TaxTMI 
TaxTMI 
2021 (12) TMI 886
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....r entities. The applicant got the order from M/s Raichur Power Corporation Limited (herein after referred to as 'RPCL'), on winning the tender, for setting up of Wet Limestone Flue Gas Desulphurisation (referred as FGD) and operation & maintenance of the said plant. The applicant stated that they have initiated the work for setting up of the FGD plant; received the mobilization advances from M/s RPCL & discharged GST @ 12% on the said advances. In view of this the applicant sought advance ruling in respect of the following questions. a) Whether the combined service of setting up of Wet Limestone FGD plant and operation & maintenance be considered as a composite supply? b) If answer to question (a) above is yes then, whether the supply provided by the applicant is a composite supply of works contract as per Section 2(30) and Section 2(119) of CGST Act, 2017 and what would be the principal supply? c) If the supply is considered as a composite supply of works contract services, whether the said supply to be provided by the applicant would fall under the entry no.3(iv)(e) of the Notification No.11/ 2017-Central Tax (Rate) dated 28.06.2017, as amended time to ....
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....ded to the year 2024. 3.5 M/s RPCL has set up the thermal power project after 01.01.2017. The applicant was awarded the LOA by M/s RPCL on 14.08.2020, after the submission of the bid documents. The term of payment is given in para 5.0 of the letter dated 14.08.2020. The applicant has received ten percent of initial advance of contract price and paid the GST at 12%. 3.6 M/s RPCL is already operating the thermal power project located at Yeramarus, Raichur District, Karnataka State. They have vacant land adjacent to the thermal power plant operated by M/s RPCL. The proposed system i.e. Wet Limestone FGD plant is to be installed at land adjacent to existing plant. The drawings giving the location of the existing thermal power plant and the proposed FGD system are also furnished. 3.7 The process of setting up of the Wet Limestone FGD plant can be described in the following steps: i. Ducting system : The ducts, made of carbon steel, are used for transferring flue gas from existing chimney to the absorber. Further, to maintain the flue gas pressure, booster fans are installed to develop the required pressure for transferring flue gas. ii. Absorber : Absorber is ....
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....ion document-Section-9.0. The relevant paragraph is reproduced below: 9.1.0 Scope - Operation & Maintenance 5.0 The brief scope of work is as indicated below. The details shall be further elaborated by the bidder in the O&M manual to be submitted to Owner for approval. Items though not specifically mentioned but needed for continuous operation & maintenance of entire FGD plant to meet the intent of specification, shall be deemed to be included in scope of work of Contractor. The scope shall include all supply of spares and consumables and services indicated but not limited to the following: a) Ensuring successful operation of FGD plant in three shifts for required SO2 reduction efficiency with optimum energy and limestone consumption and producing good quality of gypsum. Further, maintenance of the entire FGD plant by appointing experienced service engineers, supervisors, operators and technicians round the clock is covered in the scope of Contractor. b) Carrying out necessary Preventive maintenance and Breakdown maintenance, overhauls, furnishing technical assistance from experts & arranging visit of O&M experts to site from time to time (as & w....
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....Supply is naturally bundled. c) Supply in conjunction with each other in ordinary course of business. d) One of the supply is Principal Supply. a. Two or more taxable supply of goods or services or any combination thereof: The setting up of plant requires supply of various items lime mist eliminator, pipe racks, multistage vacuum pumps, wastewater tank and pump, cable racks, nozzles etc., and services of installation and commissioning. The operation and maintenance of the plant inter-alia includes the activities like operation of plant, maintenance to keep the plant in running condition, supply of spares and consumables etc. Thus, both goods and services shall be supplied by the applicant. Hence the first criteria is satisfied. b. Supply is naturally bundled: Both the supply of setting up of plant and operation & maintenance are naturally bundled, as will be evident from notification of Ministry of Environment as given in bid document itself that the purpose of setting up of the plant is to achieve the emission norms for discharge of gas. The combined supply mainly setting up of plant and operation of plant can achieve the above objective. The operatio....
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....generated which is major air pollutant and has significant impacts upon human health. In order to control air pollution by way of reducing emission of various gases like Sulphur dioxide, Mercury, Nitrogen oxide which coming out of the coal based thermal power plant, the Ministry of Environment, Forest and Climate change had issued Notification No. S.O.3305 which laid down the emission limit of above gases for the thermal power plant. The emission limit given in the notification is reproduced in "Statement of Facts" above. ii. It is submitted that for reducing the emission of above gases, FGD techniques are used by operator of Thermal Power plants. The functioning of the FGD plant is given below. a) In order to control air pollution, FGD plants are set up in the existing system to minimize the level of pollutants present in the flue gas con-ling out of the Chimney. b) Flue gas containing above said gases will be tapped from the existing chimney and conveyed through rectangular ducts to the treatment unit i.e. Absorber. c) Lime slurry prepared from the Ball mills and agitators will be conveyed through pipelines to the absorber with high pressure th....
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....", it is necessary that manufacturing process should be carried on in any part of the said premises. ii. Meaning of the term "Manufacturing process": It is submitted that the term "Manufacturing process" is not defined in the CGST Act but the Hon'ble Supreme Court had discussed the said term on many occasions. In the case of Collector of Central Excise, Jaipur Vs. Rajasthan State Chemical Works, Deedwana, Rajasthan and other [(1991) 4 SCC 473], this court adverted to the meaning of process as well as manufacture. The relevant extract of judgment is reproduced below: "12. Manufacture implies a change, but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or....
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....cture' is generally understood to mean as bringing into existence a new substance. It does not mean merely to produce some change in a substance. Further, the word 'process' is a mode of treatment of certain materials in order to produce a good result. Thus, with combined reading of above the term manufacturing process means cumulative effect of the various processes through which completely a new and distinct product emerges. iii. The word 'manufacture' has been defined in Section 2(72) of the CGST Act as follows: (72) "manufacture" means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term "manufacturer" shall be construed accordingly. It is evident from the said definition that the process shall result in new product having distinct name, characteristics, and use. The process carried out for generating the electricity is as follows: A typical Thermal Power Station operates on a Cycle which is shown below: Where T' stands for Turbine 'C' stands for Condenser 'P' stands for pump B' stands for Boiler i. The working fluid is water and steam.....
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....d? Burning of coal for purposes of producing steam cannot be said to be a manufacturing activity. Therefore, neither ash nor cinder can be said to be products of a manufacturing process. From burning coal when you get either cinder or ash, it cannot be said that a new product has emerged. ....... Thus, it is evident from above that the process of generation of the thermal power by the YTPS is not a manufacturing process. Accordingly, the said plant cannot be termed as 'factory'. Further, since the FGD plant is going to be a part of said YTPS plant only. Therefore, it will be considered that FGD plant is not located as a part of the factory. 4.3 Therefore, in view of the above submissions it is submitted that the services to be provided by the applicant will fall under Sl.No.3(iv)(e) of Notification No.11/2017-CT (R) and accordingly, the rate of GST will be 12%. 5. JURISDICTIONAL OFFICER'S COMMENTS: The Assistant Commissioner of Central Tax, Division-5, Bengaluru East Commissionerate, Bengaluru, being the jurisdictional Assistant Commissioner have furnished their views/comments, question wise, on the questions raised by the applicant, vide their letter dated 06.09.2021, ....
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.....3.4 payment schedule for O&M of FGD system is on invoice basis raised monthly. Hence it is evident that the contract itself has separated the payment for O&M activity based on the monthly invoice from the construction activity. One indicator, not determinative but indicative of bundling of activities in the ordinary courses of business is that there is a single price, or the customer pays the same amount, no matter how much package they receive or use. However as per the Payment Clause, the amount will vary depending on the number of month of operation. Further the bid document specified O&M for 10 years however, the final contract awarded for O&M is for 3 years only. Other indicators like the different elements are not available separately is also not applicable to instant case as separate contracts for civil, structural and architectural works and O&M are separately floated by similar companies like BHEL, NTPC etc., Further, whether the different elements are integral to one overall supply i.e. if one or more are removed, the nature of the supply would be effected is also not applicable to the instant application as discussed above. The definition of mixed supply rev....
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.... given in other supply like goods, civil work mentioned above. It is also admitted that the amount will vary month to month. Therefore it is submitted that the condition of single price has not been satisfied. ii. Composite Supply: The applicant, in "Applicant's interpretation" has elaborately submitted that the supply is a composite supply as defined in Section 2 (30) of the CGST Act, 2017. The principle supply is setting up of FGD plant. No submission has been made by the Assistant Commissioner against the said submission of the applicant. Thus it is submitted that the supply made by the applicant is composite supply and not mixed supply. 6.2 In view of the above, it is submitted that the services will be classified as composite supply under clause 3 (iv)(e) of sub-heading 9954 attracting 12% tax shall be approved. Further we also rely upon ruling given by Karnataka AAR, in the case of M/s. Arvind Envisol Limited 2021 (4) TMI 143 (AAR). PERSONAL HEARING 7. Sri S.S. Gupta, Chartered Accountant and authorized representative of the applicant company, appeared for personal hearing proceedings before this authority on 07.10.2020 and requested for one more additional ....
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....nt consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply." 13.1 In view of the aforesaid definition, for a transaction to qualify as composite supply, it needs to satisfy the following conditions: a. There must be two or more taxable supplies of goods or services or any combination thereof. b. Such supplies of goods or services are naturally bundled; c. Such supplies of goods or services are made in conjunction with each other; and d. One of the supplies of goods or services is principal / predominant The concept of 'naturally bundled' supplies is not defined under CGST Act 2017. However Education Guide issued by CBEC (now CBIC) in the year 2012 refers 'Bundled service' to mean a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. Though this reference is given with respect to bundled service it can be extended to bundled supplies in ....
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....upply of goods and services from each cost centre namely C, D, E, and G are independent supply; that each supply mentioned in cost centre C, D, E and G are independent supplies and are not interdependent; the price is also separately specified in each cost centre, submitted that the said ruling does not apply to the facts of the present case for the following reasons : 15.1 Mere providing breakup in annexure to the contract is not sufficient to conclude independent supply. It is submitted that the breakup of the price is provided in annexure to the work order only for facilitation of payment purpose and that is not the conclusive evidence of holding that each supply is an independent supply. We rely upon following judgments: a. Richardson & Cruddas (1972) LTD. 2016 (3) TMI 899 - CESTAT Mumbai In para 5 of the said judgement the Tribunal observed as follows: 5. From the records it is apparent that the appellant contracted with M/s MSETCL of following due process of tendering which, admittedly, is work to be executed on turnkey basis. Accordingly, while it may comprise performance of a number of services the actual composition of the service is no mea....
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.... SCC 260. The Supreme Court has held that the payment of amount due under the contract may be spread over the entire period of the execution of the contract. This cannot have any bearing on the determination of question whether the contract is one for sale or for work and labour. c. The AAR of Uttar Pradesh in case of M/s. Datamatics Global Service Limited 2018 (12) TMI 1867 and AAR of Karnataka in case of M/s. Arvind Envisol Ltd. 2021 (4) TMI 143 has held that supply shall be classified as work contract when both supply of goods and services are involved. Therefore, it is submitted that merely because the price breakup has been given in the annexure to the work order it will not constitute as separate supply. The wording of work order needs to be considered for arriving at the conclusion. 15.2 Tender Documents provides intention of parties. In this case the tender was invited for the following: "Design, engineering, manufacture, Quality Surveillance, inspection & testing at suppliers works, supply, packing, forwarding to site, transportation, F.O. RYTPS, unloading, storage, preservation, handling at site, all mechanical, C&I Systems, electrical equipment....
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....lthough there is only one contract, the different activities done by the Cost Centers C, D, E and G as part of the contract, are clearly specified and identifiable. The scope of works undertaken by each Cost Centre C, D, E and G are entirely independent and specific to that cost center and is not associated with any other Cost Center. The work undertaken by the Cost Centre D commences only on completion of all the milestone activities of Cost Centre C. Similarly, the work undertaken by Cost Centre E and G commence only on completion of all the milestone activities of Cost Centers D and E respectively. Therefore, it is evident that each Cost Centre is independent and every milestone supply made from the Cost Centre is, an independent transaction. In the present case the price breakup is given in annexure to the contract which is attached on page no. 33 and 34 of the application. The price breakup is given in five separate heads which are as follows: a. Lumpsum Price for Supply (Ex-works) b. Lumpsum Price for Erection and Commissioning c. Lumpsum Price for Civil works d. Lumpsum Price for O&M e. Lumpsum Price for Freight ....
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....method of execution is explained by one example. The item specified in Sr. No. 3, 4 and 5 are Chimney Stacks Unit, Absorber, Tanks & Silo Works. The applicant can commence civil work for setting up of Chimney Stacks Unit, Aborber, Tanks & Silo Works simultaneously. The procurement of material for Chimney Stacks unit for Absorber and Tanks & Silo works can also be procured simultaneously. The activity of cutting and welding for constructing the tanks & Silo works can go along with installation of Chimney Stacks. So on and so far, each activity can be carried out simultaneously. It is not necessary that chimney stacks unit must be completed before commencing work of Absorber, Tanks & Silo Works. Therefore, on facts the ratio of the judgement in the case of M/s BEML Limited is distinguishable. Further, as noted in para 6 of the order of AAAR that the respondent company was raising the support invoices based on the nature of transaction mentioned in different cost centres and accordingly charges GST on separate supplies. At the time of application respondent company was levying tax at 12 per cent on supply of standard gauge intermediate cars and 18 per cent on other supply of ser....
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.... plant and operation and maintenance with setting up of plant as principal supply. 16. Considering the submissions made by the applicant and the jurisdictional officer, we now proceed to examine the tender documents and the agreement to bring out the substance of agreement and the nature of supplies involved therein with to address the questions raised by the applicant. Following observations are drawn: i. The subject portion of the letter of award (job order) dated 14.08.2020 as well as the scope of award clearly specify two distinct parts of the said order i.e. (i) handing over of operating FGD plant to M/s RPCL and (ii) Operation & Maintenance of the said plant including supply of spares and consumables for a period of 3 years. This clearly indicates that the setting up of FGD plant and its Operation & Maintenance are two distinct & separate supplies. ii. The job order clearly specifies the payment schedules separately for O&M of the FGD plant at clause 5.4. Further the scope of O&M of FGD plant at clause 7 specifies that the O&M of the said plant commences after handing over / issue of Notice to Proceed, as the case may be. These two clauses indica....
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.... plant and its O&M are separate supplies, not supplied in conjunction with each other but one after the other i.e. after completion of the supply of setting up of FGD plant and hand over of the same only the supply of O&M gets initiated. Further the price for each supply is separately indicated. Thus the impugned supply does not constitute a composite supply. 17.1 Applicant contends that mere break up of price does not constitute separate supplies. In this regard it is observed that the Contract provides for price break up for the following: a. Lumpsum price for supply (ex-works) b. Lumpsum price for erection and commissioning c. Lumpsum price for civil-works d. Lumpsum price for O&M e. Lumpsum price for freight The supplies in respect of a, b, c and e viz., supply (ex-works), erection and commissioning, civil works and the freight are activities concerned with setting up of FGD plant on a turnkey basis and constitutes a composite supply of works contract. On the other hand the activity of O&M starts post setting up of the plant. Not only from the price break up but also from the terms and conditions of the agreement as brought out....
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....k up, but also from the intent of the contract demonstrated in various provisions as discussed supra. Thus the two supplies of setting up of FGD plant and its O&M are separate supplies, not naturally bundled and not supplied in conjunction with each other but one after the other. 19. The ruling of the AAAR, Karnataka, in the case of M/s BEML is squarely applicable to the instant case as the impugned supplies are separate independent supplies and the O&M starts after the completion of the setting up of the FGD plant. Further the Office Memorandum, issued by the Tax Research Unit, dated 16.01.2019, with regard to GST on Haulage and Maintenance services provided by Indian Railways to Private Container Train Operators, clarifying that the services of haulage & maintenance of wagons satisfies all criteria of the definition of composite supply and hence the same should be considered as composite supply with the haulage of wagons as the principal supply, does not apply to the instant case as haulage & maintenance are akin to Operation & Maintenance which is a composite supply with operation being the principle supply. 20. Classification of the services & the rates applicable thereon....
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....rvices of other civil engineering works not elsewhere covered" which include plants for treating and processing of hazardous/non-hazardous materials. The setting up of FGD plant merits classification under this heading 995429, as the said plant is meant for control of emission. Entry No.3 of Notification No.11/2017-Central Tax (Rate) dated 28.06.2017 covers Construction services falling under Heading 9954; entry 3 (iv)(e) covers Composite supply of works contract as defined in clause (119) of section 2 of the CGST Act, 2017 [other than that covered by items (i), (ia), (ib), (ic), (id), (ie) and (if) above], supplied by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a pollution control or effluent treatment plant, except located as a part of a factory. In view of the above, the service of setting up of FGD plant gets covered under the aforesaid entry 3(iv)(e), subject to the condition that the plant has to be a pollution control or effluent treatment plant and should not be located as a part of a factory. In the instant case, the FGD plant is integrated to the thermal power plant and hence ....
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....003 (158) ELT 3 (SC)] held that the process of burning of coal which produces the heat to produce the steam does not result in the process of manufacture. In view of the above, both the conditions i.e. the FGD plant is a pollution control plant and is not located as part of a factory, are fulfilled and hence the applicant's service i.e. setting up of FGD plant, which is a composite supply of works contract service, is squarely covered under tariff heading 995429, is entitled for the benefit of the entry No.3(iv)(e) of the Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, thereby attracting GST at the rate of 12%. 20.2 Now we proceed to consider the classification of the O&M services of the FGD plant and the applicable GST rate thereon. The Operation & Maintenance of the FGD plant, owned by M/s RPCL, has been undertaken by the applicant to operate & maintain the said plant. The scope of Operation & Maintenance service has been given by the applicant in Annexure 'A' of the application. The silent features of the said scope are as under: a) Items needed for continuous operation & maintenance of entire FGD plant to meet the intent of specification, shall be....