented by their Advocates Shri. Ravi Raghavan and Shri. Mohammed Ibrahim. The Assistant Commissioner of Central Taxes representing the Appellant stated that the Department is aggrieved by the ruling given by the lower Authority holding that the supplies made from Cost Centres C, D, E and G are in the nature of composite supply with the principal supply being the supply of goods and the rate of tax as applicable to the supply of goods will apply. The Appellant pointed out that as per the terms of the contract, the activity undertaken by each cost centre is independent of each other and the respondent and their client (Ms BMRCL) were operating under this understanding till June 2019. It was only post June 2019 that the Respondent has changed their stand and sought for an advance ruling on the nature of supply. The Appellant submitted that the Advance Ruling Authority failed to consider the terms of the contract and erred in holding that the supplies made by Cost Centres C, D, E and G is a composite supply with the principal supply being the supply of goods. The Appellant reiterated the grounds of appeals and requested that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a similar turnkey contract in the case of TAG Solar Systems. The Respondent filed detailed written submissions and requested that the same be taken on record and pleaded that the appeal filed by the Department may not be allowed. DISCUSSION FINDINGS: 14. We have gone through the records of the case. This is an appeal filed by the Department against the ruling given by the Authority for Advance Ruling in the case of M/s. BEML Ltd. We have considered the submissions made by the Appellant in their grounds of appeal and at the time of personal hearing. We have also heard the Respondent Company and gone through the written submissions filed by them. 15. The Respondent Company entered into a 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 which have been procured under Contract No 2 RS-DM. We have perused the contract No 3 RS-DM dated 25-03-2017 entered into between M/s BMRCL and M/s BEML Ltd. The contract also places on M/s BEML Ltd the obligation and responsibility of commissioning and installation of the cars, attending to the defects/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,760 b) Contract price for Cost Centre G - ₹ 44.45 crores c) Contract price for Cost Centre H - ₹ 10.51 crores. 17. In respect of the activities undertaken by Cost Centres A to E, the contract price is inclusive of Basic Customs Duty but does not include Excise duty on the manufacture of the metro cars, VAT on the sale of the metro cars and Service tax on the service portion of the contract performed by Cost Centres D and E. The contract states that the Excise Duty, VAT and Service tax will be reimbursed by M/s BMRCL to M/s BHEL as invoiced by the latter. The contract which was executed in March 2017, also makes provision for the future implementation of GST and it provides for reimbursement of applicable GST as invoiced by Ms BEML. In the case of spares supplied by Cost Centre G, the contract price is inclusive of Basic Customs Duty and CVD and SAD (in the case of imported spares) and Excise duty and CST (in the case of indigenous spares) but does not include VAT which shall be reimbursed to M/s BEML as and when invoiced. Even for Cost Centre G, the contract has made a provision for the future implementation of GST and it states that applicable GST will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department is before us in appeal. 20. In the background of the above facts, let us examine whether the supplies made by Cost Centres C, D, E and G are independent supplies of goods and services as contended by the Appellant Department or a composite supply as held by the lower Authority. Section 2(30) of the CGST Act, 2017 defines composite supply as follows: composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Illustration . - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply; From the above definition, it is evident that the primary elements of the composite supply under Section 2(30) of the CGST Act, 2017 are: (a) There should be two or more taxable supplies, (b) The taxable supplies should be naturally bundled, (c) They should be supplied in conjunctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the contract has laid down the cost attributable to each milestone activity in each of the cost centers. The payment made by Mis BMRCL will be based on the invoices raised by M/s BEML on completion of each milestone in the Cost Centre. For example, as per the contract, the Cost Centre C will supply the 1 st indigenously manufactured 3 car unit (-MC+MC-TC) along with dispatch documents, transit insurance and No Objection certificate from the Engineer within 65 weeks from the commencement date and the amount apportioned towards this supply is ₹ 10,33,35,703/-. Similarly, Cost Centre D will within 76 weeks from the commencement date, integrated the 1st 3 car unit into the existing 3 car train (DMC-TC-DMC) to form the 6-car train. Cost Centre D will also complete the functional tests of 6 car train and running of 6 car train in the depot and test track along with integrated testing and commissioning at the depot. The amount apportioned towards this supply is ₹ 1,47,62,244/-. If there are any defects/deficiencies observed during main line type test and integration test or joint inspection of the 1st 3-car unit forming 3-car to 6 car train, the same will be attended to by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by the Authority for Advance Ruling in KAR ADRG 20/2021 dated 6th April 2021 with regard to composite supply. We hold that 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 indicated in the Table below and rate of GST as applicable to the supply of goods and supply of service will apply. Cost Centre Schedule of Activity Treatment of Supply Applicable GST rate C Delivery and Receipt of indigenous manufacturing Supply of Goods 5% upto 30-09-2019 D Commissioning and acceptance of trains/ cars in depot Supply of Service 18% E Taking over of unit/ train for revenue service Supply of Service 18% G Supply of unit exchange spares, mandatory spares and consumable spares and special tools, testing and diagnostic equipment. Supply of Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X
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