2025 (4) TMI 415 - AAR - GST

Composite works contract service attracts 18% GST despite transportation elements under SAC 9954 classification

In Re: M/s. Hitachi Energy India Limited

In Re: M/s. Hitachi Energy India Limited - TMI ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the supply of services made by the Applicant under the Fifth Contract constitutes a composite supply with the principal supply of goods under the Third Contract.2. Whether the supply of services of transportation, freight, and insurance under the Fifth Contract, provided for the goods supplied by the Applicant, is in the nature of Business Support Services and shall be chargeable to tax at specified rates.ISSUE-WISE DETAILED ANALYSIS1. Composite Supply under the Fifth Contract- Relevant Legal Framework and Precedents: The analysis hinges on the definition of 'composite supply' as per Section 2(30) of the CGST Act, 2017, which refers to a supply consisting of two or more taxable supplies naturally bundled and supplied in conjunction with each other, one of which is a principal supply.- Court's Interpretation and Reasoning: The Court noted that the services provided under the Fifth Contract are not isolated but are part of an integrated project involving multiple contracts. The contracts are interlinked through a cross-fall breach clause, indicating that a breach in one contract affects the others.- Key Evidence and Findings: The contracts were split into five segments, each with specific roles and responsibilities. The Fifth Contract involved services such as local transportation, insurance, and other incidental services, which were essential for the completion of the project.- Application of Law to Facts: The Court applied the definition of composite supply to the facts, concluding that the services under the Fifth Contract are bundled with the supply of goods and other services necessary for the project's execution.- Treatment of Competing Arguments: The Applicant argued that the services should be considered separately, but the Court found that the interdependency of the contracts and the nature of the services provided supported a composite supply classification.- Conclusions: The services under the Fifth Contract are part of a composite supply, with the principal supply being the works contract.2. Nature of Services under the Fifth Contract- Relevant Legal Framework and Precedents: The Court examined whether the services fall under 'Business Support Services' or are part of a 'Works Contract' as defined under Section 2(119) of the CGST Act, 2017.- Court's Interpretation and Reasoning: The Court emphasized that the services are integral to the execution of the works contract, which involves the construction and commissioning of immovable property.- Key Evidence and Findings: The contracts included provisions for local transportation, insurance, and installation services, all necessary for the project's completion.- Application of Law to Facts: The Court determined that the services are not merely supportive but are essential components of the works contract, thereby classifying them as part of the works contract service.- Treatment of Competing Arguments: The Applicant's suggestion that the services could be classified as Business Support Services was rejected, as the Court found them to be part of the works contract.- Conclusions: The services under the Fifth Contract are classified as works contract services and are chargeable under GST at 18%.SIGNIFICANT HOLDINGS- Core Principles Established: The judgment establishes that services integral to the execution of a works contract, even if provided under separate contracts, are to be treated as part of the composite supply of the works contract.- Final Determinations on Each Issue: The supply of services under the Fifth Contract is a composite supply of service under a works contract. The services of transportation, freight, and insurance are part of the works contract service and are taxable under GST at 18%.RULING1. The supply of services made by the Applicant under the Fifth Contract is a composite supply of service under a 'Works Contract.'2. The supply of service of transportation, freight, and insurance under the Fifth Contract provided for the goods supplied by the Applicant is in the nature of 'Works Contract' Service and shall be chargeable to taxes under GST at 18% (CGST-9% + SGST-9%).