TMI Blog2022 (8) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... OR ADVANCE RULING, KARNATAKA] . M/s BEML had a similar contract with M/s BMRCL. It is observed that the contracts in both the cases are for supply of rolling stock, its installation/integration and testing, training the staff etc., and the cost centres in both the cases have similar schedule of activities. The Advance Ruling Authority, Karnataka had ruled that the supplies made by the applicant under cost centres form a composite supply, wherein the principal supply is the supply of intermediate cars. It is learnt that M/s BMRCL, being the aggrieved party, filed an appeal against the ruling of AAAR, Karnataka, before the Hon'ble High Court of Karnataka and no stay has not been granted. Since stay has not been granted in the said case, we are inclined to follow the observations drawn by the AAAR, Karnataka as the facts and circumstances are similar. The supplies made by all the Cost Centres of RS-10 contract of DMRC are not to be considered as 'composite supply', and hence the instant question is redundant. - KAR ADRG 26/2022 - - - Dated:- 12-8-2022 - DR. M.P. RAVI PRASAD AND SRI. T. KIRAN REDDY, MEMBER Represented by : Sri. Sujit Ghosh, Advocate Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioning E Not used F Not used G Unit exchange spares, mandatory spares, recommended spares, consumable spares, special tools, testing and diagnostic, equipment, intermediate overhauling spares, trouble shooting and driving simulator H Training and manuals 3. In view of the above, the applicant has sought advance ruling in respect of the following questions: a. Whether the supplies made under Cost Centres D, G and H (to the extent of training services) of Contract RS-10' to DMRC are to be considered as independent supplies of goods and services and GST rate applicable depending upon the nature of activity performed under such cost centres? b. Whether the supplies made by all the Cost Centres of RS-10 contract of DMRC are to be considered as 'composite supply' as defined under Section 2(30) of the Central Goods and Services Tax Act 2017 ( CGST Act') read with Section 8(1) of the CGST Act, thereby considering the supply of rolling stock undertaken under Cost Centre B and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D to G are incidental / ancillary to the principal supply of rolling stock and supplied in conjunction with each other. - In view of above understanding, DMRC has advised the applicant to revise the tax invoices for all the Cost Centres under the Contract as per the GST rate applicable to rolling stock i.e. 5% for supplies upto 30 Sept 2019, 12% for supplies from 1 Oct 2019 till 30 Sept 2021 and 18% for supplies made thereafter 4.5 The adoption of above change as advised by DMRC would affect the nature of supply and tax rate adopted by the applicant. DMRC, on account of disagreement on the nature of supply and applicable rate thereon, withheld the differential GST payment relatable to cost centres D, G and H. However the applicant has borne the cost of differential GST on its own and paid the said tax to the Government in a timely manner. Thus the applicant has filed the instant application for advance ruling. 5. Applicant's Interpretation of Law: The applicant furnished their understanding and interpretation of law as under: 5.1 The applicant, quoting various provisions of the law submits that the supplies made under Cost Centres D, G and H (H1 to H5) are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustry machinery and equipment 493 998733 Installation services of office and accounting machinery and computers 494 998734 Installation services of radio, television and communications equipment and apparatus 495 998735 Installation services of professional medical machinery and equipment, and precision and optical instruments 496 998736 Installation services of electrical machinery and apparatus nowhere else classified 497 998739 Installation services of other goods nowhere else classified Moreover, it is submitted that Heading SAC 998739 is based on the Modified United Nations Central Product Classification, Heading 998739 of which, has been extracted below: - 998739 Installation services of other goods n.e.c. This service code includes installation of home theatr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich stipulates that DMRC at its discretion may exercise the option to increase/decrease the quantities (to any extent) of spares indicated under milestones. Relevant extract is reproduced below: Employer at his sole discretion may exercise the option to increase/ decrease the quantities (to any extent) of spares indicated under milestone GI, G2, G3, G4, G5 and G6. For increased quantities, payment to the contractor shall be on the basis of actual supplies made and quoted unit rates and no escalation or any other additional sums shall be payable In conclusion, Cost Centre G is an independent supply from all other Cost Centers forming part of RS-10 due to the scope of works to be completed being clearly demarcated, express apportionment of consideration payable of conclusion of each milestone work and specific Milestone Completion Dates within which the works are to be completed. 5.5 Cost Centre H pertains to the independent service of training of operation and maintenance personnel Cost Centre H pertains to services rendered for the training of operation and maintenance personnel of the rolling stock. These services relate to SAC Code 999294 contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Centre D, G and H are independent supplies in view of the following which run a common thread amongst the aforementioned Cost Centres: Clause B.1 of Annexure ITT-2A (Instruction to Tenderers) expressly provides that the whole of the work forming subject matter of Contract RS-10 is divided into Cost Centres, with each Cost Centre representing a major item associated with such work. Further, Clause B. 2 of the said Annexure provides that a lumpsum amount for the works covered under each Cost Centre shall be apportioned, except Cost Centre G and H, and that such apportioned amount will be further distributed amongst the Milestones listed out in the respective Cost Centres. A conjoint reading of the aforementioned clauses of Annexure ITT-2A (Instruction to Tenderers) demonstrates that there exists a conclusive demarcation of services to be rendered/goods to be supplied and that there is also further bifurcation of the amounts apportioned to the Cost Centres depending upon the Milestones achieved. Therefore, a clear demarcation of supplies and consideration for such supplies has been provided for under Cost Centres D, G and H. Further, as in the Contract, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act structure, the activities covered under Cost Center D, G and H are independent supplies. The scope of work under Cost Centre D,G and H (to the extent of training services) are entirely independent and specific to their respective cost centre only. Reference in this regard is made to the milestone completion date specified against each milestone under all the cost centres of the RS10 contract. The Annexure-I of the Contract lists down the key dates for the various activities under the Contract RS10' basis which it can be easily identified that the work under Cost Centre D commences only on completion of all activities with respect to a particular train set as listed under milestone for Cost Centre B and C. Similarly, the work undertaken by Cost Centre G and H (training service H6 to H11) commence only on completion of all the milestone activities of Cost Centre C and D. Therefore, this further corroborates that each Cost Centre is independent and every supply made under each Cost Centre is an independent transaction. Moreover, it is apposite to refer to the descriptions listed out for Cost Centres B, C and D within Annexure ITT-2B wherein it has been explicitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test. Further, the principles emerging from the above judgment were also relied upon by CBEC in its Circular no. 334/1/2012-TRU dated 16 March 2012, wherein the CBEC clarified as under: The test whether a transaction is a 'composite transaction is that did the Parties intend or have in mind that separate rights arise out of the constituent contract of sale and contract of service. If no then such transaction is a composite transaction even if the contracts could be disintegrated. Hence, in case the parties to the contract intend or have in mind that separate rights arise out of the constituent contract of sale and contract of sale, then the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual goods or services which is clearly identifiable and the goods or services are subject to a particular rate of tax. But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both . Each individual component in a given supply may attract different rate of tax. The rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason, that the GST Law identifies composite supplies and mixed supplies and provides certainty in respect of tax treatment under GST for such supplies . ( Emphasis supplied) Basis above, an understanding can be drawn that the concept of Composite supply and Mixed supply is relevant where the supply of individual goods or services is not clearly identifiable. However, in the instant case, the presence of specific milestones and scope of work to be performed under each Cost Centre along with distinct and separate consideration makes the nature of each individual supply as clear and distinctly identifiable. Therefore, the present case ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct or different cost centres are to be treated as individual supplies. In said ruling, the Hon'ble Delhi Tribunal relied on the decision of Hon'ble Supreme Court, in the case of State of Tamil Nadu v. Anandam Vishwanathan reported in (1989) 1 SCC 613 wherein it was held that nature of a contract is to be found out on the basis of the intention of the parties. The intention has to be ascertained from the terms of the contract. For example, when a person, who wants to get a house constructed on a plot of land owned by him, negotiates with a building contractor-cum-Architect after telling him about his requirement - plinth area, number of bedrooms, size of drawing room etc. and enters into contract with him for construction of house for a specified sum, even though the job may include preparation of detailed design of the house before starting the construction, the contract will be a contract for - construction service. But if as per his contract with the building contractor, first detailed design of the house is to be prepared by the contractor as per his requirement and satisfaction and only after finalization of the drawing, the construction work is to be started and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioning and acceptance of cars in depot etc. for which separate and distinct consideration was stipulated in the contract in the similar manner as is mentioned in the RS10 contract. As per the facts provided in the ruling, BEML was raising separate invoices based on the nature of the transaction mentioned in the cost center and accordingly was charging GST on individual supplies. On the other hand, it was the understanding of BMRCL that supplies under the contract are essentially composite supply taxable at the rate of 5%/ 12% i.e., the rate applicable to principal supply of Rolling stock and that other supplies in the cost center D to G are incidental. While Karnataka AAR took a view that supplies under multiple cost centers would be treated as composite supply, but the Karnataka AAAR has set aside the ruling passed by lower authority and the appeal filed by the Assistant Commissioner of Central Tax, Bangalore is allowed by concluding that supplies made under cost centers C, D, E and G are to be considered as independent supplies of goods and services. Some of the key observations of authority are reproduced below - For a supply to be considered as a composite supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into contract, both HRC and DMRC had mutually agreed to the terms of the contract, fully understanding that separate invoices will raised be on completion / achievement of respective milestones of each Cost Centres. It is only in June2021, that DMRC contested that supply under contract was a Composite supply and lower rate of GST would be applicable on cost centre D, G and H (training services) also. After the enactment of Goods and Services Tax with effect from 1 July 2017, the GST treatment on supplies under various contracts by informed by DMRC vide its Circular no. 19/2017 dated 11 December 2017 (enclosed as Appendix 3), but there was no indication in that Circular that such supplies may be treated as composite supply under GST regime. HRC is currently raising separate invoices for cost centre D, G and H (training services) based on the nature of transaction mentioned in each Cost Centre and accordingly charging applicable GST rates on such supply. Thus, it is a clear case where each scope of work, consideration, milestone for raising invoices and DMRC has also approved such consideration and invoices and payments. Therefore, it is a case where various types of supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by their learned representative during the time of hearing. 9. The applicant, being a successful bidder to the tender invited by Delhi Metro Rail Corporation Limited (DMRC) for design, manufacture, supply, testing, commissioning and training of 504 Standard Gauge Cars (passenger rolling stock) including training of operation maintenance personnel and supply of spares manuals, entered into a contract No.RS-10 dated 24.05.2013 with DMRC for the purpose of execution of the contract awarded. The applicant, to undertake the scope of work as agreed in the contract, is required to supply various goods and services to DMRC in a phased manner. The detailed instructions with respect to obligations of the applicant under the contract are specified through various Cost Centres ( A to H ) under tender documents which form part of the Contract. The nature of supply undertaken by the applicant under each of the cost centre is tabulated here under: Cost Centre Description A Preliminaries and general requirements and design of Rolling Stock and provisions of mockup B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one cannot be supplied in the ordinary course of business without or independent of the other. In this case, although there is only one contract, the scope of work under each cost center is clearly specified and identifiable and is not associated with any other cost center. The concept of 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 elements is removed the nature of supply will be affected. In the instant case, supplies in the corresponding cost centers are not naturally bundled. The form of the agreement is not important, but its nature/ substance has to be seen to arrive at the correct conclusions. The clear-cut demarcation of activities to each cost center demonstrates the intention of the contracting parties that each cost center is independent supply center undertaking either the supply of goods or supply of services. 12. It is learnt that M/s BMRCL, being the aggrieved party, filed an appeal against the ruling of AAAR, Karnataka, before the Hon'ble High Court of Karnataka and no stay has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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