TaxTMI 
TaxTMI 
2021 (9) TMI 673
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....missionerate, (herein after referred to as Appellant/Appellant Department) against the advance Ruling No. KAR/ADRG 20/2021 dated 06th April 2021. Brief Facts of the case: M/s. BEML Limited, 23/1, 4th Main, BEML Soudha, SR Nagar, Bengaluru 560027 having GSTIN number-29AAACB8433DIZU (hereinafter referred to as "Respondent Company") have entered into a contract with M/s BMRCL for the manufacture and supply of Standard Gauge Intermediate Cars. The activity of manufacture and supply of Standard Gauge Intermediate Cars involves the supply of both goods and services which is undertaken by Cost Centres A to H. The nature of supply undertaken by each of the Cost Centres of the Respondent Company is as under: Cost Centers Schedule of Activity A. Preliminaries & General Requirements for Rolling Stock including 'Design' which is incidental to supply of rolling Stock B. Delivery and receipt of offshore manufacturing C. Delivery and receipt of indigenous manufacturing D. Commissioning and Acceptance of trains/ cars in Depot E. Taking over of unit/train for revenue services F. Deleted G. Supply of Unit Exchange spares, mandatory spares and consumable spares and special tools tes....
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....st Centre G, it is agreed that the contract price shall be inclusive of Basic Customs Duty, CVD and SAD on imported finished spares. The VAT and GST component as applicable shall be paid by BMRCL as charged by the Respondent Company. Whereas for indigenous spares, the contract price shall be inclusive of excise duty and CST on indigenous finished spares and VAT and GST as applicable is required to be separately paid by BMRCL to the Respondent Company. 6. The value/cost of the supplies specific to each Cost Centres are separately stipulated in the Contract and milestones have been identified for raising of invoices for individual supplies. The Respondent Company is raising separate invoices based on the nature of transactions mentioned in different Cost Centres and accordingly charging GST on separate supplies. The Respondent Company is at present levying tax @ 12% on the supply of Standard Gauge Intermediate Cars and 18% on other supply of services as supplied by the respective Cost Centre. The table below indicates the treatment of different supplies as goods or services and the details of tax charged by the Respondent Company for such supplies made through their different Cost C....
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....r the entire Contract considering supplies made by Cost Centre C as principal supply? 9. The respondent company submitted before the Authority for Advance Ruling that the supply of goods and services from each cost centre should be treated as independent supplies for the reason that the contract categorically stipulates that the scope of each of the cost centres are independent of each other and the obligations and responsibilities of each of the Cost Centres should be based on their independent scope of works. They submitted that the supplies relatable to Cost Centre A are incidental to supplies made by Cost Centre C; that the activities undertaken by Cost Centre C clearly falls in the ambit of supply of goods. They submitted that Cost Centre D is involved primarily in the activity of commissioning and installation of the metro rails; that the supply made by Cost Centre D is a supply of service as covered under the definition of 'service' under section 2(102) of the CGST Act. The Cost Centre E undertakes the activity of rectifying the defects observed during trial runs and submission of related documentations in relations thereto; that the scope of supply by Cost Centre E....
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....that they have gone by the terms of agreement and billed M/s. BMRCL precisely as per the terms of the agreement. It is only in June,2019, M/s. BMRCL contested that supply as a whole was a Composite supply and lesser rate of GST are applicable. 11.2. The Appellant submitted that each and every transaction should be viewed as a separate transaction, though it may be part of larger contract; that each contract or agreement is unique and any analysis should be made within the framework of the agreement taking into account the facts and figures. They submitted that the AAR has not taken into account scope of the terms and conditions of the agreement for any analysis and has given findings which are contrary to the agreed terms and conditions; that the goods/services delivered need to be assessed on merits and appropriate classification needs to be done and merit rate of tax to be paid; that even in the absence of any written agreement or contract or MOU, the goods/services/goods and services should be assessed as they are presented at the time of supply/delivery. 11.3. The Appellant submitted that there was no way that M/s. BEML and M/s. BMRCL could have gone back on the mutually agre....
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....ermined on a case to case basis looking at the facts and circumstances of each case. Where a supply involves supply of both goods and services and the value of such goods and services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods and services separately. Thus, it is clear that as long as value of goods and services are shown separately, the goods and services would be liable to tax at the rate as applicable to such goods and services separately. In the instant case, the agreement in question has clear and categorical bifurcation of supply of goods and supply of services, castings prepared based on Bill of Material/Man-hours and other accepted norms of costing, separate rates of taxes as applicable, separate obligations and responsibility, milestones to each Cost Centre mutually agreed by both the parties. Therefore, the supplies are to be classified, assessed and applicable taxes are to be paid on merits and not by treating the contract as merely composite supply, when facts and figures contrary to such a view are on record. 11.6. The Appellant also submitted that the CBIC vide Circular No. 3418/2018-GST dated....
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....nces unique to the case on hand. 11.8. The Appellant submitted that, the crucial fact that the contract categorically stipulates that the scope of each of the cost centers are independent of each other and the obligations and responsibilities of each of the Cost Centers should be based on their independent scope of works is not taken into account while giving Advance Ruling. The Appellant submitted that the AAR relied on para 6 of the Attachment B wherein it is mentioned that - "this contract is divided into various activities as detailed in Annexure FB-2 of the pricing document and the activities are conveniently named to enable cash flows to the contractor according to the several phases involved in the supply of the intermediate cars in terms of this contract", and accordingly held that since the agreement itself states that the milestones are only artificial creations to enable cash flows to the Respondent, this is treated as a naturally bundled supply with the supply of intermediate cars; that, the AAR failed to appreciate the factual position that the Respondent Company being a PSU, would have not created Cost Centers A, B, C, to H artificially and brought out detailed scope....
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....e supply as per terms of contract, the finding that supply from Cost Centre C to G is naturally bundled supply appears to be not correct, as supplies may take place or may not take place. The disclosure of the Respondent Company that the bundling of supply is not relevant in the facts of the present case as the interdependence of each transaction is absent is ignored by the AAR without examining facts and circumstances of the case, borne out from the documentary evidences. 11.11. The Appellant submitted that the AAR finds the Contract as a whole as a single contract for supply of 'Supply of 150 Nos. Standard Gauge Intermediate cars as per the requirements of BMRCL compatible with and suitable for integration with existing trains of Bangalore Metro rail Project Phase I; that in para 28.1 of the AAR order, the Authority has recorded that the contract is a single contract for both supply of goods and also for services related to those goods supplied, like installation, integration, commissioning, training and maintenance; that splitting of the entire contract is for the purposes of milestones in the completion of the contract and is a single continuous chain; that the Contract ag....
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....eir Advocates Shri. Ravi Raghavan and Shri. Mohammed Ibrahim. The Assistant Commissioner of Central Taxes representing the Appellant stated that the Department is aggrieved by the ruling given by the lower Authority holding that the supplies made from Cost Centres C, D, E and G are in the nature of composite supply with the principal supply being the supply of goods and the rate of tax as applicable to the supply of goods will apply. The Appellant pointed out that as per the terms of the contract, the activity undertaken by each cost centre is independent of each other and the respondent and their client (Ms BMRCL) were operating under this understanding till June 2019. It was only post June 2019 that the Respondent has changed their stand and sought for an advance ruling on the nature of supply. The Appellant submitted that the Advance Ruling Authority failed to consider the terms of the contract and erred in holding that the supplies made by Cost Centres C, D, E and G is a composite supply with the principal supply being the supply of goods. The Appellant reiterated the grounds of appeals and requested that the same may be taken on record and appeal of the Department may be allow....
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....dent filed detailed written submissions and requested that the same be taken on record and pleaded that the appeal filed by the Department may not be allowed. DISCUSSION & FINDINGS: 14. We have gone through the records of the case. This is an appeal filed by the Department against the ruling given by the Authority for Advance Ruling in the case of M/s. BEML Ltd. We have considered the submissions made by the Appellant in their grounds of appeal and at the time of personal hearing. We have also heard the Respondent Company and gone through the written submissions filed by them. 15. The Respondent Company entered into a contract with M/s BMRCL for supply of 150 numbers of Standard Gauge Intermediate Cars which are to be integrated into the existing 3-car trains of Bangalore Metro Rail Project Phase I which have been procured under Contract No 2 RS-DM. We have perused the contract No 3 RS-DM dated 25-03-2017 entered into between M/s BMRCL and M/s BEML Ltd. The contract also places on M/s BEML Ltd the obligation and responsibility of commissioning and installation of the cars, attending to the defects/deficiencies observed during the integration test and joint inspection, providing ....
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.... reimbursed by M/s BMRCL to M/s BHEL as invoiced by the latter. The contract which was executed in March 2017, also makes provision for the future implementation of GST and it provides for reimbursement of applicable GST as invoiced by Ms BEML. In the case of spares supplied by Cost Centre G, the contract price is inclusive of Basic Customs Duty and CVD and SAD (in the case of imported spares) and Excise duty and CST (in the case of indigenous spares) but does not include VAT which shall be reimbursed to M/s BEML as and when invoiced. Even for Cost Centre G, the contract has made a provision for the future implementation of GST and it states that applicable GST will be reimbursed as invoiced by M/s BEML. Payment for supplies made from Cost Centre G will be on the basis of actual supplies made. In the case of the contract price for Cost Centre H, the same is exclusive of service tax. This Cost Centre H is optional and shall be operated based on the requirement of M/s BMRCL. 18. In this proceeding before us we are concerned only with the activities undertaken by Cost Centres C, D, E and G and we will restrict our discussions to only these Cost Centres. As admitted by the Respondent,....
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.... a composite supply and supply of goods is a principal supply; From the above definition, it is evident that the primary elements of the composite supply under Section 2(30) of the CGST Act, 2017 are: (a) There should be two or more taxable supplies, (b) The taxable supplies should be naturally bundled, (c) They should be supplied in conjunction with each other in ordinary course of business. (d) One of the supplies should be a principal supply. 21. In the instant case, there is no doubt that there are multiple supplies of both goods and services being undertaken as part of this contract. While the supply from Cost Centre C is a supply of goods i.e the Standard Gauge Intermediate Cars, the supply by Cost Centre D is primarily a service of commissioning and installation of the Cars supplied by Cost Centre C. Similarly, the supply from Cost Centre E is a service of joint inspection and completion of defects/deficiencies observed during integration test and joint inspection. The supply of spares from Cost Centre G is purely a supply of goods. We find that there is no dispute on the nature of supply by each of the above-mentioned Cost Centres. The bone of contention is whethe....
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....est track along with integrated testing and commissioning at the depot. The amount apportioned towards this supply is Rs. 1,47,62,244/-. If there are any defects/deficiencies observed during main line type test and integration test or joint inspection of the 1st 3-car unit forming 3-car to 6 car train, the same will be attended to by Cost Centre E along with any other minor outstanding works, within a period of 78 weeks from the commencement date. The amount apportioned for this supply from Cost Centre E is Rs. 36,90,561/-. Therefore, each supply by the Cost Centers C, D, E and G is clearly identifiable at the time of raising the invoice as to whether it is a supply of goods or a supply of service and the cost attributable to each supply is predetermined and laid down in the Pricing document which is part of the Contract. As such we agree with the Appellant's contention that each transaction by the individual Cost Centers are to be assessed independently according to the nature of supply. 23. The lower Authority has erred in interpreting the creation of cost centres as per the contract as artificial creations to enable cash flow. When interpreting the nature of a contract, the....