2019 (4) TMI 1623 - AAR - GST

Ruling: Freight charges without consignment note not exempt from CGST/SGST under works contract

In Re: M/s. Siemens Limited

The Authority for Advance Ruling, Maharashtra, ruled that the freight charges recovered by the applicant from the customer without issuing a consignment ... Exemption from CGST/SGST - freight charges recovered by the Applicant from the customer without issuance of consignment note - applicability of rate notification entry Sr. 18 of notf.12/2017 - HELD THAT:- The First Contract includes on shore ex works supply of all equipment’s and materials. The scope of the works includes testing and supply of Cable Package required for Successful commissioning of VSC based HVDC Terminal and DC XLPE cable system. The second contract includes on shore services i.e. all Other activities like transportation, insurance and all incidental services, installation, training required to be performed for complete execution of the VSC based HVDC Terminal and DC XLPE Cable package. The scope of the work includes transportation, insurance and other incidental services. It is apparent that the First Contract cannot be executed independent of the Second Contract. There cannot be any ‘supply of goods’ without a place of supply. As the goods to be supplied under the First Contract involves movement and/or installation at the site, the place of supply shall be the location of the goods at the time when movement of the goods terminates for delivery to the recipient or moved to the site for assembly or installation refer to Section 10(1)(a)and (d) of the IGST Act, 2017). The First Contract however does not include the provision and cost of such transportation and delivery. It, therefore, does not amount to a contract for ‘supply of goods’ unless tied up with the Second Contract. The First Contract has ‘no leg’ unless supported by the Second Contract. It is no contract at all unless tied up with the Second Contract. Composite nature of the contract is clear from the facts that first Contract cannot be performed satisfactorily unless the goods have been transported and delivered to the contractee’s site. The two contracts for supply of the goods and allied services are not separately enforceable. The recipient has not contracted for ex-factory supply of materials, but for the composite supply, namely Works Contract for Supply, for 320 KV, 2X1000MW VSC based HVDC Terminals and DC XLPE Cable system. From the conjoined and harmonious reading of various clauses of first contract and second contact, it Can be safely concluded that the agreement for setting up for + 320KV, 2 X 1000MW VSC based HVDC Terminals and DC XLPE Cable system between Pugalur and North Trichur associated with HVDC Bipole link between Western region (Raigarh, Chhattisgarh) and Southern region (Pugalur, Tamil Nadu-North Trichur, Kerala) Specification No: CC-CS/698-SR2/HVDC-3249/7/G10/R International Competitive Bidding Project is a single indivisible contract. As the contract consists of two or more taxable supplies of goods and services and their combination, is a composite supply as defined u/s 2(30) of the GST Act. Exemption from CGST and SGST not available. Issues Involved:1. Eligibility for exemption from CGST on freight charges recovered without issuance of consignment note.2. Eligibility for exemption from SGST on freight charges recovered without issuance of consignment note.Issue-wise Detailed Analysis:1. Eligibility for exemption from CGST on freight charges recovered without issuance of consignment note:The applicant, a technology solutions provider, entered into a contract with a Public Sector Undertaking for the supply and service of HVDC Terminals. The contract was divided into six parts, with the applicant responsible for the 'On-shore service contract (VSC part).' This included local transportation, insurance, and other incidental services.The applicant engaged local transporters who issued consignment notes and charged GST on the freight paid. The applicant then recovered these transportation charges from the customer without issuing additional consignment notes. The applicant sought an advance ruling on whether these charges were exempt from CGST under Serial no. 18 of Notification no. 12/2017 - Central Tax Rate, which exempts services by way of transportation of goods, except those provided by a goods transportation agency (GTA) or courier agency.The applicant argued that since they did not issue consignment notes, they did not qualify as a GTA and thus should be eligible for exemption. They cited several judicial precedents and the GST Council's intent to maintain pre-GST exemptions.The Authority observed that the contract was a composite supply of goods and services, with the transportation being an integral part of the overall works contract. The contract's terms, including cross fall breach clauses, indicated that the supply of goods and transportation services were not independent but part of a single, indivisible contract. Therefore, the transportation services could not be considered separately for exemption purposes.The Authority concluded that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from CGST, as the services were part of a composite supply of works contract, taxable at 18%.2. Eligibility for exemption from SGST on freight charges recovered without issuance of consignment note:The applicant also sought a ruling on the applicability of SGST exemption under Serial no. 18 in Notification no. 12/2017 - State Tax (Rate). The arguments and facts presented were similar to those for the CGST exemption.The Authority reiterated its findings that the contract was a composite supply of works contract, with the transportation services being an integral part of the overall contract. The terms of the contract, including the cross fall breach clauses, supported the view that the supply of goods and transportation services were not independent but part of a single contract.Therefore, the Authority concluded that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from SGST, as the services were part of a composite supply of works contract, taxable at 18%.Conclusion:The Authority for Advance Ruling, Maharashtra, ruled that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from either CGST or SGST, as the services were part of a composite supply of works contract. The contract's terms and the interdependence of the supply of goods and transportation services indicated that they were not separate supplies but part of a single, indivisible contract.