2022 (2) TMI 1045 - AAR - GST

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%

In Re: M/s Ion Exchange India Limited,

AAR Rajasthan ruled on service classification for ION Exchange India's services to Vedanta. The Authority held that operational/administrative assistance ... Classification of services - whether the services supplied by the Applicant to Vedanta qualify as Support Services to Mining (Sr. No. 24) or Professional, Technical or Business Services to Mining (Sr. No. 21) under the Rate Notification? - services rendered by M/s. ION Exchange India to M/s. Vedanta appears to be classifiable under Heading 9983 or not - N/N. 20/2019-Central Tax(Rate) dated 30.09.2019 - HELD THAT:- Since services are in the nature of operational or administrative assistance provided by the applicant to Vedanta, it aptly merit classification as “Support-services to mining” as per heading 9986 of the Sr. No. 24 (ii) Rate notification No. 11/2017 central tax (Rate) dated 28/06/2017 (as amended). The applicant further contended that alternatively the supply of services by them should be classified as other professional, Technical and Business services relating to exploration, mining or drilling of petroleum crude or natural gas or Both under Heading 9983 of Sr. No. 21 (ia) of the Rate notification No. 11/2017 Central tax (Rate) dated 28/06/2017 (as amended). Whether the supply to be made by the applicant under the EPC contract awarded to them would be classified as Support services to mining or other Professional, Technical & Business services relating to exploration, mining or drilling of Petroleum Crude or Natural Gas or Both or otherwise in any other service? - HELD THAT:- Support Services shall include the services to be provided for exploration, once the infrastructure/facility for exploration is built & complete in all respect and ready to start exploration. But it does not include the services to be provided before creating the infrastructure/facility. Under the EPC contract the applicant has to undertake activities from Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested & commissioned. Thus it cannot be treated as support services to oil & gas extraction. The applicant has to undertake the Designing, Engineering, Procurement, construction of customised facility, commissioning of permanent facility, Test run and hand over of complete facility so designed, constructed, tested & commissioned. Thus it cannot be classified as other professional. Technical and Business services relating to exploration, mining or drilling of petroleum crude or natural gas or Both - the services provided by the applicant neither fall under “Support services to exploration, mining or drilling of Petroleum crude or natural gas or other professional, technical and business services relating to exploration, mining or drilling of Petroleum crude or natural gas or Both. The services provided under EPC contract awarded to the applicant by M/S Vedanta for setting up of a 'Sulphate Removal Plant' broadly ranging from designing, engineering, Surveys, procurement, fabrication, manufacturing, erection & installation, facilities construction, Pre commissioning & Commissioning, training etc. and satisfactory hand over of complete 'Sulphate Removal Plant' as per contract, it is a “work contract” of composite supply. The composite supply is a mixed of goods & services and would be taxed accordingly under S. No. 3 Heading 9954 (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 and GST @ 18 % is payable. 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).