2022 (8) TMI 1040 - AAR - GST

Metro rail contract supplies for rolling stock design, manufacture, testing and commissioning ruled not composite supply

In Re: M/s. Hyundai Rotem Company

The AAR Karnataka ruled on GST classification for supplies under a metro rail contract involving design, manufacture, supply, testing, commissioning and ... Classification of supply - rate of GST depending upon the nature of activity performed under such cost centres - Composite supply or principal supply - independent supplies of goods and services or not - supplies made under Cost Centres D, G and H (to the extent of training services) of Contract RS-10' to DMRC - HELD THAT:- The applicant, being a successful bidder to the tender invited by Delhi Metro Rail Corporation Limited (DMRC) for design, manufacture, supply, testing, commissioning and training of 504 Standard Gauge Cars (passenger rolling stock) including training of operation & maintenance personnel and supply of spares & manuals, entered into a contract No.RS-10 dated 24.05.2013 with DMRC for the purpose of execution of the contract awarded - The applicant, to undertake the scope of work as agreed in the contract, is required to supply various goods and services to DMRC in a phased manner. The facts and circumstances brought out in the application are similar to those on which advance ruling was sought by M/s BEML, Bengaluru [2021 (4) TMI 565 - AUTHORITY FOR ADVANCE RULING, KARNATAKA]. M/s BEML had a similar contract with M/s BMRCL. It is observed that the contracts in both the cases are for supply of rolling stock, its installation/integration and testing, training the staff etc., and the cost centres in both the cases have similar schedule of activities. The Advance Ruling Authority, Karnataka had ruled that the supplies made by the applicant under cost centres form a composite supply, wherein the principal supply is the supply of intermediate cars. It is learnt that M/s BMRCL, being the aggrieved party, filed an appeal against the ruling of AAAR, Karnataka, before the Hon'ble High Court of Karnataka and no stay has not been granted. Since stay has not been granted in the said case, we are inclined to follow the observations drawn by the AAAR, Karnataka as the facts and circumstances are similar. The supplies made by all the Cost Centres of RS-10 contract of DMRC are not to be considered as 'composite supply', and hence the instant question is redundant. Issues Involved:1. Whether the supplies made under Cost Centres D, G, and H (to the extent of training services) of Contract RS-10 to DMRC are independent supplies of goods and services.2. Whether the supplies made by all the Cost Centres of RS-10 contract of DMRC are to be considered as a 'composite supply' as defined under Section 2(30) of the CGST Act, 2017.Detailed Analysis:Issue 1: Independent Supplies of Goods and ServicesThe applicant, a foreign company engaged in the manufacture, supply, testing, commissioning, and training of rolling stock, entered into a contract with DMRC for the design, manufacture, supply, testing, commissioning, and training of 504 Standard Gauge Cars, including the supply of spares and manuals. The applicant sought a ruling on whether the supplies under Cost Centres D, G, and H are independent supplies of goods and services.The applicant argued that:- Cost Centre D involves 'installation service' classified under Heading 9987 as 'installation services' with a GST rate of 18%.- Cost Centre G pertains to the supply of various spares, which are independent of other supplies and classified based on the type of spares.- Cost Centre H involves training services classified under SAC Code 999294, which includes various training services.The applicant emphasized that each cost centre has a distinct scope of work, consideration, and milestone completion dates, indicating that they are independent supplies. The applicant cited several judicial precedents and advance rulings, including the Karnataka AAAR ruling in the case of M/s BEML Limited, which concluded that supplies under different cost centres should be treated as independent supplies.Authority's Findings:The Authority for Advance Rulings, Karnataka, agreed with the applicant's interpretation. They noted that the facts and circumstances of the case were similar to those in the M/s BEML ruling, where the supplies under different cost centres were considered independent. The Authority concluded that the supplies under Cost Centres D, G, and H (to the extent of training services) are independent supplies of goods and services, with applicable GST rates depending on the nature of the activity performed.Issue 2: Composite SupplyThe applicant also sought a ruling on whether the supplies made by all the Cost Centres of RS-10 contract of DMRC should be considered a 'composite supply' as defined under Section 2(30) of the CGST Act, 2017.The applicant contended that:- The supplies under Cost Centres B and C involve offshore and indigenous manufacture of train cars, which are classified as 'goods'.- The supplies under Cost Centres D, G, and H are independent and not naturally bundled with the supplies under Cost Centres B and C.- The contract specifies distinct milestones and consideration for each cost centre, indicating separate supplies.The applicant cited various judicial precedents and advance rulings, including the Supreme Court's decision in Bharat Sanchar Nigam Limited vs Union of India, which emphasized the intention of the parties and the dominant nature test for determining composite transactions.Authority's Findings:The Authority referred to the Karnataka AAAR ruling in the case of M/s BEML, which concluded that the supplies under different cost centres are independent and not naturally bundled. The Authority agreed with the applicant's interpretation and ruled that the supplies made by all the Cost Centres of RS-10 contract of DMRC are not to be considered as 'composite supply'.Ruling:1. The supplies made under Cost Centres D, G, and H (to the extent of training services) of Contract RS-10 to DMRC are to be considered as independent supplies of goods and services, with GST rates applicable depending on the nature of the activity performed under such cost centres. This ruling is subject to the outcome of the judgment of the Hon'ble High Court of Karnataka in the appeal filed by M/s BMRCL.2. The supplies made by all the Cost Centres of RS-10 contract of DMRC are not to be considered as 'composite supply', making the second question redundant.