TMI Blog2022 (6) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... Tender to answer particular situations and ignore other situations will not be the right way to go forward and therefore this Authority will not be able to answer the questions raised by the applicant. Hence the questions raised by the applicant in respect of activity Major overhaul and Overhaul / repair of sub-assemblies, are not being answered. - GST-ARA-17/2020-21/B-86 - - - Dated:- 21-6-2022 - SHRI. RAJIV MAGOO, AND SHRI. T. R. RAMNANI, MEMBER NO.GST-ARA-17/2020-21/B-86 Mumbai, dt. 21.06.2022 PROCEEDINGS (Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) The present application has been filed under Section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as the CGST Act and MGST Act respectively] by M/s. Cummins India Limited, the applicant, seeking an advance ruling in respect of the following questions. 1. Whether arrangement for overhaul and repair of engines are composite supply ? 2. Whether principal supply in overhaul and repair of engines is 'services'? 3. And resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de-carbonized prior to which a detailed inspection is carried out. Based on the condition of dismantled components/subassemblies, the same would be repaired, rebuilt, re-conditioned or replaced such repaired, rebuilt, re-conditioned or replaced components/ subassemblies are to be assembled into the engine. Major overhaul: entails complete stripping down of engine, including all components and sub-assemblies for detailed inspection at or after specified run-hours/ periodic intervals. Based on the condition of the dismantled components/subassemblies, the same are to be repaired, rebuilt, re-conditioned or replaced and such repaired or rebuilt or re-conditioned or replaced components/subassemblies are assembled into the engine. 2.4 The overhaul repair arrangement entails performing of activities like: Inspection of engines for physical condition, deficient parts/ subassemblies damaged items; Overhaul repair of engine, parts/ sub-assemblies as the case may be; Mandatory replacement of parts in certain cases; Post overhaul undertake testing of the engine, parts/ sub-assemblies and Re-assembly of all part/goods and installation of engines. 2.5 Thus, overhaul an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity entails provision of services, as well as supply of parts/ sub-assemblies, it is necessary to refer to the definitions of 'works contract' as given in Section 2(119), 'job work' as given in Section 2(68) and 'composite supply' as given in Section 2 (30) of the Central Goods and Services Tax Act, 2017 ('CGST Act'). 2.10 Repair and maintenance of any immovable property falls under ambit of 'works contract' and not otherwise. In the present facts, the engines/ sub-assemblies are dismantled and worked upon, tested, calibrated, re-fixed. Therefore, the Applicant is engaged in repair and overhaul of engines which are movable chattel, hence proposed arrangement cannot be a 'works contract'. 2.11 On a conjoint reading of Section 2(68) Section 143 of the CGST Act, 2017, it is seen that 'job work' covers scenarios where a registered person (Principal) supplies 'inputs' to a job worker for any treatment or process, post which the Principal would either: bring back such inputs, carry out further process (if any) and thereafter supply such goods; or alternatively, Principal has an option of supplying goods (i.e. input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character of a 'principal supply'. Further, the Applicant would charge agreed rates to its customer i.e. ONGC, irrespective of the actual value of goods used and services supplied during overhaul and repair activity. 2.16 The inherent nature of repair and overhaul is that of a service comprising of various activities undertaken with an objective of restoring/ maintaining working condition of object which is being repaired/ overhauled. Hence, the dominant intention in the subject case is to receive/ provided specialized services in respect of engines and not to procure/supply specific parts/ sub-assemblies. 2.17 The courts, in a number of cases have ruled that, taxability of a contract would depend on dominant intention of a transaction. If the main object of transaction is transfer of property in a chattel then the same would be considered as a transaction of sale of goods even though some work/ services may be required to be performed as a part of contract. Similarly, if the main object of transaction is work or service, then the some would be considered as a transaction for service, even though it involves supply of material. In this connection, reference is made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized services involving engines. Hence, the said ruling and the principle laid down can be applied to this arrangement. 2.21 Based on the foregoing, overhaul repair activity is a composite supply of services as well as goods and the Principal supply is that of a service. Resultantly, rate of tax applicable to services i.e. 18% would be applicable to all supplies under present arrangement. APPLICANT SUBMISSION DATED 08.04.2022 2.22 The Applicant clarifies the scope of supplies on its part and otherwise as under: Sr.No. Arrangement (Activity) Supply of services Supply of parts and / or sub-assemblies Remarks A Breakdown repair Covered in the scope of Applicant. Not covered in the scope of Applicant. Parts and /or sub-assemblies required for undertaking breakdown repair would be provided by ONGC Limited In Annexure III, Clause B, para 1.3 of the proposed tender clarifies that the work centres of ONGC Limited will provide the spares required for breakdown repair. This limb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis-a-vis services provided (i.e., repair, calibration, re-installation, etc.) would vary from case to case and no estimate is available for the same. 2.24 Applicant reiterates that activities arrangements of breakdown repair and top overhauling ('A' and `B' above) being pure services, are not required to be ruled upon and so, the Applicant limitedly withdraws its application, to this extent. Further, the Applicant, seeks an advance ruling only in respect of 'C' (major overhaul) and 'D' (overhaul / repair of sub-assemblies). 2.25 In the following paragraphs are submissions, in respect of both major overhaul overhaul / repair of sub-assemblies , both of which arrangements independently constitute composite supplies of goods services, wherein principal supply is that of services. Applicant routinely enters into contracts for sale of goods (engines, parts, etc.) and separately for services (labour contracts). However, present arrangement involves coupling of goods services to ensure continued functioning of the Cummins engines or sub-assemblies, as the case may be. Impugned activity covers supply of 'service of repair&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' forms principal supply of repair and overhaul activity (viz. major overhaul ): Alok Bhanuka 12019-TIOL-93-AAR-GST] Sandvik Asia Private Limited [TS/694-AAR-2018-NT] Advance ruling pronounced in another case of the Applicant i.e., Cummins India Limited, reported in (2019 (23) G.S.T.L. 356 (A.A.R. GST)]. In light of above, it is submitted that principal object of major overhaul and overhaul / repair of sub-assemblies is to provide services and, in the course thereof supply parts/sub-assemblies. 2.26 In view of above submissions, overhaul repair activity covered in 'C' above i.e. major overhaul as also 'D' above (i.e. overhaul / repair of sub-assemblies) is a composite supply, wherein the principal supply is that of service. Resultantly, rate of tax applicable to services i.e., 8% would be applicable to all supplies under present arrangement (tender). 03. CONTENTION -AS PER THE CONCERNED OFFICER: Office Submission dated 09.07.2021: The departments comment/stand in this regard is as follows:- 3.1 As per the definition of the term composite supply under the CGST Act, 2017, for a supply to be a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.5 Supply of spores parts/accessories repair service are distinct separately identifiable supplies or which the rates are quoted differently work orders are issued separately specifying the spares/accessories to be supplied services to be supplied rates applicable thereon as per quotation in the Repair Rate Contract can't be considered as a composite supply. Where a supply involves supply of both goods services the value of such goods services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods services separately. 3.6 Also regarding the contract made for overhaul repair services, the applicant is well aware about the parts which would suffer wear and tear and need to be replaced by the applicant. Further, the applicant in their contract named RATE CONTRACT FOR OVERHAUL AND REPAIR OF CUMMINS MAKE ENGINES AND SUB-ASSEMBLIE, in the Annexure IV Price schedule format - Overhaul/rebuild of Sub-assemblies shows the minimum items which shall be replaced / reconditioned for major overhaul by the applicant. The same is reproduced herewith for the reference. Price schedule 4.3 The rates ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 Screw, hexagon head cap 12 Kit, turbocharger 13 Gasket sets (upper lower) 14 Hoses belts 15 Rod, push 16 Damper, vibration 17 Thermostats 18 Bushings and bearings 19 Repair/recon of sub-assemblies: 20.1 Water pump 20.2 tube pump 20.3 Turbo charger 20.4 Injectors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant as well as the jurisdictional officer. 5.2 M/s Cummins India Limited, the Applicant is a manufacturer of diesel engines and natural gas engines, and power generation systems i.e. Gensets. In addition to this, the applicant also undertakes the activity of overhaul and repair of engines belonging to customers and as a part of this overhaul and repair activity, the applicant is generally required to render various services and supply different parts/sub-assemblies to its customers. The applicant is contemplating entering into an agreement with Oil and Natural Gas Corporation Limited (ONGC) for overhaul and repair of engines and sub-assemblies and has submitted that the subject application is made in respect of the proposed transaction to be undertaken as per the Tender issued by ONGC on the basis of which the applicant will be entering into an Agreement with ONGC. 5.3 The applicant has contended that: i) Arrangement for overhaul and repair for ONGC is composite supply ; ii) The principal Supply is that of 'service' and iii) Consequently, the rate of tax (GST) for all supplies (consisting of parts/sub-assemblies and repair services) is 18%. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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