Composite EPC contract and high seas sale goods remain part of GST transaction value under works contract valuation.

A lump sum turnkey EPC contract was treated as an indivisible composite arrangement because the contractor was bound to supply both goods and services, so the contract could not be split into separate supplies of imported materials and works contract services. Goods routed through a high seas sale were regarded as outside supply under Schedule III, but their value remained includible in the works contract transaction value under section 15 because of the contractual obligation to supply them. The imported materials were therefore held to form part of the composite supply and the works contract for GST purposes, and the GST valuation on that basis was sustained.

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Issues: (i) whether the lump sum EPC contract could be treated as a divisible contract so as to separate the supply of imported materials from the works contract; (ii) whether the value of goods sold on high seas sale basis could be excluded from the transaction value of the works contract and kept outside GST under Schedule III; and (iii) whether the supply of imported materials formed part of the composite supply and the works contract for GST purposes.

Issue (i): whether the lump sum EPC contract could be treated as a divisible contract so as to separate the supply of imported materials from the works contract;

Analysis: The contract was held to be a single lump sum turnkey EPC contract. The appellant was contractually bound to supply both goods and services, and the attempt to split the contract into separate supplies of goods and services was found not legally tenable.

Conclusion: The contract was not held to be divisible, and the separation of imported materials from the EPC works contract was rejected.

Issue (ii): whether the value of goods sold on high seas sale basis could be excluded from the transaction value of the works contract and kept outside GST under Schedule III;

Analysis: High seas sale was treated as neither a supply of goods nor a supply of services under Schedule III read with section 7(2) of the Central Goods and Services Tax Act, 2017. However, because the appellant remained contractually obliged to supply the goods under the EPC arrangement, their value was held to form part of the transaction value under section 15, including section 15(2)(b), for computing GST on the works contract.

Conclusion: The value of the high seas sale goods was not excluded from the works contract value and was held includible in the taxable transaction value.

Issue (iii): whether the supply of imported materials formed part of the composite supply and the works contract for GST purposes.

Analysis: The authorities below had already found that the EPC arrangement encompassed both goods and services and that the imported materials were integral to the overall contractual supply. No material was shown to displace that finding, and the reliance on contrary case law was not accepted on the facts.

Conclusion: The imported materials were held to form part of the composite supply and the works contract.

Final Conclusion: The advance ruling was affirmed, the appeal failed, and the GST treatment of the EPC arrangement, including inclusion of the imported goods value in the works contract valuation, was sustained.

Ratio Decidendi: Where a contractor is contractually obliged to supply both goods and services under a lump sum EPC contract, the contract cannot be artificially split, and the value of goods supplied as part of that obligation is includible in the transaction value for GST even if the goods are routed through a high seas sale.

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