TMI Blog2023 (5) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... sport. That the moment he raises tax invoice for the supply of goods, endorse and dispatch the documents, the title of the goods passes on to SCCL. This makes the first contract under category of supply of goods to the recipient as the recipient holds the title of goods before they reach his premises as stated by the applicant - It is supply of goods under First contract if the recipient holds the title of goods before the Second contract is initiated which involves inland transportation for delivery at site, inland transit insurance, unloading, storage, handling at site, installation, insurance covers other than inland transit insurance, testing and commissioning including carrying out guarantee tests in respect of all the plants and equipment supplied under the First Contract . If there is no transfer of title until completion of Second contract then the entire scope of supply would come under category of works contract . An insight is provided by CBIC Circular No 47/21/2018-GST dated 8-6-2018 relating to how servicing of cars involving both supply of goods (spare parts) and services (labour), where the value of goods and services are shown separately, is to be treated under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R.S.) MEMBER [ORDER UNDER SECTION 98(4) OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 AND UNDER SECTION 98(4) OF THE TELANGANA GOODS AND SERVICES TAX ACT, 2017.] ****** 1. M/s. PES Engineers Private Limited Hyderabad, 1st floor, Pancom chambers, 6-3-1090/1/A, Somajiguda, Hyderabad-500082, Telangana (36AABCP4220B1Z3) has filed an application in FORM GST ARA-01 under Section 97(1) of TGST Act, 2017 read with Rule 104 of CGST/TGST Rules. 2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the TGST Act. Further, for the purposes of this Advance Ruling, the expression GST Act would be a common reference to both CGST Act and TGST Act. 3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT as it involves determination of the liability to pay tax on goods or services and classification of goods or services. The Applicant enclosed copies of challans as proof of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Type Test Charges 55,45,661/- 355,63,69,943/- Second Contract: Scope of work Amount in Rs. 1. Inland transportation and inland transit insurance charges for Main Equipment 3,64,50,501/- 2. Inland transportation and inland transit insurance charges for Mandatory Spares 19,83,701/- 3. Unloading and handling at site, storage, erection, civil works, Safety Aspects / Compliance to Safety Rules and other services insurance covers other than inland transit insurance, testing, commission and conducting guarantee tests 230,77,38,228/- Total 234,61,72,430/- 4.4 The applicant further brought to the notice of AAR the terms of the payment. As per the payment terms, in respect of Plant and Equipment (Excluding Mandatory spares and type test charges) supplied from within the Employer s country the following payment schedule is mentioned. Initial Advance on g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: First Contract: Scope of work Amount in Rs. 1. Ex-Manufacturing Works / Place of Dispatch Price (both in India) for Main Equipment. 339,21,28,225/- 2. Ex-Manufacturing Works / Place of Dispatch Price (both in India) for Mandatory spares. 15,86,96,057/- 3. Type Test Charges 55,45,661/- 355,63,69,943/- Second Contract: Scope of work Amount in Rs. 1. Inland transportation and inland transit insurance charges for Main Equipment 3,64,50,501/- 2. Inland transportation and inland transit insurance charges for Mandatory Spares 19,83,701/- 3. Unloading and handling at site, storage, erection, civil works, Safety Aspects / Compliance to Safety Rules and other services insurance covers other than inland transit insurance, testing, commission and conducting guarantee tests 230,77,38,228 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section IV, Part A of the Technical Specification. Contractor shall provide complete automated waste water neutralization system along with automated lime feeding and dosing system to ensure required pH of waste water is ensured before being discharged at the terminal point. Washed and dewatered gypsum from the dewatering system shall be fed to a belt conveyor. The contractor shall discharge the gypsum cake above the Gypsum handling belt conveyor to be provided by the Contractor. A common auxiliary absorbent tank shall be provided for storage of absorber slurry of one absorber (maximum capacity) for both the units along with slurry pumps for pumping the slurry back to any of the absorber. PRIMARY COMPONENTS OF THE WET LIMESTONE FGD PLANT ARE DESCRIBED BELOW: i. Ducting system : The ducts, made of carbon steel, are used for transferring flue gas from existing chimney to the absorber. Further, to maintain the flue gas pressure, booster fans are installed to develop the required pressure for transferring flue gas. ii. Absorber : Absorber is the main equipment where the Sulphur is removed from flue gas. It is a 46.0 m height shell of 18.0 m diameter, made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UMENT NO. :CW-CM-11017-C-O-M-003 IFB No./Tender No. : E0119O0413 Dated: 29.01.2020 Bidder's Name and Address : PES Engineers Private Limited, 1st Floor, Pancom Chambers, 6-3-1090/1/A, Somajiguda, Rajbhavan Road, Hyderabad - SCHEDULE OF RATES AND PRICES SCHEDULE -1 : PLANT AND EQUIPMENT INCLUDING TYPE TESTS CHARGES AND MANDATORY SPARES TO BE SUPPLIED FROM WITHIN THE Item Description Qty. Unit Unit rate (INR) Total Ex-works (India) Price (INR) 1 2 3 4 5 6=3*5 A MAIN EQUIPMENT INCLUDING FACTORY FABRICATED STEEL STRUCTURES FOR FLUE GAS DESULPHURISATION SYSTEM PACKAGE FOR SINGARENI THERMAL POWER PROJECT STAGE-I (2 x 600 MW) i) FGD SYSTEM 1 lot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rotation or mirror image positioning or any other reasons which result in maintaining two different sets of the spares to be used for the subject assembly/sub-assembly, these shall be considered as different types of assembly/sub-assembly. 3. Wherever quantity has been specified as percentage (%), the quantity of mandatory spares to be provided by the Contractor shall be the specified percentage (%) of the total population required to meet the specification requirements. In case the quantity of Mandatory Spares so calculated to be fraction, the same shall be rounded off to next higher whole number. Item Description Qty. Unit Unit rate (INR) Total Ex-works (India) Price (INR) 4. Wherever the quantities have been indicated for each type, size, thickness, materials, radius, range etc. these shall cover all the items supplied and installed and the breakup for these shall be furnished in the bid. 5. In case spares indicated in the list are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for Safety Aspects/Compliance to Safety Rules 4,56,25,116.00 (VI) AMC Charges as per scope 39,67,401.00 TOTAL (I) + (II) + (III) + (IV) + (V) + VI 2,30,77,38,228.00 NOTE: 1. Bidder is required to enter the sub-item rates of Schedule-3 in E-Portal, as indicated. 2. In case the description/ quantity for any item mentioned in schedule is at variance from what has been stated in The above prices are without GST and applicable GST is payable extra by the employer as under: SCHEDULE-6 PAGE 1 OF 1 FLUE GAS DESULPHURISATION SYSTEM (FGD) PACKAGE FOR SINGARENI THERMAL POWER PROJECT STAGE-I (2 x 600 IFB N./Tender No. : E0119O0413 Dated: 29.01.2020 Bidder's Name and Address : PES Engineers Private Limited, 1st Floor, Pancom Chambers, 6-3-1090/1/A, Schedule No. 6 : Goods and Services Tax (GST), applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Bidder is required to indicate the Total of Schedule-6 in E-Portal. As per the payment terms, in respect of Plant and Equipment (Excluding Mandatory spares and type test charges)supplied from within the Employer s country the following payment schedule is mentioned: Initial Advance on goods 5% Interim Advance on goods 7.5% Upon dispatch 52.5% Upon receipt 20% On Achievement of intermediate milestones 5% On successful completion 10% Total 100% The advance of 5% plus 7.5% is computed on Rs. 339,21,28,225/- is recovered progressively from tax invoices issued for supply of goods under the contract. 2. The detailed terms of payment for First Contract are as follows: TERMS OF PAYMENT A. Schedule No.1: Plant and Equipment (excluding Mandatory Spares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %) of the total Ex-works price component as Interim Advance Payment on : (i) Fulfilment of conditions mentioned at A1(I)(a)(i) to (vi) above. (ii) Submission of an unconditional Bank Guarantee covering the advance amount, which shall be initially kept valid upto (ninety) 90 days beyond the schedule date for successful Completion of the Facilities under the Package. However, in case of delay in completion of facilities, the validity of this Bank Guarantee shall be extended by the period of such delay. Proforma of Bank Guarantee is enclosed in Section-VII - Bank Guarantee Form for Advance Payment. (iii) Submission of copy of purchase order(s) placed by Contractor and duly accepted by Sub-Contractor(s) for Booster Fan, Absorber Clad plate/Ceramic Liner, wet ball mill, Chimney Liner material as applicable for each project. Note : (i) The interim advance amount shall be divided equally among various subsystems mentioned at (I) (b) (iii) above and the amount shall be released progressively on completion of ordering of each system. (ii)Some of the sub systems as mentioned at (I) (b) (iii) above may not be applicable for some of the projects. Accordingly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory-I (as per technical specification) and is not able to conduct Guarantee test for Guarantees Under Category-II (as per technical specification) , for reasons attributable to the Employer or due to the requirements of the technical specifications, 50% of the payment towards initial operation and guarantee test shall be released to the contractor. Further the balance 50% of the payment towards initial operation and guarantee test shall be released on pro-rata basis after successful completion of guarantee test for Guarantees Under Category-II. However, in such case the payments shall not exceed 90% of the amount due on Completion of Initial Operation along with Guarantee Test . Note: (i) If any of the intermediate milestone activities as mentioned at Sl. No. (IV) above are not applicable for any project, the corresponding intermediate milestone payment shall be clubbed with last intermediate milestone activity to be achieved. (ii) The basis for the pro-rata payment at (II) and (III) above shall be the Billing Break-up (BBU) to be finalised subsequently after award of contract. (iii) In case Installation Price (excluding Civil/Structural works price) is less tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis. They were advised by the AAR to submit the complete contract documents of both the contract. 8 DISCUSSIONS FINDINGS: 8.1 The applicant M/s. PES Engineer Private Limited has entered into two separate agreements with Singareni Collieries Company Limited on the same day i.e., 09.02.2022. The objective of the contract as expressed in the title of both the agreements is as follows: Whereas the Employer desires to engage the Contractor to design, manufacture, test, deliver, install, complete and commission and conduct guarantee tests of certain Facilities, viz., Fuel Gas Desulphurisation (FGD) System Package for Singareni TPS, Stage-1 (2 X 600 MW) under Bidding Document No.CW-CM-11017-C-O-M-003 ( the Facilities ) and the Contractor have agreed to such engagement upon and subject to the terms and conditions hereinafter appearing. The above narration is given in both the contracts indicating that this is a turnkey contract for construction of a single immovable property. However, the applicant contends that there are two different and severable or divisible contracts within the same contract agreement. 8.2 The applicant contended that since the first contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods to the recipient as the recipient holds the title of goods before they reach his premises as stated by the applicant. It is supply of goods under First contract if the recipient holds the title of goods before the Second contract is initiated which involves inland transportation for delivery at site, inland transit insurance, unloading, storage, handling at site, installation, insurance covers other than inland transit insurance, testing and commissioning including carrying out guarantee tests in respect of all the plants and equipment supplied under the First Contract . If there is no transfer of title until completion of Second contract then the entire scope of supply would come under category of works contract . 8.5 It is observed that the Notification of Award of First Contract was issued by M/s SCCL vide Ref.No. CRP /MP / 01 /E0119O0413/ FGD/5576 dated 28/12/2021. The scope of First Contract is sale of goods ex-manufacture / ex-works. It is a contract for pure sale of goods. As per Clause 31 of the General Conditions of the said Contract, 31. Transfer of Ownership 31.1 Ownership of the Plant and Equipment Ownership of the Plant and Equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of works contract is abstracted as under: Section 2(119) works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. 8.7 In this context, an insight is provided by CBIC Circular No 47/21/2018-GST dated 8-6-2018 relating to how servicing of cars involving both supply of goods (spare parts) and services (labour), where the value of goods and services are shown separately, is to be treated under GST. This dispute was going on since long as to whether the service provided by authorized service stations will be termed as composite supply and it will be taxed accordingly. But most of the service providers, bill separately for material as well as for labor charges. In the said Circular, it is clarified that, the taxability 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 bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply 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 conjunction with each other in ordinary course of business. (d) One of the supplies should be a principal supply. 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 should be naturally bundled. 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 elements is removed the nature of supply will be affected. 8.9 Thus the concept of naturally bundled is not visible in this contract agreement where the two contracts can be executed independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussed at length. It is noteworthy here that though the judgment is of service tax period, the definition of Works Contract in earlier regime and present GST regime both emphasize on transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. 6.6 We find that there is a clear terms and conditions between the respondent and the service recipient i.e. EDAs that separate contract has to be entered into, one for manufacture and sale of goods and other is works contract service of erection, installation and commissioning of transmission line. All the service recipient i.e. EDAs are government organization and it cannot be imagined that the government organization will enter into this malpractices to evade service tax by bifurcating the one composite contract into two. It is a fact on records that as regard the supply contract mainly it is a transmission tower which is admittedly manufactured by the respondent in their factory and cleared there- from. These goods were sold at factory gate of respondent therefore, the property in the said goods stands transferred the moment it is cleared from the gate of the respondent. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract (Composition Scheme for Payment of Service Tax) Rules, 2007 as amended by Notification No. 23/2009-S.T., dated 7-7-2009 the value of the goods, property of which belongs to service recipient before execution of Works Contract Service, shall not be included in the gross amount of Works Contract Service. 6.9 The revenue s contention is that appellant being common for supply of goods and provider of Works Contract Service cannot enter into separate contract and in such case the one composite contract is not divisible. On this issue much water was flown. In the various courts have given judgments on this issue some of the judgment cited : Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas Co., AIR 1966 SC 543 Tata Cellular v. Union of India, (1994) 6 SCC 651. 6.10 From the above judgments it can be seen that reliance on the tender or invitation to bid to decide the nature of the contract or the right and obligation flowing under a contract entered pursuant thereto is wholly misplaced, which would be governed only by the contracts entered into two between the parties. In the present case even though there is single bid that contain the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax.. 6.13 From the above judgment it is clear that even if it is contented that due to two separate contracts there is a shortfall in payment of tax that itself cannot be a reason to reject the concept of two separate contract legally entered into between two parties. Therefore the revenue's contention related to this is also not sustainable. 8.12 Further there are number of judgments wherein Hon ble Supreme Court has observed that there can be two separate contracts, that is one for sale and another for Works Contract as in the present case the value of goods sold, property of which in goods has already been passed on, cannot form part of the value of the second contract i.e. Works Contract. Some of them are cited below:- 8.13 In the case of State of Madras Vs. Gannon Dunkerley Company (Madras) Ltd., [1958] 9 STC 353 (SC); The Apex Court held that, it is possible that the parties might enter into distinct and separate contracts, one for transfer of materials for money consideration and other for payment of remuneration for services and work done. In these cases, there is two separate agreements, even though there is a single instrument embodying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied under first contract. Since the transfer of property in the goods supplied under first contract is not taking place during the execution of the Works Contract under second contract, the value thereof cannot be included in the Works Contract. Thus the supply/ service under second contract commences commences only on completion of all the milestone activities of first contract. Therefore, it is evident that each Contract is independent and every milestone supply made from the individual contract is, an independent transaction. The mere fact that different tasks, i.e. two contracts for which separate invoices were issued by him to his recipient, have been entrusted to the applicant through a single contract agreement would not make it a composite supply in terms of Section 2(30) of the CGST Act, 2017 for the reasons discussed supra. When both the contracts are viewed as separate contracts, not withstanding that both were mentioned in the single Conditions of Contract, then the taxpayer is eligible for the benefit of Notification No. 66/2017 Central Tax, dated 15th November, 2017 for the outward supply of goods. Accordingly the tax liability on supply of goods, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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