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

The AAR Karnataka ruled on GST classification for supplies under a metro rail contract involving design, manufacture, supply, testing, commissioning and training of passenger rolling stock. The applicant had contracted with DMRC for 504 Standard Gauge Cars under contract RS-10. Following precedent from a similar BEML case involving BMRCL, the AAR determined that supplies under various cost centres do not constitute a composite supply, making the classification question redundant. The ruling followed established precedent where no stay was granted on appeal to Karnataka HC.

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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 Services

The 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 Supply

The 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.

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