Turnkey contracts for supply and installation of electrical conductors qualify as works contracts under Section 2(119), making GST payable on advances received.

AAR Gujarat ruled on GST applicability for turnkey contracts involving supply, installation, testing and commissioning of 11 KV medium voltage covered conductor. The authority determined the turnkey contract constitutes a works contract under Section 2(119) CGST Act, not a divisible contract, despite having interconnected parts. Since works contracts are treated as supply of services under Schedule II, GST is payable on advances received. Notification 66/2017-CT providing GST exemption on advances for goods supply does not apply to this works contract service.

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Issues Involved:
1. Applicability of Notification No. 66/2017-CT dated 15.11.2017 for a turnkey contract.
2. GST liability on advance received against the supply portion in a turnkey contract.
3. Classification of the contract as a divisible contract.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 66/2017-CT dated 15.11.2017 for a turnkey contract:
The applicant contended that Notification No. 66/2017-CT exempts payment of GST at the time of receipt of advances for goods. However, the authority held that the contract is a works contract as defined under Section 2(119) of the CGST Act, 2017. The contract involves supply, installation, testing, and commissioning of 11 KV Medium Voltage Covered Conductor (MVCC) with its accessories, which is a composite supply of goods and services. The notification applies only to the supply of goods, not services. Therefore, the benefit of Notification No. 66/2017-CT does not apply to the turnkey contract, which is classified as a works contract.

2. GST liability on advance received against the supply portion in a turnkey contract:
The applicant argued that no GST is payable on advances received against the supply portion due to the notification mentioned above. However, since the turnkey contract is classified as a works contract, it falls under the purview of Schedule II of the CGST Act, 2017, which treats works contracts as a supply of services. Consequently, the applicant is liable to pay GST on the advance received against the supply portion of the turnkey contract.

3. Classification of the contract as a divisible contract:
The applicant claimed that the contract is divisible into two parts: supply of plant (Part-I) and supply of installation services (Part-II). Despite the bifurcation of monetary values for goods and services, the authority concluded that the contract is indivisible. The supply of goods and their installation are interdependent and interconnected, making it a single works contract. The authority referenced the Supreme Court's judgment in M/s. Kone Elevator India Pvt. Ltd., which emphasized that a works contract is indivisible and includes both supply of goods and services. Therefore, the turnkey contract cannot be considered a divisible contract.

Ruling:
1. Notification No. 66/2017-CT dated 15.11.2017 is not applicable to the turnkey contract as it is classified as a works contract.
2. GST is payable on advance received against the supply portion of the turnkey contract.
3. The turnkey contract cannot be considered a divisible contract.

The judgment comprehensively addresses the issues raised by the applicant, emphasizing the indivisible nature of the works contract and the consequent GST implications.

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