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

The AAAR Gujarat dismissed the appeal concerning GST valuation of a work contract service. The authority held that the EPC contract between the parties was an indivisible lumpsum turnkey contract, rejecting the appellant's argument for contract division. The SC precedents cited by the appellant were distinguished as the contractor was contractually bound to supply both goods and services. Regarding High Sea Sale goods, the AAAR ruled that despite HSS transactions being treated as neither goods nor services supply under Schedule III of CGST Act, their value must be included in transaction value for GST calculation on work contract services since the contractor remained contractually liable for both goods and services supply.

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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.

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