2025 (3) TMI 310 - AAAR - GST

EPC contractor cannot split indivisible lumpsum turnkey contract for GST valuation purposes despite High Sea Sale goods inclusion

In Re: M/s. Tecnimont Private Limited.

The AAAR Gujarat dismissed the appeal concerning GST valuation of a work contract service. The authority held that the EPC contract between the parties ... Valuation of work contract service for charging GST - transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on High Seas Sale basis in terms of Contract No. 44AC9100-EPCC-1 would be covered under Entry No. 8(b) of Schedule III of the CGST Act or not. Divisible contract or not - HELD THAT:- The GAAR vide its impugned ruling dated 5.1.2024 after dwelling into what is a works contract in terms of section 2(119), ibid, and further relying on the judgement of Kone Elevator India Private Limited [2014 (5) TMI 265 - SUPREME COURT (LB)] held that [i] works contract for EPC work pertaining to EPCC-1 project; & [ii] supply of imported materials for the said project, is a lumpsum turnkey EPC contract & hence division of a turnkey EPC contract into two parts, is legally not tenable. The reliance of the appellant on the judgement of BSNL [2006 (3) TMI 1 - SUPREME COURT] and Gannon Dunkerley & Co., [1958 (4) TMI 42 - SUPREME COURT], to aver that it is a divisible contract is not tenable owing to the fact that in terms of the contract the applicant was contractually bound/liable to supply both the goods and services. Levy of tax on that part of the goods which are sold on HSS basis - HELD THAT:- In terms of Schedule III, read with section 7 (2) of the CGST Act, 2017, supply on High Sea Sale basis, is treated as neither a supply of goods nor a supply of services. It is found that the impugned ruling clearly states that the EPC contract encompasses both the supply of goods and services and that in terms of the contract, the appellant is liable to provide the goods [supplied on HSS basis]. Therefore, the submission that the value is not to be included in the transaction value in respect of works contract service is legally not tenable more so since as is already mentioned, the applicant is contractually bound/liable to supply both the goods and the services. The averments even otherwise, stand answered in paragraph 34 of the impugned ruling. Hence, the finding that in terms of section 15, ibid, the value of such imported goods invariably forms an integral part of the Transaction value, agreed upon. Thus, the averment that the GAAR had mis-interpreted the provisions of section 15 (2) (b) of the CGST Act, 2017 is not a plausible argument. Conclusion - i) The value of goods sold on HSS basis should be included in the transaction value for GST calculation. ii) The sale of goods on HSS basis was determined to be neither a supply of goods nor services under the CGST Act. Appeal dismissed. The Appellate Authority for Advance Ruling in Gujarat considered the case of M/s. Tecnimont Private Limited, a subsidiary of Tecnimont S.P.A. Milan, Italy, regarding the tax implications of a turnkey contract with Indian Oil Corporation Ltd (IOCL) for the execution of EPC work. The key issues presented and considered in the judgment are as follows:1. Issues Presented and Considered:- Whether the sale of goods on a High Seas Sale (HSS) basis should be included in the value of the works contract service for GST purposes.- Whether the sale of goods on HSS basis should be treated as a works contract and subject to GST.- Whether the contract is divisible, and if so, how the value of imported goods should be treated for GST purposes.2. Issue-Wise Detailed Analysis:- The GAAR found that the contract was a lump sum turnkey EPC contract and that dividing it into separate parts was not legally tenable.- The GAAR determined that supply on HSS basis is neither a supply of goods nor services under the CGST Act, and thus, no GST should be levied on such supply.- The GAAR held that the imported goods supplied on HSS basis were part of the EPC contract and should be included in the transaction value for GST payment.- The GAAR referenced a case from the Chhattisgarh High Court to support the inclusion of free supplies in the transaction value for GST purposes.- The GAAR rejected the appellant's argument that the contract was divisible and that the sale of goods on HSS basis should not be part of the works contract.3. Significant Holdings:- The Appellate Authority upheld the ruling that the value of goods sold on HSS basis should be included in the transaction value for GST calculation.- The sale of goods on HSS basis was determined to be neither a supply of goods nor services under the CGST Act.- The appeal by M/s. Tecnimont Private Limited against the Advance Ruling was rejected.In conclusion, the Appellate Authority affirmed the ruling that the sale of goods on HSS basis should be considered in the transaction value for GST purposes, and the appeal by M/s. Tecnimont Private Limited was dismissed.