TMI Blog2023 (6) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the definition of Advance Ruling. This ruling is valid only within the jurisdiction of Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103 (2) of the CGST Act, 2017 until and unless declared void under Section 104(1) of the Act. - SHRI RAJENDRA KUMAR AND SHRI HARILAL PRAJAPATI, MEMBER Represented by : Shri Hari Bindal, CA and Mr. Akash Deep ORDER UNDER SECTION 98(4) OF THE CGST ACT, 2017 UNDER SECTION 98 (4) OF THE UPGST ACT, 2017 1. M/s. Uttar Pradesh Metro Rail Corporation Limited, Administrative Building, Near Dr. Bhim Rao Ambedkar Samajik Parivartan Sthal, Vipin Khand, Gomti Nagar, Lucknow Uttar Pradesh-226010 (here in after referred to as the applicant) is a registered assessee under GST having GSTN: 09AACCL5936H2Z9. 2. The applicant has submitted an application for Advance Ruling dated 04.01.2023 enclosing dully filled Form ARA-01 (the application form for Advance Ruling) along with annexure and attachments. The applicant in his application has sought advance ruling on following question- (a) Whether the services supplied by the KESCO by way of utility shifting are integral part of services supplied b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after referred to as KESCO ). KESCO is engaged in distribution of electricity in the area of Kanpur (Urban). In the context of electricity regulatory scheme governed by Electricity Act, 2003 utility shifting is referred as deposit work . Any asset created during execution of deposit work is under ownership of transmission or distribution company by virtue of operation of provisions and for regulatory requirement of Electricity Act, 2003. For the purposes of this application terms utility shifting and deposit work has been used interchangeably. b. The above referred deposit work can be executed by two methods. First, where whole work is executed by the licensee i.e., KESCO and Second, where whole work is done by UPMRC or through any of its third-party agent but under the supervision of KESCO. The specifications and supplier of the material used under second method in is approved by the KESCO only. Under first method, all cost towards labour and material used in utility shifting is incurred by KESCO and then recovered from UPMRC along with applicable GST on total cost. This cost invariably includes supervision charges. Under second method all cost towards labour and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this issue before Hon'ble Authority for Advance Ruling, Uttar Pradesh seeking advance ruling on following issues. 4. The applicant has submitted their interpretation of law as under- A. That the services supplied by KESCO by way of utility shifting is integral part of main services supplied by KESCO by way of distribution of electricity which is exempted under Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. Being so, the supplies made by way of executing deposit work including supervisions services is also covered under entry 25 of the Exemption Notification. In this context GST charged by the KESCO on supply of supervision services is not correct. A.1 It is submitted that KESCO, is a corporate body engaged in distribution of electricity in Kanpur (Urban). It has also obtained a license under Section 14 of the Electricity Act, 2003 to distribute electricity as a distribution licensee. Term distribution licensee has been defined under Section 2(17) of the Electricity Act, 2003 as distribution licensee means a licensee authorised to operate and maintain a distribution system for supplying electricity to the consumers in his area of supply . It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o maintain an efficient and economical distribution system and if any complaint is received about such system, it is also under obligation to redress such complaint, failing which it may lose its license. Term distribution system has been defined under Section 2(19) Electricity Act, 2003 a distribution system means the system of wires and associated facilities between the delivery points on the transmission lines or the generating station connection and the point of connection to the installation of the consumers. Further term utility electric lines and electrical plant has been defined under Section 2 of the electricity Act as under: Utility means the electric lines or electrical plant, and includes all lands, buildings, works and materials attached thereto belonging to any person acting as a generating company or licensee under the provisions of this Act; (20) electric line means any line which is used for carrying electricity for any purpose and includes (a) any support for any such line, that is to say, any structure, tower, pole or other thing in, on, by or from which any such line is, or may be, supported, carried or suspended; and (b) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such system. In the instant case utility shifting is required to ensure the safety to persons and property, and to avoid damages to the utilities which will result in non-supply of electricity to consumers, while constructions activities are carried out by UPMRC. Utility shifting either done by the KESCO or done by some other vendor under the supervision of KESCO is an integral part of the duty conferred to maintain an efficient and economical distribution system. Further, the very purpose of insisting on execution of deposit work in supervisions of KESCO and charging supervision charges for same, is to ensure that quality, efficiency, and co-ordination of the distribution system must not be compromised. It is quite clear that both the activities (i.e., utility shifting and distribution of electricity though an efficient, well maintained and coordinated distribution system) are so well connected that without one, other cannot be in existence and both has to be performed to discharge its 2003. No, doubt, such function is exempted statutory function under Electricity Act, under GST laws. A.3 As the supply of services by way of transmission or distribution of electricity is taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppliers of such material to be used in shifting of utilities. However, mere approval of the material cannot not create any privity of contract between KESCO and the person performing deposit work on behalf of UPMRC. B.3 It is submitted that any contract of supply of goods or services or both does meet out the essentials of a contract as defined under Indian Contract Act, 1972 and are just a subset of vide variety of contracts existing in the commercial world. B.4 In the instant case the contract or supply contract for execution of deposit work (i.e., utility shifting) is entered between KESCO and UPMRC. In conformity with regulatory requirements of scheme of Electricity Act, 2003, such supply contract can be executed either by the KESCO itself or executed by UPMRC through its vendors but under supervisions of KESCO. It is submitted that when UPMRC places a request for utility shifting in any particular area and such request is accepted by the KESCO against payment of a consideration (either against total estimated cost of deposit work including supervisions charges or only against supervisions charges) a legal contract comes into existence. The consensus ad idem i.e., meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but only an inclusive definition is given, however, it contains all essentials for term consideration . As per Section 2(31) of the CGST Act, Consideration includes, any payment made or to be made in respect of or in response to or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person. Subsidies by the State Government or Central Government has been kept out of scope of term consideration. Term consideration also includes monetary value of any act or forbearance, in respect of, or in response to, or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person. Proviso to Section 2 (31) provides that any deposit given in respect of any supply of goods or services or both shall not be considered as payment towards such supply unless supplier applies such deposit as consideration for the said supply. In other words, proviso makes it clear that there has to be a direct nexus or reciprocity between price paid and supply to be made. Deposit made with the supplier for any purpose other than supply of goods or services under consideration, cannot be treated as consideration for sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the supply has been effected, if- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed. (5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed. Explanation - For the purposes of this Act,- (a) persons shall he deemed to be related persons if- (i) such persons are officers or directors of one another's businesses; (ii) such persons are legally recognised partners in business; (iii) such persons are employer and employee; (iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be included by virtue of Clause (b) of section 15 (2), by way of deeming fiction, become part of taxable value as determined under section 15(1). Clause (b) of Sub-section (2) of Section 15 provides that taxable value of a supply shall, also include any amount which, as per supply contract, must be incurred by the supplier however, in actual been incurred by the receiver, and such amount is not already included in price. In other words, such an amount must have been incurred on behalf of supplier. Use of words in relation to such supply suggests that the amount sought to be included under Section 15(2)(b) must have been incurred by the receiver in connection with the supply under consideration. If the amount to be included is not incurred in connection with supply, the same cannot be included in taxable value of supply. B.8 In the instant case, UPMRC has entered into two separate and independent supply contracts. First with KESCO where KESCO is under obligation only to provide supervision services against supervision charges, second with its vendor which is actually performing shifting of utilities under supervision of KESCO. These two supply contracts are not connected and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no doubt that, before inclusion, such amount should have actually been incurred by the receiver on behalf of supplier. It is clear that, amount sought to be included must have been expensed in relation to the supply for which supplier is under obligation to provide. Any amount expensed either by supplier or by receiver on his behalf, in relation to anything which is out of the scope of supply, can never be included. In the instant case, an amount has been paid by the UPMRC but not on behalf of KESCO and in relation to a separate contract and not in relation to a contract entered with KESCO. Use of words such supply makes it clear that amount sought to be included must have been incurred in connection to the supply made by the Supplier, in this case, KESCO. KESCO has not made any supply other than supervisions services. Had the UPMRC incurred any expenses which KESCO is supposed to incurred in connection with supervisions services, such amount would have been liable to be included in taxable value of supervisions charges. As the amount sought to be included was never the liability of KESCO and the same was incurred by UPMRC under a separate contract, such amount be considered fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such assignment has been made by UPMRC. Further, KESCO has not discharged the obligation, if any assigned by the UPMRC, as KESCO has not made any payment to the vendor. (d) Further, as per Section 15(2)(b) only that amount can be included in the taxable value which supplier is liable to pay but which has been incurred by the recipient. It may be noted that Section 15 (2)(b) talks about inclusion of amount in the context of a single standalone supply contract. It does not refer to the situation where two separate contracts have been entered with two different parties. (e) In the instant case, it is not disputed that KESCO and UPMRC are un-related, and price is the sole consideration and nothing is paid to the KESCO over and above the supervision charges. Moreover, KESCO, through its demand letter is collecting only supervision charges which is 5% of the estimated cost. However, while charging tax on the supervision charges, KESCO is insisting on inclusion of the cost of labor and material supposedly payable to the vendor had the KESCO has done the deposit work on its own. So, the KESCO is trying to charge and collect GST on an amount which is neither payable to KESCO n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly has been taken place. In fact, there is no happening taxable event with respect to the amount paid to the third-party vendor, between UPMRC and KESCO, hence inclusion of such amount is totally illegal would lead to double taxation of the single amount. D. That inference in favour of non-inclusion of amount paid to third-party vendor in the value for the purposes of determining the tax collectible from the UPMRC by the KESCO can also be drawn from the scheme of Input tax credit. Under scheme of CGST Act, in principle, Input Tax Credit is available to the person who has borne the burden of the input tax and to the extent of tax paid by it. It would be highly illogical and against the scheme of CGST Act to make the UPMRC to bear the burden of tax twice and allowing to avail input credit of such tax for once. D.1 It is submitted that in a situation where UPMRC is making payment to the third party vendor for the execution of deposit work, it shall be eligible for availing ITC of the tax paid to such third party vendor. However, if the KESCO is allowed to include the same amount again in the taxable value for supervisions services only for the purposes of collecting GST, not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tility shifting either wholly provided by it or where its role is restricted till supervision only. F. The advance ruling in Rajasthan Vidyut Prasaran Nigam Ltd., Ruling No. RAJ/AAR/2019-20/16 cannot be relied upon by the Authority for Advance Ruling in this case. F.1 As per Section 103 of the CGST Act, Advance rulings are binding only on the applicant who has sought such ruling and on the jurisdiction officer. However, such rulings shall not be binding if facts and law supporting the original advance rulings got changed. For the identical reasons, advance ruling in case of NHAI shall also not be applicable and cannot be relied upon. F.2 It may further be noted that in our humble view this ruling is bad in law and vitiated by non-consideration of the submissions of GST department represented by the Jurisdictional Officer, State Tax. In its submission jurisdictional officer, recorded in the judgment under para 4, submitted that value of supply, in both the cases, where deposit work is done by RVPN itself and where work is executed by the consumer under supervision of RVPN, shall be determined as per section 15(1) of the CGST Act. Further, no reason for not considering or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easoning for inclusion of cost of deposit work in the taxable value based on Section 15 (2) (b), given by the Ld. AAR is that since the ownership of assets created at the completion of deposit work lies in RVPN, cost of such assets incurred by the consumer/intending agency is to be included in the value of supply, is wholly misconceived and cryptic. Section 15 (2) (b) never talks about ownership of assets or whatsoever and it is immaterial for GST purposes. Only criteria prescribed by Section 15(2)(b) for inclusion of any amount is that such amount was supposed to be incurred by the supplier under the terms of supply contract, however, it has been incurred by the receiver of supply on his behalf and such expenses has been done in connection of supply only. It is submitted that ruling is against the specific mandate of Section 15(2)(b) of the CGST Act. F.6 Finally, while making statements under operative para of the Judgment it has not where specified that taxable value should include cost of assets as per Section 15 (2) (b). It simply stated that in both the cases as mentioned by the applicant, value shall be the transaction value, that is price actually paid or payable in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) advance ruling means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant; (b) Appellate Authority means the Appellate Authority for Advance Ruling referred to in section 99; (c) applicant means any person registered or desirous of obtaining registration under this Act; The meaning of the applicant defined at Point No. (c) should be derived only in consonance with Point No. (a) of Section 95 of the CGST Act 2017. We find that Applicant MIS Uttar Pradesh Metro Rail Corporation Limited is receiver of the Goods/Services provided by the KESCO. In light of point (a) provided under Section 95 of CGST Act 2017, only supplier of the services can file Application for Advance Ruling. In this case the supplier of service is KESCO. Also in the similar matter M/s Purvanchal Vidyut Vitran Nigarn Limited had applied for advance ruling as supplier of service and advance ruling authority has ruled on merit. Accordingly, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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