TaxTMI 
TaxTMI 
2022 (8) TMI 1040
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....the tender invited by Delhi Metro Rail Corporation Limited (DMRC') for design, manufacture, supply, testing, commissioning and training of 504 Standard Gauge Cars (passenger rolling stock) including training of operation & maintenance personnel and supply of spares & manuals. The applicant entered into a contract with DMRC, vide contract No.RS-10 dated 24.05.2013, for the purpose of execution of the contract awarded. The applicant, to undertake the scope of work as agreed in the contract, is required to supply various goods and services to DMRC in a phased manner. The detailed instructions with respect to obligations of the applicant under the contract are specified through various Cost Centres under tender documents which form part of the Contract. The nature of supply undertaken by the applicant under each of the cost centres is tabulated here under: Cost Centre Description A Preliminaries and general requirements and design of Rolling Stock and provisions of mockup B Offshore manufacture, dispatch, completion of shipping to port in India, inland transportation in India, delivery and receipt of cars in depot C Indigenous manufacture, dispatch, inlan....
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....7, with regard to the tax payment on supplies under the contract, agreed, due to the promulgation of Goods and Services Tax w.e.f. 01.07.2017, that the GST as applicable will also be paid to the applicant based on the tax invoices issued by the applicant. 4.3 The supply by the applicant to the DMRC is an inter-state supply of the goods and services and liable for the tax under the provisions of IGST Act 2017. The rate of tax on these supplies are at present levied based on the nature of respective transaction for which the invoice is issued. The applicant furnished the present status and treatment of different supplies under the cost centres. 4.4 The DMRC vide its letter no. DMRC/134/21/RS10/GST/Reimb/Part-1/7004 dated 04 June 2021 has disputed the nature of supply and applicable rate of GST to be charged by applicant, on the following understanding of DMRC: - Supply made by applicant under the contract is a 'composite supply' as defined under clause (30) of section 2 of the Central Goods and Services Tax Act, 2017 ('CGST Act') with the principal supply being the supply of rolling stock. - It is the understanding of DMRC that the supplies under t....
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.... train cars is carried out. Such activity amounts to a supply of service in terms of Section 2(102) of the CGST Act and is classifiable under Heading 9987 as 'installation services' in terms of Notification 8/2017- Integrated Tax dated 28.06.2017 (relevant to the applicant for the discharge of IGST @ 18%). * Delving further, it is submitted that the complete classification of the said service falls under SAC 998739 as 'Installation services of other goods nowhere else classified'. It is submitted that while Notification 8/2017-Integrated Tax dated 28.06.2017 does not contain the detailed SAC codes, the same are contained in Notification 11/2017 dated 28.06.2017, the relevant portions of which have been extracted for ready reference below: 490 Group 99873 Installation services (other than construction) 491 998731 Installation services of fabricated metal products, except machinery and equipment 492 998732 Installation services of industrial, manufacturing and service industry machinery and equipment 493 998733 Installation services of office and accounting machinery and computers ....
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....t further corroborates that each supply is distinct and separate. Under the said Cost Centre, there are several types of spares and the classification and rate of tax for such supply of spares are dependent on the type of spares i.e., whether lubricants, grease, gaskets, oil, filters etc. supplied to DMRC. * Further, Annexure ITT-2B (Instruction to Tenderers) specifies the scope of work to be completed as part of Cost Centre G, the consideration payable upon such completion of work and the milestone completion date by which the works associated with Cost Centre G are to be completed. * Moreover, it is submitted that supplies under Cost Centre G are completely contingent upon the requirement of spares by DMRC. The said fact is evident from the footnote 6 of the Pricing document which stipulates that DMRC at its discretion may exercise the option to increase/decrease the quantities (to any extent) of spares indicated under milestones. Relevant extract is reproduced below: "Employer at his sole discretion may exercise the option to increase/ decrease the quantities (to any extent) of spares indicated under milestone GI, G2, G3, G4, G5 and G6. For increased q....
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....th respect to the supply of training services under Cost Centre H (H1 to H5), it is mentioned in the footnote 2 of the Cost Centre H that the dates of operation of the Milestone Activities for Milestones H1 to H5 will be at the discretion of the Employer. Hence, it establishes that the supplies under Cost Centre H (H1 to H5) are independent of the supplies made under other cost centre. 5.6 The supplies made under Cost Centre D, G and H are independent supplies in view of the following which run a common thread amongst the aforementioned Cost Centres: * Clause B.1 of Annexure ITT-2A (Instruction to Tenderers) expressly provides that the whole of the work forming subject matter of Contract RS-10 is divided into Cost Centres, with each Cost Centre representing a major item associated with such work. * Further, Clause B. 2 of the said Annexure provides that a lumpsum amount for the works covered under each Cost Centre shall be apportioned, except Cost Centre G and H, and that such apportioned amount will be further distributed amongst the Milestones listed out in the respective Cost Centres. * A conjoint reading of the aforementioned clauses of Annexure IT....
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.... of Unit Exchange Spares under cost centre G as under: "8.2.1 The Contractor shall supply the Unit Exchange Spares as listed in the Appendix 6 of this Employer's Requirements - General Specification. The Unit Exchange Spares shall be supplied in the Depot nominated by the Employer. The delivery requirements of different lots are mentioned in the Appendix-6. These shall be delivered as per the key dates defined." * Therefore, with such contract structure, the activities covered under Cost Center D, G and H are independent supplies. * The scope of work under Cost Centre D,G and H (to the extent of training services) are entirely independent and specific to their respective cost centre only. Reference in this regard is made to the milestone completion date specified against each milestone under all the cost centres of the RS10 contract. The Annexure-I of the Contract lists down the key dates for the various activities under the Contract 'RS10' basis which it can be easily identified that the work under Cost Centre D commences only on completion of all activities with respect to a particular train set as listed under milestone for Cost Centre B and C.....
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....54 of List H is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerleys case, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in Article 366(29-A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in Article 366 (29A) continues to be - did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is the substance of the contract. We will, for the want of a better phrase, call this the dominant nature test." * Further, the principles emerging from the above judgment were also relied upon by CBEC in its Circular no. 334/1/2012-TRU dated 16 March 2012, wherein the CBEC clarified as under: ....
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....uced below: "The taxable event under GST is supply of goods or services or both. GST will be payable on every supply of goods or services or both unless otherwise exempted. The rates at which GST is payable for individual goods or services or both is also separately notified. Classification of supply (whether as goods or services, the category of goods and services) is essential to charge applicable rate of GST on the particular supply. The application of rates will pose no problem if the supply is of individual goods or services which is clearly identifiable and the goods or services are subject to a particular rate of tax. But not all supplies will be such simple and clearly identifiable supplies. Some of the supplies will be a combination of goods or combination of services or combination of goods and services both. Each individual component in a given supply may attract different rate of tax. The rate of tax to be levied on such supplies may pose a problem in respect of classification of such supplies. It is for this reason, that the GST Law identifies composite supplies and mixed supplies and provides certainty" in respect of tax treatment under GST for such ....
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....ombination and thereby considering the contract as a composite supply, when the intention of the contract is completely inverse. * Further, reliance can also be placed on the decision of Hon'ble Delhi Tribunal in the case of Alstom Projects India Ltd. Vs Commissioner of Service Tax, Delhi [2011 (23) S.T.R. 489 (Tri. - Del.)] wherein the issue dealt was whether the contract executed by applicant with DMRC would be construed as a composite contract or different cost centres are to be treated as individual supplies. In said ruling, the Hon'ble Delhi Tribunal relied on the decision of Hon'ble Supreme Court, in the case of State of Tamil Nadu v. Anandam Vishwanathan reported in (1989) 1 SCC 613 wherein it was held that nature of a contract is to be found out on the basis of the intention of the parties. The intention has to be ascertained from the terms of the contract. For example, when a person, who wants to get a house constructed on a plot of land owned by him, negotiates with a building contractor-cum-Architect after telling him about his requirement - plinth area, number of bedrooms, size of drawing room etc. and enters into contract with him for cons....
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....1-VIL-42-AAAR] Copy of the ruling is attached herewith as Appendix 11. In this ruling, the contract entered between M/s BEML Limited ("BEML") and M/s Bangalore Metro Rail Corporation Limited ("BMRCL") for supply of Standard Gauge Intermediate Cars also contained various cost centres such as preliminaries and general requirement for rolling stock including design, delivery and receipt of offshore manufacturing, delivery and receipt of indigenous manufacturing, commissioning and acceptance of cars in depot etc. for which separate and distinct consideration was stipulated in the contract in the similar manner as is mentioned in the RS10 contract. As per the facts provided in the ruling, BEML was raising separate invoices based on the nature of the transaction mentioned in the cost center and accordingly was charging GST on individual supplies. On the other hand, it was the understanding of BMRCL that supplies under the contract are essentially composite supply taxable at the rate of 5%/ 12% i.e., the rate applicable to principal supply of Rolling stock and that other supplies in the cost center D to G are incidental. While Karnataka AAR took a view that supp....
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....licable at time of supply. * It is submitted that the reasoning of the above decisions are squarely applicable in the instant case and accordingly the supplies made by separate Cost Centres should be treated distinctly as also understood from the intention of the parties to the Contract. 5.9.1 Other relevant factors * It is submitted that Contract RS-10 is a legally accepted contract between two major businesses who are not new to complex nature of contract/agreement for turnkey projects. At the time of entering into contract, both HRC and DMRC had mutually agreed to the terms of the contract, fully understanding that separate invoices will raised be on completion / achievement of respective milestones of each Cost Centres. It is only in June2021, that DMRC contested that supply under contract was a Composite supply and lower rate of GST would be applicable on cost centre D, G and H (training services) also. After the enactment of Goods and Services Tax with effect from 1 July 2017, the GST treatment on supplies under various contracts by informed by DMRC vide its Circular no. 19/2017 dated 11 December 2017 (enclosed as Appendix 3), but there was no in....
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.... same provisions in like matters and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act. 8. We have considered the submissions made by the applicant in their application for advance ruling. We also considered the issues involved on which advance ruling is sought by the applicant and relevant facts along with the arguments made by the applicant & the submissions made by their learned representative during the time of hearing. 9. The applicant, being a successful bidder to the tender invited by Delhi Metro Rail Corporation Limited (DMRC) for design, manufacture, supply, testing, commissioning and training of 504 Standard Gauge Cars (passenger rolling stock) including training of operation & maintenance personnel and supply of spares & manuals, entered into a contract No.RS-10 dated 24.05.2013 with DMRC for the purpose of execution of the contract awarded. The applicant, to undertake the scope of work as agreed in the contract, is required to supply various goods and services to DMR....
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....ces. Some of the Key observations of the AAAR, Karnataka are as under: • For a supply to be considered as a composite supply, its constituent supplies should be so integrated with each other that one cannot be supplied in the ordinary course of business without or independent of the other. • In this case, although there is only one contract, the scope of work under each cost center is clearly specified and identifiable and is not associated with any other cost center. • The concept of "Naturally Bundled", as used in Section 2(30) of the CGST Act' 2017, lays emphasis on the fact that the different elements in a composite supply are integral to the overall supply and if one of the elements is removed the nature of supply will be affected. In the instant case, supplies in the corresponding cost centers are not naturally bundled. • The form of the agreement is not important, but its nature/ substance has to be seen to arrive at the correct conclusions. The clear-cut demarcation of activities to each cost center demonstrates the intention of the contracting parties that each cost center is independent supply center undertaking eith....