2018 (8) TMI 771 - AAR - GST

Contract Management System Qualifies as Continuous Service Under GST, Invoicing Tied to Hot Metal Tonnage Performance

In Re: Vesuvius India Ltd.

The SC ruled that the Contract Management System (CMS) constitutes a continuous supply of services under GST Act. The service involves monitoring and ... Supply of goods or services - continuous supply of services or not? - time of supply - Contract Management System (CMS) - The Applicant is very clear in stating that the procedure undertaken under the proposed CMS will not involve transfer of title to the refractories used in course of the production process. Use of the refractories delivered to the customer, including application and disposal, will continue to be controlled by the Applicant. Held that:- It is clear from the description of the activities proposed to be undertaken that the Applicant supplies service associated with the manufacturing of metal, value of which is measured at an agreed rate per tonne of hot metal produced and that the Applicant manufactures refractories, which are used as inputs as defined under Section 2(59) of the GST Act. Provisioning of the service involves, inter alia, round-the-clock monitoring of the production process during the entire contract period, and continuous evaluation of the requirement of refractories, quality control, replacement and disposal of used refractories etc. Invoices are to be raised on monthly basis at an agreed rate per tonne of the hot metal manufactured during the period - It is, therefore, continuous supply of service within the meaning of Section 2(33) of the GST Act, provided the service is agreed to be provisioned for a period exceeding three months. Time of supply - Held that:- Provisioning of the service is measured on monthly basis, and the date of payment is within thirty days from end of the month. The tax invoice shall, therefore, be issued in terms of Section 31(5)(b) on or before the supplier receives the payment, and the time of supply shall be the date of issue of invoice in terms of Section13(2)(a) read with Section 31(2) of the GST Act and Rule 47 of the GST Rules. Ruling:- Activities the Applicant proposes to undertake are services associated with manufacturing of metal, and may be termed as “continuous supply of service” within the meaning of Section 2(33) of the GST Act, provided the service is agreed to be provisioned for a period exceeding three months. The time of supply shall be the date of issue of invoice in terms of Section 13(2) (a), read with Section 31(2) of the GST Act and Rule 47 of the GST Rules. Issues:1. Whether the proposed activity of Contract Management System (CMS) by the Applicant results in the supply of goods or services under the GST Act.2. Determination of the time of supply for the activity proposed under CMS.Issue 1:The Applicant, a supplier of system solutions for controlled casting of iron and steel, seeks an Advance Ruling on whether the proposed Contract Management System (CMS) constitutes a supply of goods or services under the GST Act. The CMS involves activities like Total Tundish Management (TTM), Ladle Management System (LMS), and Trough Management System (TMS), which include design, installation, monitoring, and maintenance of refractories used in the production process. The Applicant asserts that the CMS involves the provision of services associated with manufacturing metal and continuous monitoring of the production process. It is clarified that the Applicant will not transfer title to the refractories but will manage their usage. The consideration for the CMS will be based on the tonnage of hot metal produced, not the supply of refractories.Issue 2:The CMS offered by the Applicant constitutes a continuous supply of service within the definition of the GST Act, provided the service is agreed to be provisioned for a period exceeding three months. The service involves round-the-clock monitoring, quality control, and management of refractories throughout the contract period. Invoices are to be raised monthly based on the tonnage of hot metal manufactured, with payment due within thirty days from the end of the month. The time of supply for the CMS will be the date of issuing the invoice, as per the relevant sections of the GST Act and Rules. The ruling confirms that the activities proposed by the Applicant are services associated with the manufacturing of metal, constituting a continuous supply of service, with the time of supply determined by the date of invoice issuance.This ruling is valid unless declared void under the provisions of the GST Act.