2018 (5) TMI 964 - AAR - GST

GST Ruling: Works Contract Services Taxable at 18% including Materials, Freight, Transportation

The ruling concluded that the Applicant provided works contract services, with freight and transportation being components of the composite supply. GST ... Composite supply - works contract service - single source responsibility - place of supply for goods delivered for installation or assembly - value of composite supply to be aggregated - exemption for transportation services by entities other than GTAExemption for transportation services by entities other than GTA - recipient of service - Whether the Applicant's freight and related charges qualify for exemption as transportation services provided by an entity other than a GTA. - HELD THAT: - The Authority found that the Applicant does not itself perform the transportation or insurance services but hires third party transport and insurance providers and pays GST to them. Consequently, the Applicant is the recipient of those services and not the supplier. The exemption referenced in the Exemption Notification for transportation services by entities other than a GTA therefore does not render the Applicant's freight component a separately exempt supply in the present contractual arrangement. [Paras 5]The exemption for transportation by entities other than GTA is not available to the Applicant because he is the recipient of hired transport/insurance services and not their supplier.Place of supply for goods delivered for installation or assembly - composite supply - Whether the First Contract (ex works supply of goods) can be treated as an independent supply of goods for taxation purposes. - HELD THAT: - The Authority observed that goods supplied under the First Contract require movement to, and installation at, the contractee's site; under the statutory place of supply rules the relevant location is where movement terminates for delivery or where goods are moved for assembly/installation. The First Contract omits transportation and delivery, and therefore cannot stand independently of the Second Contract which provides those services. The First Contract thus lacks an independent character unless tied to the Second Contract. [Paras 9]The First Contract is not an independent supply of goods for tax purposes because performance requires transportation and installation covered by the Second Contract.Single source responsibility - composite supply - works contract service - value of composite supply to be aggregated - Whether the two contract documents constitute an indivisible composite works contract and the tax treatment of the freight and allied charges. - HELD THAT: - The contracts contain cross default / cross fall breach clauses and express that both agreements are to be construed as a single source responsibility contract. The Authority held that supply of materials, transportation, in transit insurance, erection, testing and commissioning are parts of an indivisible composite works contract (works contract service) as defined in the GST law. Accordingly, price components of both contracts, including freight and allied charges, must be aggregated to determine the value of the composite supply and taxed as a single supply. Reliance was placed on the contractual linkage and the definition of composite/works contract service to treat the entire package as taxable together. [Paras 10, 11, 12, 13]The two contracts form an indivisible composite works contract with single source responsibility; freight and allied charges are components of that composite supply and must be aggregated and taxed accordingly.Final Conclusion: The Authority ruled that the Applicant supplies a composite works contract service; the freight, transportation and allied charges are components of that composite supply and not separately exempt, and GST is payable at the applicable rate (18%) on the aggregated value of the composite supply. Issues:1. Tax liability on freight bills for transportation services provided as part of tower package contracts.Analysis:The Applicant, a supplier of materials and services for tower packages, sought a ruling on the tax liability of freight bills for transportation services provided under contracts with a corporation. The Applicant claimed exemption under Notification No. 9/2017 for transportation services, arguing that as a non-GTA, the services were exempt. However, it was clarified that the exemption notification under the IGST Act should be contract-specific for inter-state supplies, and the West Bengal Authority for Advance Ruling lacked jurisdiction for inter-state matters. Therefore, reference was made to analogous notifications under the GST Acts, specifically Notification No. 12/2017.The Exemption Notification exempts transportation services by road, excluding those by a GTA. The Applicant was not transporting goods but hiring a transport agency, making them the recipient, not the supplier, of transportation services. The ruling emphasized that the consideration payable under the contracts needed to be examined to determine the taxability of transportation and ancillary services included in the freight bills.The contracts comprised two parts: the First Contract for material supply and the Second Contract for additional services like transportation, erection of towers, and testing. The ruling highlighted the interdependence of the contracts, stating that the First Contract could not stand alone without the Second Contract. The contracts were deemed a single source responsibility contract, with breach in one considered a breach in the other. The composite nature of the contracts was evident, with the supply of goods and allied services forming an indivisible works contract supply.Consequently, the ruling concluded that the Applicant provided works contract services, with freight and transportation being components of the composite supply. GST was to be paid at 18% on the entire value of the works contract service, including materials, freight, transportation, erection, and commissioning. The ruling was subject to the provisions under Section 103 of the GST Act unless declared void under Section 104(1).This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the ruling's rationale regarding the tax liability on freight bills for transportation services within the tower package contracts.