2023 (5) TMI 964 - AAR - GST

Two separate contracts under single bidding document are independent transactions, not composite supply under CGST Act 2017

The AAR-Telangana ruled that two separate contracts under a single bidding document constitute independent transactions rather than a composite supply. ... Composite supply - principal supply - time of supply - works contract - transfer of ownership / transfer of property in goods - ex works supply - benefit of Notification No.66/2017 Central Tax, dated 15th November, 2017Ex works supply - transfer of ownership / transfer of property in goods - composite supply - works contract - time of supply - benefit of Notification No.66/2017 Central Tax, dated 15th November, 2017 - Whether GST is leviable on the initial advance (5%) and interim advance (7.5%) recovered against the ex works supply of goods under the First Contract, or tax liability arises only at the time of supply (date of invoice) under the First Contract. - HELD THAT: - The Authority found that the contractual terms create two separate and severable contracts: one for supply of goods on ex works terms and another for inland transportation, erection, installation and related services (works contract). Clause 31 of the contract effects transfer of ownership of the plant and equipment to the employer upon loading and endorsement of despatch documents, so title passes on before performance of the services under the Second Contract. Because the property in the goods supplied under the First Contract passes to the recipient at ex works, those goods are movable property and constitute a supply of goods distinct from the works contract services. The supplies are not 'naturally bundled' and can be executed independently (and could be awarded to different parties), so they do not constitute a composite supply whose principal supply would govern taxation. The definition of works contract requires transfer of property in goods during execution of the contract; where transfer occurs prior to execution of the erection/installation contract, the value of such goods cannot be included in the works contract. Applying these principles, the Authority held that the applicant is eligible for the benefit of Notification No.66/2017 Central Tax, dated 15th November, 2017, and tax liability on the sale of goods under the First Contract arises at the time of supply as specified in clause (a) of sub section (2) of section 12 of the CGST Act i.e., the date of issue of invoice (or the last date for issuance of invoice), and not on receipt of the initial or interim advances. [Paras 8, 9]The initial and interim advances are not taxable at the time of receipt; the applicant is eligible for Notification No.66/2017 and GST on the First Contract's goods is leviable at the time of supply (date of invoice) as per section 12(2)(a).Final Conclusion: The Authority ruled that the supplies under the two contracts are independent (sale of goods ex works and a separate works contract). The applicant is entitled to the benefit of Notification No.66/2017 Central Tax, dated 15th November, 2017, and GST on the goods supplied under the First Contract will arise at the time of supply (date of issue of invoice or last date for issuing invoice) and not on receipt of the initial or interim advances. Issues Involved:1. Whether GST is payable on 'initial advance' of 5% and 'interim' advance of 7.5% on Ex-works value of goods supplied under the First Contract Agreement.Summary:Issue 1: GST on Initial and Interim Advances under the First Contract Agreement1. Facts and Contracts: - The applicant, M/s. PES Engineers Private Limited, entered into two separate contracts with Singareni Collieries Company Limited (SCCL) for the supply and installation of a Fuel Gas Desulphurisation (FGD) system. - The First Contract involves the sale of goods ex-manufacture/ex-works, while the Second Contract covers services including transportation, insurance, unloading, storage, erection, civil works, and commissioning.2. Applicant's Contention: - The applicant argued that each contract should be independently assessed for GST purposes, with the First Contract being a pure sale of goods. - They claimed eligibility for the benefit of Notification No. 66/2017 Central Tax, which allows tax on goods to be paid at the time of supply (date of invoice) rather than on receipt of advance payments.3. Authority's Analysis: - The Authority examined whether the contracts should be treated as a composite supply or as separate transactions. - It was noted that the First Contract involves the supply of goods, with ownership transferring to SCCL upon loading and endorsement of dispatch documents. - The Second Contract involves works contract services, including various activities from transportation to commissioning of the supplied goods.4. Legal Provisions and Precedents: - Section 12(2)(a) of the CGST Act states that tax liability on goods arises at the time of supply, which is the date of invoice issuance. - The Authority referred to CBIC Circular No 47/21/2018-GST and various judicial precedents, including the CESTAT judgment in C.C.E. & S.T., AHMEDABAD-III Versus KALPATARU POWER TRANSMISSION LTD., to emphasize that multiple contracts can be treated separately if they are not naturally bundled.5. Conclusion: - The Authority concluded that the two contracts are independent and not naturally bundled, meaning they can be executed separately. - Therefore, the applicant is eligible for the benefit of Notification No. 66/2017 Central Tax, and the tax liability on goods supplied under the First Contract will arise at the time of supply (date of invoice) and not at the time of receiving advance payments.Ruling:- The applicant is not required to pay GST on the 'initial advance' of 5% and 'interim' advance of 7.5% on Ex-works value of goods supplied under the First Contract Agreement. The tax liability will arise at the time of supply, which is the date of issue of the invoice by the taxpayer or the last date on which the invoice is required to be issued under section 31 of the CGST Act.