Construction of 800 KV HVDC terminals with transportation services classified as composite works contract attracting 18% GST under Section 7(1A)

AAR Chhattisgarh ruled that construction, erection and commissioning of 800 KV, 6000 MW HVDC terminals including transportation, insurance and freight services constitutes a composite works contract service under SAC 9954, attracting 18% GST. The tribunal held that under Section 7(1A) CGST Act 2017 read with Schedule II para 6(a), composite works contracts are treated as supply of services, eliminating need to identify principal supply. The applicant's alternative classification as business support services was rejected, and no exemption under transportation services notification was applicable.

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Issues Involved:
1. Whether the supply of services made by the Applicant under the Fifth Contract is a composite supply with the principal supply of goods under the Third Contract.
2. Whether the supply of services of transportation, freight, and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of Business Support Services and shall be chargeable to tax at specified rates.

Summary:

1. Composite Supply with Principal Supply of Goods:
The applicant, M/s Hitachi Energy India Limited, engaged in the manufacture and supply of electrical equipment, sought an advance ruling on whether the services provided under the Fifth Contract (local transportation, insurance, and other incidental services) are composite supplies with the principal supply of goods under the Third Contract. The Authority examined the contractual obligations and found that the services of transportation, insurance, and freight are not provided in isolation but are linked to the overall execution of the project, which includes the supply of goods. The Authority concluded that these services are naturally bundled with the supply of goods, making it a composite supply with the principal supply being the supply of goods.

2. Nature of Business Support Services:
The applicant also sought a ruling on whether the services under the Fifth Contract could be considered Business Support Services and thus chargeable to tax at specified rates. The Authority analyzed the scope of work under the Fifth Contract, which includes local transportation, insurance, and other incidental services. It was determined that the services provided are part of a composite works contract service, classifiable under construction services falling under SAC 9954, and attract GST at the rate of 18% (CGST @9% + CGGST @9%).

Legal Position and Analysis:
The Authority referred to Section 2(30) of the CGST Act, 2017, which defines composite supply, and concluded that the instant supply is a composite supply. The Authority also highlighted that the contracts are interconnected and indivisible, and any breach in one contract results in a breach of the Fifth Contract, indicating that the services of transportation, insurance, and freight are part of the composite supply of works contract service.

Conclusion:
The supply of services under the Fifth Contract is a composite supply of works contract, classifiable under construction services falling under SAC 9954, attracting GST at 18%. The alternate suggestion of the services being Business Support Services was not taken up for decision, as the composite supply classification was established. The ruling is applicable only to the activities undertaken within the State of Chhattisgarh.

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