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. The first contract for supply of goods (where title transfers upon invoice and dispatch) attracts GST under goods supply provisions, while the second contract for transportation, installation, and commissioning constitutes a works contract. Since property in goods transfers before the works contract commences, the goods value cannot be included in the works contract valuation. Each contract has separate time of supply and tax rates as per CGST Act 2017 provisions.

---

---

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 Agreement

1. 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.

---