TaxTMI 
TaxTMI 
2023 (12) TMI 552
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....95 aircraft programme and is incorporated in Spain. It is not registered under GST in India. 3. Under C-295 programme the applicant has been appointed as the Indian Aircraft Contractor (IAC) for manufacture and supply of 40 aircrafts. 4. In terms of the contractual arrangement, out of the 56 aircrafts, first 16 aircrafts will be supplied directly by Airbus from Spain to MoD in a fly-away condition, for the remaining 40 aircrafts, Airbus Defence & Space SAU and Tata Consultancy Services has entered into a contract with the applicant [as the Indian Aircraft Contractor (IAC) for manufacture and supply vide contract dated 29.10.2021 (hereinafter referred to as the 'contract'). 5. The relevant clauses of the contract dated 29.10.2021, entered into between Airbus Defence & Space SAU, Tata Advanced Systems Ltd and Tata Consultancy Services Ltd, is reproduced below for ease of reference viz: 'Airbus SE' means Airbus Societas Europaea, a European public limited-liability company with its registered office in Amsterdam....... 'Aircraft' means the C-295 MW transport aircraft modified by the purchaser for installation of CSE and including associated role equipment & ....
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....plier. The following address to be considered as project execution address & this would be changed once the final location for execution is finalised, which would be supported by the address modified orders by the Purchaser to the Supplier: Tata Advanced Systems Ltd. Plot Nos. 42 43 Electronic City. Phase-1, Hosur Hoad. Bengaluru 560100, Karnataka GSTN 29AACCT5245KIZZ Any change in the place of the orders must be notified of the purchaser in writing by the supplier with sufficient prior notice. 3.1 SCOPE OF WORK 3.1.1. The Supplier's activities shall comply with the requirements of the Contract and associated Orders and shall include, as necessary and/or as requested by the Purchaser, but shall not be limited to:- (i) activities necessary to ensure compliance of the Item with the requirements of the Specification (including those in connection with continued airworthiness of the fleet, in service requirements and military qualification requirements as applicable) (ii) supply of all material, including, but not limited to raw material standards, sealants and adhesives. (iii) the manufacture, de....
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....ondition (normal wear and tear excepted), failing which the Purchaser shall be entitled to full compensation for the damage caused to such Purchaser's Property(s) 4.2.1.2 Purchaser's Properly shall be identified by the Supplier, especially in the Supplier's premises, with appropriate lags or labels as the properly of the Purchaser. 4.2.1.3 The Supplier undertakes at its expense to maintain the Purchaser's Property to a standard so as to meet the maintenance requirements of both the Purchaser and the Customer for as long as a minimum of five (5) Aircraft are in regular operation For the avoidance of doubt. following the expiry of the warranty period of the last Aircraft delivered, the Supplier shall be entitled to pack and store the Tooling and the Purchaser property but shall remain responsible for its custody, maintenance and set up at its own costs whenever reinstallation is required by the Purchaser. 4.2.1.4 If any action is taken by a third party in respect of any of the Purchaser's Property, the Supplier shall notify the Purchaser of such action and shall notify the third party that such Purchaser's Property is not the property of the Supplier. ....
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....ngine, landing gear, avionics suite, propeller, on board radar etc. The exact value or count of such parts, and components as per the applicant is not known. However the applicant has assumed that the FIM scope could be approximately 50-55% by value of an aircraft. The ownership of the FIM shall always vest with Airbus and the same is cither incorporated in the aircrafts or returned to Airbus by the applicant, if unused. 8. The applicant has also stated that they will act as the importer in respect of FIM supplied by Airbus and will discharge applicable duties of customs on the FIM, at the time of import. The Applicant is entitled to raise invoice on Airbus for reimbursement of all the indirect taxes including the duties of customs paid on FIM. 9. Payment terms of the contract states that for manufacture and supply of aircrafts, Applicant will raise invoice on Airbus inclusive of applicable taxes. The said invoice will then be forwarded by the Airbus to MoD for payment. The payments under the contract are firm and fixed in currency basket of Euros, USD and INR. While the INR payments will be made by MoD directly to the applicant on behalf of Airbus, the payments in Euros and ....
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....t persons for the purposes of this Act. 10. The application is rejected as non-maintainable under Section 95(a) of CGST Act 12. Against the above ruling rejecting their application, the applicant filed a rectification application. 13. The applicant thereafter decided to undertake the activity in the State of Gujarat. In this connection the Airport Authority of India, vide their letter dated AV.21012/24/2022-LM dated 27.10.2022, has allotted land admeasuring upto 50 acres in Operational Area of Vadodara Airport to the applicant for setting up FAL and MRO facility. 14. In light thereof, the applicant has filed a fresh application and sought an Advance Ruling on the following questions: (i) What is the nature of supply under the contract between the Applicant and Airbus (i.e.. whether the same will qualify as 'supply of goods' or 'supply of service')'.' (ii) Given the nature of the activities undertaken by the Applicant under the contract, what will be the appropriate classification and rate of tax of the said supply? (iii) What is the value to be adopted for the purpose of payment of GST? (iv) What will be the time of supply for p....
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....comply with the requirement under the contract; • that the title & risk is transferred only upon issuance of acceptance certificate by Airbus: • that in case of rejection by Airbus, the applicant is required to correct the deficiency & re-supply such aircraft to Airbus: • that supply of aircrafts adhering to the specification of the C-295 programme of the MoD is the predominant scope of work of the applicant & is therefore a principal supply in terms of section 2(90) of the CGST Act, 2017. • that the support services provided by the applicant are incidental and ancillary to the principal supply of the aircraft & completion of services in isolation will not result in discharge of the obligations under the contract. • that they would like to draw the analogy from para 3 of letter no. 334/1/2008-TRU did 29.2.2008 which dealt with determination of principal supply of service when various services were bundled together to substantiate the submission; • that they would like to rely on the Advance ruling in the case of M/s. Air Control and Chemical Engineering Co Ltd [2021 (1) TMI-542-AAR-Gujarat]. The applic....
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....aw makers was never to charge tax on goods provided free of cost by the recipient and which was never within the scope of the supplier; that the intention of the Government was to bring only those free of cost supplies, within the ambit of valuation which was the responsibility of the supplier but incurred by the recipient and not to tax free of cost supplies which are the responsibility of the recipient of goods. 24. The applicant has also relied upon the judgment in the case of Bhayana Builders [2018 (10) GSTL 118 (SC)] to substantiate their above submission. 25. The applicant further states that supplies which are contractually agreed to be supplied by the recipient cannot form part of transaction value. 26. Personal hearing was held on 9.2.2023 and 29.8.2023 wherein Shri Rohit Jain, Advocate, Jignesh Ghelani, CA, Niraj Bagri, CA, K Ugendra, CA & Harsh Rautela, PM, appeared and reiterated the facts as stated in the application. On being informed that their application is admitted they submitted that the rectification filed be treated as being withdrawn. They further sought time to file additional submission. 27. In their additional written submission, while reiterati....
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....se of personal hearings. We have also considered the issue involved, the relevant facts & the applicant's submission/interpretation of law in respect of question on which the advance ruling is sought. 30. The first question to be determined is whether the nature of the supply under the contract entered into between the applicant and Airbus would qualify as 'supply of goods' or otherwise. The applicant feels that the contract entails supply of goods. The applicant's reasoning is based on the fact that in terms of the various clauses of the contract, the main responsibility thrust on the applicant is to supply 40 C-295 aircrafts as per the established work share and delivery plan. The reason for seeking a ruling we believe is because the scope of work, binds the applicant to also provide certain support services as listed out in paragraph 16. 31. The submission that it is supply of goods by relying on Section 2(52), which defines goods to mean every kind of movable property other than money & securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply....
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.... an Education Guide, published on 20.6.2012 viz 9.2.4 Manner of determining if the services are bundled in the ordinary course of business, Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below • The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business. • Majority of service providers in a particular area of business provide similar bundle of services, Tor example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines. • The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the se....
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....and 11.1 [termination of contract], clearly depict that though the essential scope is supply of aircrafts in airworthy condition, the title and risk is transferred only on issuance of acceptance certificate by Airbus. 35. We find that the contract entails both supply of goods, viz aircrafts as well as support services. We find that the supply of aircraft is the principal supply and the support services as listed out supra is only incidental and ancillary to the principal supply of the aircraft & that the completion of services in isolation will not result in discharge of the obligations under the contract, further, whether the composite supply is naturally bundled can be examined from the following parameters i.e. • The general perception is that the aircraft manufacturer also provides support services; • Aircraft manufacturers provide support services in conjunction with the supply of complete airworthy aircraft; • That for effective enjoyment of supply of aircrafts, providing support services is a must; • That the contract herein has a single contract price charged by the applicant for both supply of 40 airworthy aircrafts & ....
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....whether or not the work anil labour bestowed end in anything that can properly become the subject of sale: neither the ownership materials, nor the value of the skill and labour as compared with the value of the materials is conclusive, although such matters may be taken into consideration in determining in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel." Let us now apply the above criteria to the contract in question. The contract is expressly one for the manufacture and supply of wagons for a price. Price has been fixed taking the wagon us a unit. Payment of the price is made for each vehicle on its completion and delivery by the contractor to the Purchaser, who is described as the Union of India acting through the Railway Board. Such payment is made in two instalments, viz., 90 per cent of the value of the vehicle on completion against an On account bill, together with the Completion Certificate from the Inspecting Officer appointed by the Railway Board, and the balance of 10 per cent after delivery If clause (1) of the Standard Condition 15 is not inconsistent with anything in the Sp....
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....ere the principal supply is the supply of goods. 137. The lax liability on composite supply is provided under Section 8 of the CGST Act. "8. Tax liability on composite and mixed supplies. The Tax liability on a composite or a mixed supply shall be determined in the following manner, namely: (a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply: and (b) a mixed supply comprising two or more supplies shall he treated as a supply of that particular supply which attracts the highest rate of tax." (emphasis supplied) Section 8 of the CGST Act provides that the tax liability on a composite supply which comprises of two or more supplies, will only be levied on the 'principal supply'. In a CIF transaction, the principal supply, according to Section 2(30), is supply of goods. Thus, the tax would be levied as if the transaction was one of supply of goods. 143. The provisions of composite supply in the CGST Act (and the IGST Act) play a specific role in the levy of GST. The idea of introducing 'composite supply' was to ensure that ....
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....applicant has stated that the aircrafts are classifiable under CTH 8802 & will attract GST @ 5% in terms of notification No. 1/2017-IT (Rate)] entry no. 2441 dated 28.6.2017. CTH 8802, is reproduced below viz: 8802 OTHER AIRCRAFT (FOR EXAMPLE, HELICOPTERS, AEROPLANES), EXCEPT UNMANNED AIRCRAFT OF HEADING 8806; SPACECRAFT (INCLUDING SATELLITES) AND SUBORBITAL AND SPACECRAFT LAUNCH VEHICLES - Helicopters : 8802 11 00 -- Of an unladen weight not exceeding 2,000 kg. u 2.5% - 8802 12 00 -- Of an unladen weight exceeding 2,000 kg. u 2.5% - 8802 20 00 - Aeroplanes and other aircraft, of an unladen weight not exceeding 2,000 kg. u 2.5% - 8802 30 00 - Aeroplanes and other aircraft, of an unladen weight exceeding 2,000 kg. but not exceeding 15,000 kg. u 2.5% - 8802 40 00 - Aeroplanes and other aircraft, of an unladen weight exceeding 15,000 kg. u 2.5% - 8802 60 00 - Spacecraft (including satellites) and suborbital and spacecraft launch vehicles u 10% - Likewise, relevant extracts of notification No. 28.6.2017, is rep....
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.... (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both; (c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services; (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments. Explanation.- For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. (3) The value of the supply shall not include any discount which is given,- (a) ..................; and (b) ...................... (4) Where the value of the supply of goods or services or both cannot be determined under sub-section ....
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....hare and delivery plan 2. Provide Aircraft painting as a subcontracted activity of the Supplier 3. Provide the facilities, standard hand-tooling, standard troubleshooting tools and GSE equipment 4. Provide the production & all support function: manufacturing engineering, quality, production control, managing staff logistics, facilities, MRP. change control management, general services, etc. 5. Prepare and control the operative production plan (MRP) according Program Integrated Master Schedule delivered by airbus PMO 6. Manage overall Logistics (including Customs clearance), the supplier supply chain and the supplier warehouse logistics requirements 7. Provide quality inspection capabilities except flight test 8. Perform the work under Airbus DS's quality systems or Airbus SQA authorization 9. Perform quality assurance 10. Provide Metrological control capabilities 11. Manage all production work share, corrective actions, recovery plans 12. Provide consumables (i.e. sealant), standards & other elements required for manufacturing, * Airbus DS shall 1. Provide all the C-....
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....enization, this will not form part of the value of supply. However, we find that the issue of valuation of free supplies under GST has been decided by the Honblé Chhattisgarh High Court in the case of M/s. Shree Jeet Transport (Writ Petition (T) No. 117/2022), on 17.10.2023, the relevant extracts of which are reproduced below viz. 1. (a) This instant petition is filed to challenge the order dated 28-2-2022 (Annexure - P/5) passed by the Appellate Authority for Advance Ruling, Chhattisgarh (for brevity 'the AAAR') as no decision was rendered in terms of Section 101 (3) of the Central Goods and Service Tax Act, 2017 (for brevity 'the CGST') and the Chhattisgarh Goods and Service Tax Act, 2017 (for brevity 'the CHGST') and the order dated 4-1-2021 (Annexure - P/6) passed by the Authority for Advance Ruling, Chhattisgarh (for brevity 'the AAR') to be illegal wherein it was held that Goods and Services Tax (for brevity 'the GST') would be leviable on the value of diesel provided by the service recipient Free of Cost (for brevity 'FOC'). (c) The petitioner is a Goods Transport Agency (for brevity 'the GTA') service provider............. As per the proposed terms ....
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.... of Section 15(2)(b) which provides that any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply does not include FoC diesel for the simple reason that the liability to pay for the diesel as per draft contract is of service recipient. 20(c) In the case in hand, as per the proposed agreement/contract, the fuel (diesel) is not in the scope of the service of the petitioner. The agreement purports that the fuel would be free of cost basis for transportation of the goods and fuel would be filled by the service recipient for transportation. 21. The very definition and existence of the petitioner who is to provide transportation service, by plain and simple interpretation would point out the entire business and survival is premised and interdependent on the vehicles for transportation of goods. The obvious factor would be the vehicle cannot run without fuel. Therefore, the design of the entire activity of GTA is based on supply of fuel to the respective vehicles. In absence of fuel, the entire business activity would stand arrested to provide service. Therefore, the need of fuel is glued for surv....
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.... Vikas Nigam (2020) 5 SCC 185, the parties by agreement cannot over-ride the statutory provisions in relation to matter of tariff. 26. Another submission is made that the model GST law proposed to include in Section 15(2)(b) of CGST Act "the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or services being valued". Therefore by such provision, free supply was included to be valued. However, in the final GST law, the provision of free supply by the service recipient was excluded. It is contended that the transaction value was an inclusive part in the proposed Model GST law under clause (b) Section 15(2) of the CGST Act. The provision to be added as per model GST Law in clause (b) of Section 15 (2) reads as under : "(b) the value, apportioned as appropriate, of such goods and/or services as are supplied directly or indirectly by the recipient of the supply free of charge or at reduced cost for use in connection with the supply of goods and/or being valued...." The submission that free sup....
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....ritical components of the aircraft. 45. The issue therefore is no longer res Integra having been decided by the Hon'ble High Court of Chhattisgarh, following the judgement of the Honblé High Court we hold that the value to be adopted for the purpose of payment of GST in respect of 40 aircraft will include the supply made free of cost by Airbus i.e. will include the value of FIMs also. 46. The last question pertains to the time of supply for payment of GST. The applicant states that in terms of section 12(2) of the CGST Act, liability on supply of goods shall arise on the date of issue of invoice or on the last date to issue invoice, whichever is earlier. The applicant submits that they are not supposed to pay GST on receipt of advance in the case of. supply of goods. They have also relied upon notification No. 66/2017-CT dated 15.11.2017 to substantiate this argument. 47. Section 12 of the CGST Act, 2017, states as follows: Section 12. Time of Supply of Goods [relevant extracts] (1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section. (2) The time of supply of....