High seas sale transactions exempt from GST but imported goods value must be included in work contract service calculations

AAR Gujarat ruled on GST applicability for high seas sale transactions between two companies under a work contract. The Authority held that high seas sale transactions fall under Schedule III of CGST Act and are neither supply of goods nor services, thus exempt from GST. However, the value of imported goods supplied on high seas sale basis must be included in the transaction value for computing GST on work contract services, as the contractor is contractually bound to supply both goods and services under the agreement.

---

---

Issues Involved:
1. Whether the transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on High Seas Sale (HSS) basis would be covered under Entry No. 8(b) of Schedule III of the CGST Act and excluded from the value of work contract service for charging GST.
2. Whether the transaction of sale of goods on high seas sale basis by the Applicant to IOCL would be treated as works contract and whether the Applicant is liable to charge GST on the goods sold on high seas sale basis to IOCL, and if yes, the applicable rate of tax.

Summary:

Issue 1:
The applicant, Tecnimont Pvt. Ltd., entered into a turnkey EPC contract with IOCL for the execution of an Acrylic Acid Unit and Butyl Acrylate Unit. The contract included both the supply of imported materials and EPC work. The applicant contended that the contract identified two separate supplies and that the sale of goods on HSS basis should be treated as neither a supply of goods nor services under Schedule III of the CGST Act, thereby exempt from GST.

The judgment clarified that the contract is a single, indivisible turnkey EPC contract and dividing it into separate supplies is not legally tenable. The supply on HSS basis is indeed covered under Entry No. 8(b) of Schedule III and is not subject to GST. However, the value of such HSS supply forms part of the transaction value under section 15 of the CGST Act for computing the value of the works contract service for charging GST. The court referenced the judgment in Kone Elevator India Private Limited and the Chhattisgarh High Court's decision in M/s. Shree Jeet Transport to support this conclusion.

Issue 2:
The applicant argued that the sale of goods on HSS basis should not be treated as part of the composite supply of works contract services and thus should not attract GST. The judgment reiterated that the contract is a composite works contract involving the transfer of property in goods and services for the execution of the project. As per Schedule II of the CGST Act, such composite supplies are treated as a supply of services and are subject to GST.

The court dismissed the applicant's argument of double taxation, referencing the Supreme Court judgment in Mohit Minerals, and clarified that the sale of imported goods on HSS basis is exempt from GST, but the value of these goods forms part of the transaction value for the works contract service.

Ruling:
1. The transaction of sale of goods by Tecnimont Pvt. Ltd. to IOCL on HSS basis is covered under Entry 8(b) of Schedule III of the CGST Act. However, the value of such HSS supply forms part of the transaction value for computing the value of works contract service for charging GST.
2. The transaction of sale of goods on HSS basis by the applicant to IOCL is covered under Entry 8(b) of Schedule III of the CGST Act, 2017, and is neither a supply of goods nor services.

---