ION Exchange India's mining support services qualify for GST under heading 9986 but EPC contracts classified as composite supply under heading 9954 at 18%

AAR Rajasthan ruled on service classification for ION Exchange India's services to Vedanta. The Authority held that operational/administrative assistance services qualify as Support Services to Mining under heading 9986 (Sr. No. 24) of Rate Notification 11/2017, attracting applicable GST rates. However, for EPC contract services involving designing, engineering, procurement, construction, and commissioning of Sulphate Removal Plant, AAR classified it as composite supply of goods and services under heading 9954, attracting 18% GST rather than mining support services classification.

---

---

Issues Involved:
1. Classification of services supplied under the EPC contract.
2. Appropriate GST rate applicable to the services provided.

Issue-wise Detailed Analysis:

1. Classification of Services Supplied Under the EPC Contract:

The applicant, engaged in water treatment and related services, entered into an EPC contract with Vedanta Limited for the construction of a Sulphate Removal Plant (SRP). The applicant sought to ascertain whether the services provided under this contract fall under "Support Services to Mining" (Heading 9986) or "Professional, Technical & Business Services to Mining" (Heading 9983) as per the Rate Notification.

The applicant contended that the services should be classified under Heading 9986 as "Support Services to Mining," arguing that the construction of the SRP is integral to the mining operations and supports the overall petroleum extraction process. They highlighted the inclusive nature of the Explanatory Notes to Heading 998621, which covers various support activities essential to petroleum operations.

Alternatively, the applicant suggested that the services could be classified under Heading 9983 as "Other Professional, Technical, and Business Services relating to exploration, mining or drilling of petroleum crude or natural gas or both," emphasizing the specialized and customized nature of the services provided.

Findings and Conclusion:

The authority examined the scope of work under the EPC contract, which included design, engineering, procurement, construction, commissioning, and handover of the SRP. It was noted that the services provided by the applicant involved creating the entire infrastructure for the SRP from scratch, which included the transfer of property in goods, making it a comprehensive works contract.

The authority concluded that the services provided under the EPC contract do not fall under the "Support Services to Mining" (Heading 9986) or "Other Professional, Technical, and Business Services" (Heading 9983) as these headings cover pure services and not comprehensive EPC contracts involving construction and transfer of immovable property.

2. Appropriate GST Rate Applicable to the Services Provided:

Given that the services provided under the EPC contract involved the construction of an immovable property (SRP), the authority examined the definition of "works contract" under Section 2(119) of the CGST Act, 2017. The contract was deemed a works contract as it involved building, construction, and commissioning of immovable property with the transfer of property in goods.

As per Section 8 of the CGST Act, the tax liability on a composite supply (which includes works contracts) is determined by the principal supply. The principal supply in this case was the works contract for the construction of the SRP.

Conclusion:

The services provided under the EPC contract were classified as a "works contract" of composite supply under Heading 9954 (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017. The applicable GST rate was determined to be 18% (9% CGST and 9% SGST).

Ruling:

1. The services provided under the EPC contract for the construction of the Sulphate Removal Plant do not fall under Sr. No. 24(ii) (Support Services to Mining) or Sr. No. 21(ia) (Professional, Technical, or Business Services to Mining) of the Rate Notification.
2. The appropriate classification for the services provided under the EPC contract is as a "works contract" of composite supply under Heading 9954 (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, attracting GST at the rate of 18% (9% CGST and 9% SGST).

---