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TMI Blog2022 (8) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... poration 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. The applicant entered into a contract with DMRC, vide contract No.RS-10 dated 24.05.2013, 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 under tender documents which form part of the Contract. The nature of supply undertaken by the applicant under each of the cost centres is tabulated here under: Cost Centre Description A Preliminaries and general requirements and design of Rolling Stock and provisions of mockup B Offshore manufacture, dispatch, completion of shipping to port in India, inland transportation in India, delivery and receipt of cars in depot C Indigenous manufacture, dispatch, inland transportation in India, delivery and receipt of cars in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Goods and Services Tax w.e.f. 01.07.2017, that the GST as applicable will also be paid to the applicant based on the tax invoices issued by the applicant. 4.3 The supply by the applicant to the DMRC is an inter-state supply of the goods and services and liable for the tax under the provisions of IGST Act 2017. The rate of tax on these supplies are at present levied based on the nature of respective transaction for which the invoice is issued. The applicant furnished the present status and treatment of different supplies under the cost centres. 4.4 The DMRC vide its letter no. DMRC/134/21/RS10/GST/Reimb/Part-1/7004 dated 04 June 2021 has disputed the nature of supply and applicable rate of GST to be charged by applicant, on the following understanding of DMRC: - Supply made by applicant under the contract is a 'composite supply' as defined under clause (30) of section 2 of the Central Goods and Services Tax Act, 2017 ('CGST Act') with the principal supply being the supply of rolling stock. - It is the understanding of DMRC that the supplies under the cost centre D to G are incidental / ancillary to the principal supply of rolling stock and supplied in conjuncti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;installation services' in terms of Notification 8/2017- Integrated Tax dated 28.06.2017 (relevant to the applicant for the discharge of IGST @ 18%). * Delving further, it is submitted that the complete classification of the said service falls under SAC 998739 as 'Installation services of other goods nowhere else classified'. It is submitted that while Notification 8/2017-Integrated Tax dated 28.06.2017 does not contain the detailed SAC codes, the same are contained in Notification 11/2017 dated 28.06.2017, the relevant portions of which have been extracted for ready reference below: 490 Group 99873 Installation services (other than construction) 491 998731 Installation services of fabricated metal products, except machinery and equipment 492 998732 Installation services of industrial, manufacturing and service industry 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, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . * Further, Annexure ITT-2B (Instruction to Tenderers) specifies the scope of work to be completed as part of Cost Centre G, the consideration payable upon such completion of work and the milestone completion date by which the works associated with Cost Centre G are to be completed. * Moreover, it is submitted that supplies under Cost Centre G are completely contingent upon the requirement of spares by DMRC. The said fact is evident from the footnote 6 of the Pricing document which 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, separate and distinct scope of work has been identified an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 explicitly provided that the aforementioned Cost Centres comprise of obligations and activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 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 transaction is not a composite transaction. * Reliance may also be placed on the decision of the Apex Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 cannot be treated asa case of bundled/ combination of supply requiring application of concept of Composite or Mixed Supply. * Reliance is also place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 based on the charges for preparation of drawing and charges for construction, including material used for construction, a lump sum price is fixed after negotiation, this will be a composite contract for architect's service as well as cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 this case, although there is only one contract, the scope of work under each cost center ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act 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 supplies both goods and services are made with clear understanding that the services or goods or both are to be assessed as they are presented at the time of delivery/supply in terms of the mutually agreed technical and costing details. * If it were to be a simple supply of intermediate car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding 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 Offshore manufacture, dispatch, completion of shipping to port in India, inland transportation in India, delivery and receipt of cars in depot C Indigenous manufacture, dispatch, inland transportation in India, delivery and receipt of cars in depot D Testing in the depot, integrated testing and commission of trains, service trails and final commissioning E Not used F Not used G Unit exchange spares, mandatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstance 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 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. 13. The Applicant has also relied on the said ruling of the Appellate Authority in the case of M/s BEML, also requested for the ruling in terms of the aforesaid ruling of the AAAR, Karnataka, stating that their case is also very much similar and the cost centers in both the cases have similar schedule of activities. 14. In view of the foregoing, we pass the following RULING 1) 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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