TaxTMI 
TaxTMI 
2023 (5) TMI 964
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....ld be a common reference to both CGST Act and TGST Act. 3. It is observed that the queries raised by the applicant fall within the ambit of Section 97 of the GST ACT as it involves determination of the liability to pay tax on goods or services and classification of goods or services. The Applicant enclosed copies of challans as proof of payment of Rs. 5,000/- under SGST and Rs. 5,000/- under CGST towards the fee for Advance Ruling. The Applicant has declared that the questions raised in the application have neither been decided nor are pending before any authority under any provisions of the CGST/TGST Act' 2017. The application is, therefore, admitted after examining it and the records called for and after hearing the applicant as per section 98(2) of TGST Act' 2017. 4 BRIEF FACTS OF THE CASE: 4.1 The applicant M/s. PES Engineers Private Limited Hyderabad are engaged in the construction of various types of Power Projects. They have entered into agreements with Singarenni Collieries Company Limited (SCCL) for "Design, Manufacture, Test, Deliver, Install, Complete & Commission and to conduct guarantee test of certain facilities viz., Fuel Gas de-sulphurisation (FGD) system package....
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.... On successful completion 10% Total: 100% The advance of 5% plus 7.5% is computed on Rs. 339,21,28,225/- is recovered progressively from tax invoices issued for supply of goods under the contract. 4.5 The applicant avers that as can be seen from both the contracts there is a clear cut demarcation of activities of supply of goods and supply of services. Hence, according to the applicant each contract has to be independently assessed for the purpose of GST. According to the applicant since, the Advance of 5% and 7.5% is specifically given against supply of goods under the First Contract, the Applicant is entitled for the benefit of Notification No.66/2017 Central Tax, dated: 15th November, 2017. Hence, this application. 5. The applicant has submitted Statement of relevant facts having a bearing on the question(s) raised as detailed below: 1. The Applicant, M/s PES Engineers Pvt.Ltd., having principal place of business at 1st Floor, Pancom Chambers, 6-3-1090/1/A, Somajiguda, Rajbhavan Road, Hyderabad - 500082, Telangana are engaged in construction and maintenance of various types of Power Projects. They are registered with the GST Department vide GSTN 36AABCP4220B1Z3.M/s Singa....
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..... The oxidation system may be either grid sparge type or lance jet type or Jet Air Sprayer or any other proven system as per the practice of the FGD vendor. Clean gas from the absorber shall be taken to the Wet Chimney, to be provided by the Contractor, through three stage mist eliminators. Provision shall be made for facilitating operation of unit with FGD bypass through existing stack. All modifications required including providing bypass damper is included in the scope of the Contractor. Limestone to the absorbers of the units shall be supplied by a wet limestone grinding system, common for both the units. Limestone shall be fed to the Limestone day silos which in turn will feed the Limestone to wet ball mill through a gravimetric feeder. The classified limestone slurry from the mills shall be stored in two (2 no) limestone slurry storage tanks to be provided by the contractor, from where the slurry shall be pumped to the individual absorbers by dedicated limestone slurry pumps. The gypsum from the absorber(s) shall be pumped by dedicated gypsum bleed pumps to a common Gypsum Dewatering system for both the units consisting of two streams (2x100%) of primary and secondary....
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....sulphurisation process, a by-product Gypsum is generated in liquid form. The liquid form of Gypsum generated in the Absorber is pumped into the gypsum handling system to transform it into crystal form. The main equipment includes for Gypsum Handling System is gypsum hydro cyclones, vacuum belt filters, vacuum pumps, filter water system etc., vi. Wastewater treatment and disposal System : The FGD system produce a small amount of wastewater. The main task of the wastewater treatment plant is to adjust the pH and to remove the heavy metals and suspended solids. The waste water collected in the waste water tank of FGD system shall be provided with adequate treatment with lime as reagent and then disposed to existing ash handling system. vii. Chimney : Reinforced Cement Concrete (RCC) Chimney will be of cylindrical in shape with 18.0 m diameter and 150 m height. Treated flue gas from the absorber will flow through chimney and finally released into the atmosphere. viii. Electrical & instrumentation : Electricity is required to run slurry pumps, limestone ball mills, conveyor belts, wastewater treatment and recycling pumps, lighting of the plant etc., SCADA system will be provided t....
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....ing two different sets of the spares to be used for the subject assembly/sub-assembly, these shall be considered as different types of assembly/sub-assembly. 3. Wherever quantity has been specified as percentage (%), the quantity of mandatory spares to be provided by the Contractor shall be the specified percentage (%) of the total population required to meet the specification requirements. In case the quantity of Mandatory Spares so calculated to be fraction, the same shall be rounded off to next higher whole number. Item Description Qty. Unit Unit rate (INR) Total Ex-works (India) Price (INR) 4. Wherever the quantities have been indicated for each type, size, thickness, materials, radius, range etc. these shall cover all the items supplied and installed and the breakup for these shall be furnished in the bid. 5. In case spares indicated in the list are not applicable to the particular design offered by the bidder, the bidder should offer spares applicable to offered design with quantities generally in line with approach followed in the above list 6. Bidder are required to indicate the break-up of type test charges as per Schedule-7. 7. In case the description / qu....
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....ks-Main Equipment (Schedule-1) 3,39,21,28,225.00 61,05,83,081.00 2 Ex-Works-Mandatory Spares (Schedule-1) 15,86,96,057.00 2,85,65,290.00 3 Type Test charges (Schedule-1) 55,45,661.00 9,98,219.00 4 F&I-Main Equipment (Schedule-2) 3,64,50,501.00 65,61,090.00 5 F&I-Mandatory Spares (Schedule-2) 19,83,701.00 3,57,066.00 6 Erection - Main Equipment (Schedule-3) 52,27,05,139.00 9,40,86,925.00 7 Civil Works (Schedule-3) 1,56,41,48,015.00 28,15,46,643.00 8 Training charges (Schedule-3) 26,77,996.00 4,82,039.00 9 AMC Charges (Schedule-3) 39,67,401.00 7,14,132.00 10 Structural Works (Schedule-3) 16,86,14,561.00 3,03,50,621.00 11 Amount linked to Safety Aspects/ compliance to Safety Rules (Schedule-3) 4,56,25,116.00 82,12,521.00 12 Any other Price Component (not covered above) 0 0 TOTAL GST 1,06,24,57,627.00 Notes: 1 Bidder shall quote the GST as applicable in the Employer's country as on seven (7) days prior to the last date of 2 Bidder is required to indicate the Total of Schedule-6 in E-Portal. As per the payment terms, in respect of Plant and Equipment (Excluding Man....
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....ed in the deed and initially valid upto ninety (90) days after the end of Defect Liability Period of all equipment covered under the Contract. However, in case of delay in Defect Liability Period, the validity of this Bank Guarantee shall be extended by the period of such delay. The proforma of Bank Guarantee(s) shall be as enclosed in Section-VII. (v) Submission of a detailed PERT Network based on the work schedule stipulated in Appendix-4 to Form of the Contract Agreement and its approval by the Employer. (vi) Finalization of Master Drawing List (MDL). (I)(b) Seven and Half percent (7.5%) of the total Ex-works price component as Interim Advance Payment on : (i) Fulfilment of conditions mentioned at A1(I)(a)(i) to (vi) above. (ii) Submission of an unconditional Bank Guarantee covering the advance amount, which shall be initially kept valid upto (ninety) 90 days beyond the schedule date for successful Completion of the Facilities under the Package. However, in case of delay in completion of facilities, the validity of this Bank Guarantee shall be extended by the period of such delay. Proforma of Bank Guarantee is enclosed in Section-VII - Bank Guarantee Form for Advance P....
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....tificate by the Project Manager and successful completion of Guarantee Tests of entire Flue Gas Desulphurization System and issuance of Operational Acceptance Certificate by the Project Manager. In case of more than one units in a Project, the payment shall be made on pro-rata basis for each unit. However, in case the contractor has successfully completed Initial Operation including all associated auxiliaries and ancillary works of entire Flue Gas Desulphurization system and successfully completed guarantee test for "Guarantees Under Category-I (as per technical specification)" and is not able to conduct Guarantee test for "Guarantees Under Category-II (as per technical specification)", for reasons attributable to the Employer or due to the requirements of the technical specifications, 50% of the payment towards initial operation and guarantee test shall be released to the contractor. Further the balance 50% of the payment towards initial operation and guarantee test shall be released on pro-rata basis after successful completion of guarantee test for "Guarantees Under Category-II." However, in such case the payments shall not exceed 90% of the amount due on "Completion of Initia....
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....ired to pay GST on "initial advance" of 5% and "interim" advance of 7.5% on Ex works value of goods supplied under "First Contract Agreement" dated 9th February, 2022 with M/s. Singareni Collieries Company Limited. 7 PERSONAL HEARING: The Authorized representatives of the unit namely Sri R. Raghavendra Rao, Advocate & N Suresh, SGM Taxation attended the personal hearing held on 25.08.2022. The authorized representatives reiterated their averments in the application submitted to dispose the case on merit basis. They were advised by the AAR to submit the complete contract documents of both the contract. 8 DISCUSSIONS & FINDINGS: 8.1 The applicant M/s. PES Engineer Private Limited has entered into two separate agreements with Singareni Collieries Company Limited on the same day i.e., 09.02.2022. The objective of the contract as expressed in the title of both the agreements is as follows: "Whereas the Employer desires to engage the Contractor to design, manufacture, test, deliver, install, complete and commission and conduct guarantee tests of certain Facilities, viz., Fuel Gas Desulphurisation (FGD) System Package for Singareni TPS, Stage-1 (2 X 600 MW) under Bidding Document No....
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....or which the 'time of supply' and 'rate of tax' to be levied would differ as per the provisions of the CGST Act' 2017. 8.4 As stated by applicant that his responsibility under the first contract completes with making goods (ex-works) available and loading them on to the mode of transport. That the moment he raises tax invoice for the supply of goods, endorse and dispatch the documents, the title of the goods passes on to SCCL. This makes the first contract under category of supply of goods to the recipient as the recipient holds the title of goods before they reach his premises as stated by the applicant. It is supply of goods under First contract if the recipient holds the title of goods before the Second contract is initiated which involves inland transportation for delivery at site, inland transit insurance, unloading, storage, handling at site, installation, insurance covers other than inland transit insurance, testing and commissioning including carrying out guarantee tests in respect of all the plants and equipment supplied under the 'First Contract'. If there is no transfer of title until completion of Second contract then the entire scope of supply would come under categor....
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....ance, unloading at site, storage, erection, civil works, Safety aspects/Compliance to Safety Rules and other services insurance covers other than inland transit insurance, testing, commission and conducting guarantee tests". Thus, the supply under Second Contract is Works Contract Service as defined under Sec 2(119) falling under SAC 9954 as it involves activities among construction, fabrication, completion, erection, installation and fitting out etc. The definition of works contract is abstracted as under: Section 2(119) "'works contract' means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract." 8.7 In this context, an insight is provided by CBIC Circular No 47/21/2018-GST dated 8-6-2018 relating to how servicing of cars involving both supply of goods (spare parts) and services (labour), where the value of goods and services are shown separately, is to be treated under GST. This dispute was go....
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....y a taxable person to a recipient 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; Illustration. - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is 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. For a supply to be consider 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 other words, they should be naturally bundled. The term 'naturally bundled' has not been defined....
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.... distinction between goods property of which is transferred prior to execution of Works Contract Service and the property in the goods transferred during the execution of Works Contract under second contract. 8.11 In this context we want to rely upon Hon'ble CESTAT in case of C.C.E. & S.T., AHMEDABAD-III Versus KALPATARU POWER TRANSMISSION LTD., 2021 (48) G.S.T.L. 354 (Tri. - Ahmd.), wherein this identical issue was discussed at length. It is noteworthy here that though the judgment is of service tax period, the definition of Works Contract in earlier regime and present GST regime both emphasize on "transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract." 6.6 We find that there is a clear terms and conditions between the respondent and the service recipient i.e. EDAs that separate contract has to be entered into, one for manufacture and sale of goods and other is works contract service of erection, installation and commissioning of transmission line. All the service recipient i.e. EDAs are government organization and it cannot be imagined that the government organization will enter into this malpractices to evade serv....
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.... thereof was admittedly included for the reasons that the property in the said good was transferred only during execution of works contract service. Therefore, there is a clear distinction between goods property of which is transferred prior to execution of Works Contract Service and the property in the goods transferred during the execution of Works Contract Service. In view of the clear provision under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 as amended by Notification No. 23/2009-S.T., dated 7-7-2009 the value of the goods, property of which belongs to service recipient before execution of Works Contract Service, shall not be included in the gross amount of Works Contract Service. 6.9 The revenue's contention is that appellant being common for supply of goods and provider of Works Contract Service cannot enter into separate contract and in such case the one composite contract is not divisible. On this issue much water was flown. In the various courts have given judgments on this issue some of the judgment cited : * Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., AIR 1966 SC 543 * Tata Cellular v. Union of India, (1994) 6 ....
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....of Inland Revenue v. Wesleyan and General Assurance Society [30 TC II] - Viscount Simon expressed the principle as follows : "................. Secondly, a transaction which, on its true construction, is of a kind that would escape tax, is not taxable on the ground that the same result could be brought about by a transaction in another from which would attract tax.."' 6.13 From the above judgment it is clear that even if it is contented that due to two separate contracts there is a shortfall in payment of tax that itself cannot be a reason to reject the concept of two separate contract legally entered into between two parties. Therefore the revenue's contention related to this is also not sustainable. 8.12 Further there are number of judgments wherein Hon'ble Supreme Court has observed that there can be two separate contracts, that is one for sale and another for Works Contract as in the present case the value of goods sold, property of which in goods has already been passed on, cannot form part of the value of the second contract i.e. Works Contract. Some of them are cited below:- 8.13 In the case of State of Madras Vs. Gannon Dunkerley & Company (Madras) Ltd., [1958]....
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....with making goods available ex-works and loading them on to the mode of transport. The moment the Applicant raises tax invoice for the supply of goods and endorse the despatch documents, the title of the goods passes on to M/s SCCL. * The supply under the second contact commences with service of transportation of the said goods supplied under first contract. Since the transfer of property in the goods supplied under first contract is not taking place during the execution of the Works Contract under second contract, the value thereof cannot be included in the Works Contract. Thus the supply/ service under second contract commences commences only on completion of all the milestone activities of first contract. Therefore, it is evident that each Contract is independent and every milestone supply made from the individual contract is, an independent transaction. * The mere fact that different tasks, i.e. two contracts for which separate invoices were issued by him to his recipient, have been entrusted to the applicant through a single contract agreement would not make it a 'composite supply' in terms of Section 2(30) of the CGST Act, 2017 for the reasons discussed supra. * When ....