2018 (12) TMI 533 - AAR - GST

Transportation Services Not Exempt from GST as Part of Works Contract

The Authority ruled that the supply of transportation services rendered by the Applicant is not exempt from the levy of GST. The transportation services ... Exemption from GST - supply of transportation services - The Applicant is engaged in the work of Supply, Laying and Terminating of 220kV U/G cables package to the recipient. - Sl. no. 18 of the Notification No. 12/2017 - Central Tax (Rate) dated 28th June, 2017 - composite supply or not - Held that:- In the present application the applicant has stated and claimed that that they are engaged in the work of supply, laying and terminating of 220 KV U/G cables package to the recipient and the engagement comprises of two separate agreements with respect to supply of goods and services - also, the applicant in their application has clearly stated that each of the contracts referred above consists of a ‘Cross Fall Breach Clause’ deeming any breach in either of the contract would be a breach of the other contract as well and would provide the recipient with an adsolute right to terminate both the contracts or claim damages. The applicant is not transporting the goods but is hiring the services of a GTA to undertake the transportation of goods by road & is claiming to be discharging GST liability under Reverse Charge Mechanism and in such a situation he is a recipient of such service and is not a supplier thereof. The first contract referred to above includes ex-works supply of all equipments and materials which includes testing and supply of cable package required for successful commissioning - the second contract consists of all other activities required to be performed for commissioning of the project which also includes transportation, insurance, etc. Thus, it is concluded that as per the first and second contracts referred above there is no doubt that both these contracts consisting of cross fall breach provisions are in the nature of ‘Composite supply of Works Contract’ which is a service & would be taxable@ 18% in terms of Sr. No. 3(11) of Notification No. 11/2017-Central tax (Rate) dated 28.06.2017 & artificial bifurcation of contracts & scope of work as claimed by the applicant to go out of the scope of correct tax liability is not legal and proper. Ruling:- The supply of transportation services, rendered by the Applicant, will not be exempt from the levy of GST in terms of Sl. no. 18 of the Notification No. 12/2017 - Central Tax (Rate) dated 28th June, 2017 Issues Involved:1. Whether the supply of transportation services rendered by the Applicant is exempt from GST under Sl. No. 18 of Notification No. 12/2017 - Central Tax (Rate) dated 28th June, 2017.Issue-Wise Detailed Analysis:1. Exemption of Transportation Services from GST:The Applicant, a manufacturer and distributor of power and control cables, sought an advance ruling on whether their transportation services are exempt from GST under Sl. No. 18 of Notification No. 12/2017 - Central Tax (Rate) dated 28th June, 2017. The relevant notification exempts services by way of transportation of goods by road, except for services provided by a Goods Transport Agency (GTA) or courier agency.Applicant's Contentions:- The Applicant argued that their transportation services should be exempt from GST as they are neither a GTA nor a courier agency.- They mentioned that they engage a GTA to transport goods and the consignment note is issued by the GTA, not by them, thus they do not qualify as a GTA.- They claimed that the transportation services are independent of other services provided under separate contracts and should be considered as distinct supplies eligible for exemption.Authority's Observations:- The Authority noted that the Applicant is not the supplier of transportation services but is hiring a GTA for transportation and discharging GST liability under Reverse Charge Mechanism (RCM). Hence, they are the recipient of the transportation service, not the supplier.- The Authority examined the two contracts: one for the supply of goods and the other for services including transportation, insurance, and other activities. Both contracts are interdependent and include a 'cross fall breach clause,' making a breach in one contract a breach in the other.- The contracts are thus considered a single composite supply of works contract service, which includes transportation as an ancillary service.Legal Precedents and Supporting Judgments:- The Authority referred to the Supreme Court judgment in the case of M/s. Indure Ltd. & Anr. vs Commercial Tax Officer & Ors., where it was held that even if there are two contracts, if they are interlinked with a cross-fall breach clause, they are to be treated as a single contract.- Similar decisions by the Maharashtra and West Bengal Authority for Advance Ruling supported the view that transportation services, when part of a composite supply, are not independently exempt from GST.Conclusion:- The Authority concluded that the supply of transportation services by the Applicant is part of a composite supply of works contract service and not an independent supply.- As a composite supply, it is subject to GST at the rate applicable to works contract services, which is 18% as per Sr. No. 3(ii) of Notification No. 11/2017 - Central Tax (Rate) dated 28th June, 2017.- Therefore, the transportation services rendered by the Applicant are not exempt from GST under Sl. No. 18 of Notification No. 12/2017 - Central Tax (Rate) dated 28th June, 2017.Order:The Authority ruled that the supply of transportation services rendered by the Applicant is not exempt from the levy of GST, answering the question in the negative.