TaxTMI 
TaxTMI 
2023 (12) TMI 552
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....ted in Spain. It is not registered under GST in India. 3. Under C-295 programme the applicant has been appointed as the Indian Aircraft Contractor (IAC) for manufacture and supply of 40 aircrafts. 4. In terms of the contractual arrangement, out of the 56 aircrafts, first 16 aircrafts will be supplied directly by Airbus from Spain to MoD in a fly-away condition, for the remaining 40 aircrafts, Airbus Defence & Space SAU and Tata Consultancy Services has entered into a contract with the applicant [as the Indian Aircraft Contractor (IAC) for manufacture and supply vide contract dated 29.10.2021 (hereinafter referred to as the 'contract'). 5. The relevant clauses of the contract dated 29.10.2021, entered into between Airbus Defence & Space SAU, Tata Advanced Systems Ltd and Tata Consultancy Services Ltd, is reproduced below for ease of reference viz: 'Airbus SE' means Airbus Societas Europaea, a European public limited-liability company with its registered office in Amsterdam....... 'Aircraft' means the C-295 MW transport aircraft modified by the purchaser for installation of CSE and including associated role equipment & technical literature: 'C295 Aircraft Programme' means al....
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....be supported by the address modified orders by the Purchaser to the Supplier: Tata Advanced Systems Ltd. Plot Nos. 42 43 Electronic City. Phase-1, Hosur Hoad. Bengaluru 560100, Karnataka GSTN 29AACCT5245KIZZ Any change in the place of the orders must be notified of the purchaser in writing by the supplier with sufficient prior notice. 3.1 SCOPE OF WORK 3.1.1. The Supplier's activities shall comply with the requirements of the Contract and associated Orders and shall include, as necessary and/or as requested by the Purchaser, but shall not be limited to:- (i) activities necessary to ensure compliance of the Item with the requirements of the Specification (including those in connection with continued airworthiness of the fleet, in service requirements and military qualification requirements as applicable) (ii) supply of all material, including, but not limited to raw material standards, sealants and adhesives. (iii) the manufacture, delivery (as defined in Article 7 "Inspection, Delivery and Acceptance") and support of the Items (as further defined in the Article 3.4 "Support") (iv) the design, manufacture and maintenance of Tooling as necessary to develop and m....
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....abels as the properly of the Purchaser. 4.2.1.3 The Supplier undertakes at its expense to maintain the Purchaser's Property to a standard so as to meet the maintenance requirements of both the Purchaser and the Customer for as long as a minimum of five (5) Aircraft are in regular operation For the avoidance of doubt. following the expiry of the warranty period of the last Aircraft delivered, the Supplier shall be entitled to pack and store the Tooling and the Purchaser property but shall remain responsible for its custody, maintenance and set up at its own costs whenever reinstallation is required by the Purchaser. 4.2.1.4 If any action is taken by a third party in respect of any of the Purchaser's Property, the Supplier shall notify the Purchaser of such action and shall notify the third party that such Purchaser's Property is not the property of the Supplier. 4.2.1.5 All risks in such Purchaser's Property shall pass to the Supplier upon delivery thereof to the Supplier and shall remain with the Supplier until returned to the Purchaser 4.2.1.6 The Supplier shall return any Purchaser's Property upon request by the Purchaser and at the latest, upon expiry or termination of all....
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....us by the applicant, if unused. 8. The applicant has also stated that they will act as the importer in respect of FIM supplied by Airbus and will discharge applicable duties of customs on the FIM, at the time of import. The Applicant is entitled to raise invoice on Airbus for reimbursement of all the indirect taxes including the duties of customs paid on FIM. 9. Payment terms of the contract states that for manufacture and supply of aircrafts, Applicant will raise invoice on Airbus inclusive of applicable taxes. The said invoice will then be forwarded by the Airbus to MoD for payment. The payments under the contract are firm and fixed in currency basket of Euros, USD and INR. While the INR payments will be made by MoD directly to the applicant on behalf of Airbus, the payments in Euros and USD will be made by Airbus to the applicant. The payment schedule involves certain amounts received as advances on milestone basis and thereafter on per aircraft delivery basis. Airbus will obtain registration under Goods and Services Tax (GST") in India. 10. On the aforementioned facts, the applicant vide his application dated 24.12.2021, sought ruling on the following questions viz (i) Wha....
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....50 acres in Operational Area of Vadodara Airport to the applicant for setting up FAL and MRO facility. 14. In light thereof, the applicant has filed a fresh application and sought an Advance Ruling on the following questions: (i) What is the nature of supply under the contract between the Applicant and Airbus (i.e.. whether the same will qualify as 'supply of goods' or 'supply of service')'.' (ii) Given the nature of the activities undertaken by the Applicant under the contract, what will be the appropriate classification and rate of tax of the said supply? (iii) What is the value to be adopted for the purpose of payment of GST? (iv) What will be the time of supply for payment of GST? 15. The applicant has relying on sections 2(52) and 7 of the CGST Act, 2017, and judgements in the case of BSNL [2006 (3) TMI-1 SC] and JK tyre & Industries Limited [2017 (10) TMI 258-Mad (HC)] made the following submissions: * that whether a contract involves supply of goods or otherwise must be determined on true subject matter of the contract; * that on perusal of the various clauses of the contract and detailed scope of work, the main responsibility of the applicant is to manufacture....
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....mpletion of services in isolation will not result in discharge of the obligations under the contract. * that they would like to draw the analogy from para 3 of letter no. 334/1/2008-TRU did 29.2.2008 which dealt with determination of principal supply of service when various services were bundled together to substantiate the submission; * that they would like to rely on the Advance ruling in the case of M/s. Air Control and Chemical Engineering Co Ltd [2021 (1) TMI-542-AAR-Gujarat]. The applicant, therefore, is of the view that the contract with Airbus, is a composite supply of goods & services, wherein the principal supply is manufacture & supply of aircraft in airworthy condition; that the various services provided are only incidental or ancillary to the main supply of aircrafts. 19. Additionally, the applicant feels that since their activity will qualify as a composite supply with the principal supply being supply of goods, i.e. aircraft, the same is classifiable under CTH 8802 and will attract GST @ 5% in terms of entry 244 of notification No. 1/2017-IT (Rate) dated 28.06.2017. 20. The applicant has further stated that in terms of section 12(2), ibid, the liability to pay....
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....ion value. 26. Personal hearing was held on 9.2.2023 and 29.8.2023 wherein Shri Rohit Jain, Advocate, Jignesh Ghelani, CA, Niraj Bagri, CA, K Ugendra, CA & Harsh Rautela, PM, appeared and reiterated the facts as stated in the application. On being informed that their application is admitted they submitted that the rectification filed be treated as being withdrawn. They further sought time to file additional submission. 27. In their additional written submission, while reiterating their earlier submission, it was further slated as follows viz * that the main responsibility was manufacture and supply of 40 aircrafts; * that the activities under the contract are integral part of manufacture and supply of aircraft & therefore it will not constitute a distinct supply of service by applicant to Airbus: * that in the case of Patnaik & Co [1965 (1) TMI 44-SC. it was held that a contract of sale is one whose main object is transfer of properly in & delivery of possession of a chattel as a chattel to the buyer: that they also wish to rely on the case of T V Sundaran Iyengar Sons [1975 35 STC 24]. The Central India Machinery Manufacturing Co Ltd [1977 (4) TMI 150 SC]. Azad Coach Build....
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....o provide certain support services as listed out in paragraph 16. 31. The submission that it is supply of goods by relying on Section 2(52), which defines goods to mean every kind of movable property other than money & securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply...........is nor tenable argument. We find that this contract which encompasses both supply of goods and services is something which is routinely resorted to by business enterprises. Thus, what needs to be determined is whether the supply undertaken by the applicant involving both goods and services in terms of the contract is a composite supply in terms of section 8(a) or a mixed supply in terms of section 8(b) of the CGST Act, 2017. 32. Now, both the terms composite supply and mixed supply stand defined under section 2, viz (30) "composite supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in t....
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....or example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. * The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. * Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are - * --- There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use. * --- The elements are normally advertised as a package. * --- The different elements are not available separat....
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....r effective enjoyment of supply of aircrafts, providing support services is a must; * That the contract herein has a single contract price charged by the applicant for both supply of 40 airworthy aircrafts & provision of support services; that the combined provision of both goods & services is integral in fulfilling the scope of the work of applicant. We therefore hold that the supply of aircrafts & provision of support services are naturally bundled & supplied in conjunction with each other in ordinary course of business & hence in terms of section 2(30) of the CGST Act, the aforesaid said supply is a composite supply. 36. Even otherwise in the instant case, the applicant's supply involves goods i.e. aircrafts and maintenance etc. which is a service. The contractual agreement between the applicant and Airbus requires the applicant to supply the aircrafts and provide for its maintenance etc. The applicant therefore is engaged in two taxable supplies. What is pivotal is that the supply of service is possible only when the goods i.e. aircrafts are supplied. Hence, we are of the opinion that the contract is a composite supply which are naturally bundled and supplied in conjunction....
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....ing Officer appointed by the Railway Board, and the balance of 10 per cent after delivery If clause (1) of the Standard Condition 15 is not inconsistent with anything in the Special Conditions. and as we shall presently notice it is not so-it clinches the issue in as much as it declares in unequivocal terms the invention of the contracting parties that on payment of the 90 per cent of the value, the vehicles in question will become the properly of the purchaser." Prima facie, the contract in question has all the essential attributes of a contract of sale of moveable. That is to say, here is an agreement to sell finished goods manufactured by the Sellers (Company) for a price, the property in the goods passing to the Purchaser, on completion and delivery pursuant to the agreement. The prices quoted under the present contract, is qua each aircraft. The ratio therefore is applicable. However, the differentiation is that the contract under question is of supply of aircrafts along with provision of support services. It is on this background that we have held that the supply is a composite supply wherein the principal supply is supply of aircrafts. 38. Now we move on to the second ques....
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....ole in the levy of GST. The idea of introducing 'composite supply' was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of supplies altogether. This finds specific mention in the illustration provided under Section 2(30) of CGST Act, where the principal supply is that of goods. Thus, the intent of the Parliament was that a transaction which includes different aspects of supply of goods or services and which are naturally bundled together, must be taxed as a composite supply. 145. This Court is bound by the confines of the IGST and CGST Act to determine it this is a composite supply, it would not be permissible to ignore the text of Section 8 of the IGST Act and treat the two transactions as standalone agreements. In a CIF contract, the supply of goods is accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act r....
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....T on specified goods Schedule I to VI In exercise of the powers conferred by sub-section (1) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on the recommendations of the Council, hereby notifies the rate of the integrated tax of- (i) 5 per cent, in respect of goods specified in Schedule I. (ii) to (vi) appended to this notification (hereinafter referred to as the said Schedules), that shall he levied on inter-State supplies of goods, the description of which is specified in the corresponding entry in column (3) of the said Schedules, falling under the tariff item, sub¬heading, heading or Chapter, as the case may he. as specified in the corresponding entry in column (2) of the said Schedules. SCHEDULE I - 5% S.No. Chapter/ Heading/ Sub-heading /Tariff item Description of Goods (1) (2) (3) 244. 8802 Other aircraft (for example, helicopters, aeroplanes), other than those for personal use. Since we have already held that the contract with Airbus for supply of aircraft is a composite supply, and that the principal supply being supply of goods viz aircraft, we hold that aircrafts are classifiable under CTH 880....
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....rnment 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 be 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 outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family; (b) the term "person" also includes legal persons; (c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related. 42. The applicant in his submission has stated that in terms of section 15 reproduced supra, they are not related with Airbus; that there....
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....ineering support 8. Provide required kits & MCAs according workshare 9. Provide OoS parts as free of charge 10. Provide A/c equipment as free of charge (to be annexed to the SoW at T0 12) 11. Perform industrial flights 12. Deliver the A/C to customer 13. Act in front of the airworthiness authority 14. Provide relevant classroom and OJT training in Spain. * Clause 2.3.7 of SoW 2.3.7 Material Management All suppliers for the C-295 program should fulfil the requirements of C ASA 1033-01 The list of C-295 approved suppliers under the Supplier responsibility will be always accessible to Airbus DS according is definited in annex S 'Manufacturing & Supply chain Management. 43. A bare reading of the contract reveals that the contention put forth of the applicant not being related with Airbus & that there is no consideration flowing from Airbus to the applicant other than the contract price agreed between them, is true. However, what is pivotal herein is that certain significant parts of the aircraft to be manufactured by the applicant, is supplied as FIM [free issue materials] to the applicant by Airbus. Will the value of FIM form a part of the transaction value, to be....
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....t the value of fuel which is in the scope of the Company shall by no means be interpreted as additional consideration payable for the transportation service provided by the Transporter or having been provided to the vehicle in lieu of freight. The said fuel would be issued by the Company for exclusive usage, as a consumable, in the underlying transportation only and the ownership of the fuel would at no point be transferred to the Transporter or to the vehicle engaged....... 7. The question falls for consideration is that "whether diesel filled by the service recipient FoC in the truck of the GTA can be added to value of supply being rendered by the GTA for the purpose of levy of GST under the CGST Act, 2017?" 13. The AAR by its order dated 4-1-2021 held that the cost of fuel though is not included in the scope of work of the petitioner and the diesel is provided FOC by the service recipient would nevertheless would be added to the value of taxable service for the purpose of GST on application of Section 15 (1) read with Section 2 (31) of the CGST. It was further held that since fuel was an essential ingredient without which the transport service cannot be rendered, the cost ....
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....ce to be provided by the transporter as a GTA. The contention of petitioner that the "consideration" is required to be confined as per the terms of agreement cannot be given a literal interpretation. Section 2(31) of the CGST 2017 mandates that "consideration" in relation to supply of goods or services includes - (a) any payment whether in money or otherwise made or to be made; (b) monetary value of any act or forbearance for the inducement of supply of goods or services. Reading of section 2(31) along with scope of supply as defined u/s 7(1)(a) makes it clear that the petitioner who is a GTA wanted to transport the goods for recipient. The recipient is not a GTA or engaged in business of transport. Consequently it is the petitioner GTA "in course" or "furtherance of business" has agreed to supply the goods or service for consideration. When it is the primary business of the GTA, in order to allow running the vehicles by fuel, it is a potential combination. If that part of responsibility is delegated by way of an agreement to the recipient, in such a case, the recipient would step into the shoes of GTA as its component and would be playing central role in setting narratives. ....
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....lue the service answers this query. The Legislature has categorically enveloped such kind of supply within the ambit unless exempted by any provision. Therefore, the emphasis cannot be made at this stage while interpreting the provisions of Section 15(2)(b) of the GST Act, 2017 with the proposed GST Law specially taking into consideration the nature of business by GTA, the service provider. 30. Again when we examine the nature of business of the petitioner, who is a GTA, the nucleus of survival of business shows that the business of petitioner entirely survives on transportation. Since the transportation inter-alia is an inter- dependent on supply of fuel, it would be a crucial component to run the business of GTA. If such integral part of survival of reins are held by service recipient, in such a case, it would be actually doing the substance addition of GTA survival. Therefore, the Circular dated 8th June 2018 on which the petitioner tried to rely upon would not be of any help especially considering the nature of business and the provisions of Section 7(1)(a) and 15(2)(b) of CGST Act. 31...................... In view of the observations made in foregoing paragraphs the initia....
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.... extent it is covered by the invoice or, as the case may be, the payment. Explanation 2.- For the purposes of clause (b), "the date on which the supplier receives the payment" shall be the date on which the payment is entered in his books of account or the date on which the payment is credited to his bank account, whichever is earlier. Notification No. 66/2017-Central Tax New Delhi, the 15.11.2017. (E): In exercise of the powers conferred by section 148 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereafter in this notification referred to as the said Act) and in supersession of notification No. 40/2017-Central Tax, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 1254(E), dated the 13th October, 2017, except as respects things done or omitted to be done before such supersession, the Central Government, on the recommendations of the Council, hereby notifies the registered person who did not opt for the composition levy under section 10 of the said Act, other than the registered person making supply of specified actionable claims as defined in clause (102A) of section 2 of th....