Thermal power station equipment contract ruled composite works contract under Section 2(119) attracting 18% GST

The AAR, UP ruled that an erection, procurement and commissioning contract for thermal power station equipment constitutes a composite works contract under Section 2(119) of CGST Act, 2017. The authority held that multiple contracts linked by cross-fall breach clauses form an indivisible composite supply where goods transportation, delivery, installation and civil works are naturally bundled. The installation creates immovable property as machines are permanently embedded with no intention of dismantling. The entire project qualifies as supply of services under Schedule II entry 6(a), attracting GST at 18% under relevant rate notifications.

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Issues Involved:
1. Applicability of GST on the service of transportation of goods by road provided by the applicant under one of its contracts.
2. Determination of whether the contracts constitute a composite supply and if they qualify as a works contract under GST law.

Issue-wise Detailed Analysis:

1. Applicability of GST on Transportation Services:

The applicant, engaged in the erection, procurement, and commissioning (EPC) of thermal power plants, sought clarification on whether GST would be applicable on the services of goods transportation by road under one of its contracts. The applicant subcontracts the transportation services to third-party goods transport agencies (GTAs), which issue consignment notes and for which the applicant discharges GST under the reverse charge mechanism.

The applicant argued that since they do not issue consignment notes, they do not qualify as a GTA and thus should be exempt from GST on transportation services as per entry no. 18 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The applicant cited various judicial precedents and provisions from the Carriage by Road Act, 2007, to support their claim.

2. Composite Supply and Works Contract Determination:

The contracts awarded to the applicant were part of a single tender notification and included multiple contracts for supply and services. The contracts were linked by a 'cross fall breach clause,' meaning a breach in one contract would be considered a breach in all others. This clause indicates that the contracts are not separate but form parts of an indivisible composite works contract supply.

The authority examined whether the transportation services and other services provided by the applicant were separate contracts or part of a composite supply. The contracts involved the supply of goods and services, including inland transportation, installation, testing, and commissioning, which are naturally bundled and supplied in conjunction with each other.

Discussion and Findings:

The authority found that the contracts were part of a single EPC package for the Harduaganj power plant project. The cross fall breach clause and the nature of the contracts indicated that the supply of goods and services were inextricably linked and formed a composite supply. The contracts involved activities related to immovable property, such as installation, erection, and civil works, which qualify as a works contract under Section 2(119) of the CGST Act, 2017.

The authority concluded that the entire project assigned to the applicant is a composite supply of works contract and is liable to GST at 18% as per entry at Sr. no. 3(ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.

Ruling:

The authority ruled that GST would be applicable on the service of transportation of goods by road provided by the applicant under the said contract. The ruling is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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