2018 (11) TMI 1825 - AAR - GST

Applicant Denied GST Exemption on Freight Charges in Composite Supply Activities.

The Applicant was found not eligible for exemption from CGST/SGST on freight charges under the fifth contract, as the activities involved in the contract ... Exemption from GST or not - freight charges covered by the Applicant under the contract from Power Grid Corp India without issuance of consignment note - applicability of S. No. 18 of notification No. 12/2017 Central Tax Rates dated 28-06-2017 and the corresponding S. No. 18 of Notification No. 43/ST2 dated 30-06-2017 issued by Haryana Govt - HELD THAT:- As per the advance ruling application, the fifth contract covers in its ambit, activities such as port handing of plant and machinery, loading, inland transportation and insurance for delivery at site, insurance, unloading, storage and handling at site, installation including civil works, testing and commissioning in respect of all plant and equipment supplied under first and third contracts. Hence, it is not only transportation activities which are being provided under fifth contract, but other services also, such as port handing of plant and machinery, storage and handling at site, installation including civil works, testing and commissioning as well. All such activities are being carried out by the applicant, in connection with goods covered under first and third contract. Therefore, supply of these goods and services is required to be assessed as composite supply. From definition of “composite supply” and illustration given therein, activities being performed by the applicant under fifth contract also are naturally bundled and are being supplied in conjunction with each other, as all these set of activities, such as port handing of plant and machinery, loading, inland transportation and insurance for delivery at site, insurance, unloading, storage and handling at site, installation including civil works, testing and commissioning, are all to performed in respect of all plant and equipmetns supplied under first and third contract. Thus, GST on the activities covered vide fifth contract is required to be levied by considering them as composite supply and is required to be charged at the GST rate which the principal supply, amongst such supplies, is chargeable and exemption from GST, as being claimed by the applicant in respect of freight charges, as provided in Sr.No,18 of notification No. 12/2017 Central Tax Rates dated 28-06-2017 and the corresponding S. No. 18 of Notification No. 43/ST2 dated 30-06-2017 issued by Haryana Govt., is not applicable, because transportation is not a stand-alone activity under the said contract. Rather, even the fifth contract is also riot a stand-alone contract from the other five contracts. Issues:1. Applicability of tax exemption on transportation services provided without issuance of consignment note.2. Determination of whether the freight charges covered by the Applicant under the contract will be eligible for exemption from GST.Analysis:1. The Applicant sought a ruling on the transportation services provided under the fifth contract, which included local transportation, installation charges, and training charges. The Applicant engaged a separate GTA for transport services and raised invoices on the consignee for recovery of transportation charges.2. The judgment observed that the six contracts, including the Third Contract for goods supply and the Fifth Contract for services, were interrelated. The fifth contract involved activities beyond transportation, such as port handling, installation, testing, and commissioning, all in connection with goods supplied under other contracts. These activities were considered a composite supply under Section 2(30) of the CGST/SGST Act, 2017, as they were naturally bundled and supplied together.3. Section 8 of the CGST/SGST Act, 2017, states that in a composite supply where one supply is principal, the entire supply is treated as that principal supply. The principal supply, defined in Section 2(90), is the predominant element of the composite supply. Therefore, GST on the activities covered in the fifth contract should be levied based on the principal supply, and the exemption claimed by the Applicant for freight charges was deemed inapplicable.4. The ruling concluded that the Applicant was not eligible for exemption from CGST/SGST on freight charges under the relevant notifications, as GST applied to the composite supply activities under the fifth contract. The judgment ordered compliance with GST regulations as per Section 8 of the CGST/SGST Act, 2017.Judgment:The Applicant is not eligible for exemption from CGST/SGST on the freight charges as per the relevant notifications, as GST applies to the composite supply activities under the fifth contract. Compliance with GST regulations under Section 8 of the CGST/SGST Act, 2017, was ordered accordingly.