TaxTMI 
TaxTMI 
2024 (1) TMI 702
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....ed under the contract will be sold by the applicant to IOCL on High Seas Sale [HSS] basis by endorsing bill of lading in favour of IOCL who will be filing the bill of entry for warehousing and subsequently for home consumption by paying the applicable customs duty and IGST. The applicant, further states that the contract value is fixed on a lump sum price of Rs. 18,72,00,48,047.50 comprising of- [synopsis para 1.5] (i) Rs. 14,70,30.56.131/- for domestically sourced material and supply of service; (ii) foreign Exchange Euros of EUR 4.55.18,322 (ie converted @ 1 EURO = INR 88.25 as on the date of opening of price bid Rs. 401,69,91,916.5) based on the terms and conditions of the Contract No. 44AC9100-EPCC-1 towards goods imported outside India; (iii) Rs. 32.89,75,280.89 towards custom Duty & SWS on Foreign Component imported which is reimbursable according to contractual terms. 5. As per the applicant, during the course of importation, before the goods reach the Customs frontier in India, they enter into a HSS agreement with IOCL, transferring the ownership of the goods to IOCL at the price agreed in the contract. The applicant raises a custom invoice ....
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....applicant then raises a custom/pro-forma invoice on IOCL for imported components sold on HSS basis; • the above proposition has also been clarified by CBIC vide its circular No. 33/2017-Cus., dated 01-08-2017; • that they also rely on the AAR. ruling in the case of M/s. AIE Fiber Resource and Trading (India) Private Limited [2021 (12) TMI 1265]. 11. The next submission is that contract is divisible in nature; that the intent was always to treat supply of imported goods and the remaining EPC services, separately. To substantiate this submission, the applicant has further stated as follows: • that the contract no. 44AC9100-EPCC-1 is divisible in nature wherein the goods imported and sold on HSS basis can be separately identified from the rest of the EPC contract; • the minutes of meeting dated 16.6.2022 amends the contract and carves out import of goods as a separate supply; • the contract evidences separation of supply of imported materials from the rest of the EPC contract in view of the foregoing viz: • the bifurcation of the contract value with respect to supply of imported goods into India and sold ....
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....s on HSS basis cannot form part of a composite supply of works contract service, in view of the foregoing; * that the sale of imported goods and supply of balance EPC work are distinct; that sale of imported goods would not form part of composite supply as defined in the CGST/GGST Act; * that supply which is neither a supply of goods nor a supply of service, cannot be construed as a taxable supply & hence it cannot form part of a composite supply as well; * that sale of imported materials in terms of contract cannot be considered as part of a composite supply and hence cannot be part of the overall works contract; * that if tax is levied on the transaction of sale of goods on HSS basis under works contract service, it would amount to double taxation which is impermissible. * that value of imported goods supplied on HSS basis cannot form part of the works contract since IOCL, being the last buyer of goods under HSS would be liable to file a bill of entry and pay customs duty along with GST: * that since IOCL would be discharging its IGST liability while importing goods, charging GST again on the same transaction as work contract ....
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....the activities right from design, procurement, construction, commissioning, and thereafter handover of the project to the end-user or owner. Likewise, Turnkey contracts, places the responsibility for designing, engineering, procurement, and construction of the entire project on a single contractor. Such contracts further ensue that following completion, the client receives a ready-to-use facility. Further these contracts are usually 'fixed price' contracts. 19. Before setting out the contentions and our findings, it would be prudent to reproduce the relevant portion of the contract viz > Contract No: 44AC9100-EPCC-1. [relevant extracts] THIS CONTRACT made at New Delhi this 19th day of January 2021; BETWEEN INDIAN OIL CORPORATION LIMITED, a Government of India Undertaking registered in India under the Indian Companies Act, 1956. having its registered office at G-9, AU Yavar Jung Marg, Bandra (East), Mumbai-400 051 and the Headquarters of its Refineries division at Scope Complex, Core-2, 4th Floor, 7, Institutional Area. Lodhi Road. New Delhi - 110 003 (hereinafter referred to as the "OWNER which expression shall include its successors and assigns) of the....
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....onsumables, special tools and tackles, Pre-Commissioning Spares. Commissioning Spares, Start-up spares Mandatory spares), Fabrication, Manufacturing. Quality Assurance, Inspection & Expediting, Third Party Inspection. Supplies, Transportation, Insurance, Handlings Storage of all Equipment, Materials, items and other Construction Materials at yard/site. Fabrication, Assembly, Construction, Erection, common control room & substation, interconnection systems, Installation of all plant machinery including civil, Structural. Mechanical, Piping, Electrical and Instrumentation including tie-ins, spares tall type) handed over to IOCL store duly codified, as per IOCL requirement, Testing, Insulation. Painting, First fill of chemicals and lubricants, Obtaining all Statutory Approvals (except for Environment Clearance which will be obtained by M/s IOCL). pre-commissioning Mechanical Completion of Plant, Preparation of plant specific operating manuals, Start-up. Commissioning and Performance Guarantee Test Runs (PGTR). Training of Owner's OLM personnel, consumables (Chemicals cfc Lubricants) for 6 (six) months operation. Contract closure activities Final invoice/ billing & document hand ov....
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....ompletion, Pre Commissioning, Commissioning and Performance Guarantee Test Runs including Total Project Management and Handing Over of complete EPCC-1 package of Acrylic/Oxo-Alcohol Project IOCL Dumad Complex (near Gujarat at refinery! comprising of following two units namely AA UNIT 190 KTA) & BA UNIT (150 KTA) on Single Point Responsibility Basis as per the scope of work defined in the Contract. 3.3 The Lumpsum Price includes cost of all works which are required to be performed, executed and supplied by the CONTRACTOR as stipulated in the Contract and the cost thereof has been covered suitably and appropriately assigned to various available heads and categories in the Schedule of Prices. Non-identification of any works in the description of items included in Schedule of Prices and the Schedule of Break-up of Lumpsum prices shall not be considered a reason either for extra claims or not carrying out the work in strict conformity with drawings, specifications and instructions of Engineer-in-Charge. 3.4 The breakup of Lumpsum prices shall be used for preparation and submission of detailed Billing Schedule (Schedule of Activities and Bill of Material for release of ....
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....tion of new levy shall he worked out and differential amount shall he reimbursed or recovered by Owner. • GENERAL CONDITIONS OF LUMPSUM TURNKEY (LSTK) CONTRACT 3.0.2.0 MATERIALS 3.0.2.1 These General Conditions of Contract shall, on issue of the Letter of Acceptance to the CONTRACTOR, constitute a firm and indivisible contract for the sale and supply, to the OWNER of all materials required for incorporation in the permanent works as determined by the CONTRACTOR, within the scope of work, to be necessary to establish, commission and operate (so far as concerns mandatory spares) the Plant/ Unit delivered on CIF basis al Indian port of CONTRACTOR'S choice in respect of imported materials and delivered ex-factory in respect of other materials, at the price of materials specified in the Price Schedule. It is hereby clarified that the said contract shall include a contract for the sale and supply within the price of materials (and any recoveries in respect thereof under any policy of insurance) of all materials required for the replacement of any defective materials and any materials lost, damaged or destroyed during transit, storage, fabrication, erect....
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.... be cleared under MOOWR. For this IOCL shall obtain post export EPCG License from DGFT and imported goods shall he cleared in the IEC of IOCL by M/s Tecnimont Private Limited after endorsement of post export EPCG License in the Bill of Entry and on payment of applicable Customs duties and taxes. IOCL also informs that export obligation, Installation certificate and other compliances under EPCG will be complied by IOCL and thereafter BCD refund will be availed by IOCL. M/s. Tecnimont Pvt Ltd informed that all the imported goods will be directly sent to IOCL Dumad site. SOP for handling imports in case of LSTK Contractor under MOOWR was also discussed during the meeting. Upon IOCL intimation, LSTK Contractor will execute imports under MOOWR/EPCG under the responsibility of IOCL. After detailed deliberation, it was decided to clear all the imported consignment in the name of IOCL based on the high sea sale agreement to be executed between M/s IOCL and M/s Tecnimont Private Limited. M/s Tecnimont Private Limited informed to share the list of items to he Imported through email latest by 15th Feb' 2022 specifying the details such as tentative value, port of....
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....ct to applicable terms and conditions of the Tender. Where goods are not cleared under MOOWR. post export EPCG License number shall he endorsed in the Bill of Entry to be filed by M/s Tecnimont in the name of IOCL. For applying the aforesaid EPCG License, requisite information will be provided by M/s Tecnimont. 5. Bill of entry in the name of IOCL is to be filed based on the values given in the high sea sale agreement. 6. M/s Tecnimont requested IOCL to make the payment of Customs directly wherein goods are not cleared under MOOWR i.e, cleared under Post export EPCG. IOCL accepted the same and informed that SP-3 ceiling/as mentioned above would be applicable. 7. Existing approved billing breakup will be broken into two parts viz. Imported Supplies and other. Existing approved billing schedule will be effective, and payment shall be governed by existing approved billing schedules till the lime imported and remaining billing breakup is not approved and shall not result in delay in payment on account of pending approval of billing schedule. M/s Tecnimont also requested IOCL to share the list of people signing the High Sea Sale agreement in ....
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....ntract could not have been liable to be taxed under the State sales tax laws and whether the contract was a works contract or a contract for sale of goods was dependent on the dominant intention as reflected from the terms and conditions of the contract and many other aspects. In certain cases, the court has not treated the contract to be a works contract by repelling the plea of the assessee after taking into consideration certain special circumstances. No straitjacket formula could have been stated to be made applicable for the determination of the nature of the contract, for it depended on the facts and circumstances of each case. As the works contract could not he made amenable to sales tax as the State Legislatures did not have the legislative competence to charge sales tax under Entry 48 List II of the Seventh Schedule of the Constitution on an indivisible contract of sale of goods which had component of labour and service and it was not within the domain of the assessing officer to dissect an indivisible contract to distinguish the sale of goods constituent and the labour and service component. The aforesaid being the legal position, the Parliament brought in the Forty-sixth....
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....s a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts, and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the bui....
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....which are reproduced supra], entered into by the applicant & IOCL, is to execute the work of "EPCC-/ Package for Acrylic Acid & Butyl Acrylate Unit of Acrylic/ Oxo-Alcohol Project ". While arguing that the contract entered into identifies two separate set of supplies [i] works contract for EPC work pertaining to EPCC-1 project; & [ii] supply of imported materials for the said project, the applicant ignores a major factor viz that it is a lumpsum turnkey EPC contract. Therefore, to divide a turnkey EPC contract into two parts, is legally not tenable. It is not their case that they have entered into two different contracts. In-fact, ongoing through the Minutes of the Meeting, reproduced supra, vjq find that post the contract, IOCL and the applicant had a rethink & carved out the foreign supply of goods [HSS] from the turnkey EPC contract, primarily to avail the benefit of Manufacture and other Operations in Warehouse Regulation, 2019 [MOOWR| and EPCG by fictionally dividing an otherwise single turnkey contract into [a] supply of goods and [b] supply of services. 24. Now, we move on to the first question on which the applicant has sought ruling viz whether the transaction of sale o....
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.... (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council. shall be treated neither as a supply of goods nor a supply of services. 26. As is evident, in terms of Schedule III, read with section 7(2) of the CGST Act, 2017, supply on High Sea Sale basis, is treated as neither a supply of goods nor a supply of services. Thus, the question of levy of GST on such supply does not arise. 27. Moving on to the second portion of the same question, viz, as to whether sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on HSS Sale basis in terms of the contract shall be excluded from the value of works contract service for charging GST? Now, additions and inclusion, as far as valuation under CGST is concerned, is governed by section 15 of the CGST Act, 2017, which states as follows: [relevant extract] Section 15. Value of Taxable Supply.- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price ....
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.... before the goods reach the Customs frontier in India, enters into a HSS agreement with IOCL, transferring the ownership of the goods to IOCL at the agreed price in the contract. IOCL files a bill of entry as the importer and discharges customs duty and IGST. As is mentioned in the minutes, this is primarily to avail the benefit of Manufacture and other Operations in Warehouse Regulation, 2019 [MOOWR] and EPCG. The applicant, in terms of the contract, is liable to provide the goods [supplied on HSS basis] and hence the submission that this value is not to be included in the transaction value in respect of works contract service is legally not tenable more so since the applicant is contractually bound/liable to supply both the goods and the services. Therefore, in terms of section 15, ibid, the value of such imported goods would form a pan of the transaction value for payment of GST. 28. In-fact the issue of whether free supply would form a part of transaction value, is no longer res Integra having been decided by the Hon'ble Chhattisgarh High Court in the case of M/s. Shree Jeet Transport [Writ Petition No. 117/2022 decided on 17.10.2023], the relevant extracts of which are ....
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.... is provided FOC by the service recipient would nevertheless would be added to the value of taxable service for the purpose of GST on application of Section 15 (1) read with Section 2 (31) of the CGST. It was further held that since fuel was an essential ingredient without which the transport service cannot be rendered, the cost of fuel cannot be ignored. 14. The petitioner having not satisfied with such ruling, filed an appeal before the Appellate Authority i.e. AAAR wherein the AAAR passed an order dated 28-2-2022. The Member of the CGST (Central) upheld the view of the AAR and held that diesel, which is filled FoC by the service recipient in the engaged chartered (dedicated) vehicles as per the proposed draft agreement would form part of value of supply of service charged by the appellant and applicable rate of GST was to be leviable whereas the SGST Member held that considering the provisions 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 contr....
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....sideration. When it is the primary business of the GTA, in order to allow running the vehicles by fuel, it is a potential combination. If that part of responsibility is delegated by way of an agreement to the recipient, in such a case, the recipient would step into the shoes of GTA as its component and would be playing central role in setting narratives. 23 ............................................. Section 7 of the Act explains that expression "supply" would include all forms of supply made or agreed to be made for consideration in furtherance of business by the supplier. So the nature of business would be the decisive factor and if such consideration is shifted by entering into agreement, it would be encroaching upon turf of G.T.A., and would only be a collective enthusiasm and that statutory liability cannot be evaded. As has been laid down by the Supreme Court in CLP India Pvt. Ltd. Versus Gujarat Urja Vikas Nigam (2020) 5 SCC 185, the parties by agreement cannot over-ride the statutory provisions in relation to matter of tariff.. 25. Section 15(2)(b) says that the value of supply shall include any amount that the supplier is liable to pay in relation to su....
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....der 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 supply by the service recipient has been excluded as per final GST Law. Therefore, the legislative history in the draft GST Law is required to be seen. It is contended that there is a conscious omission by the Legislature to include value of free supply by recipient to evaluate the entire supply. The reference is made to case law reported in (2022) 10 SCC 700 - Mohit Minerals Pvt. Ltd (supra). 27. However, when we examine the final GST Law, Section 15(2)(b) includes that any amount that the supplier is liable to pay in relation to such supply but has been incurred by the service recipient and not included in the prices paid or to be payable is to be taken into account to value the service answers this query. The Legislature has categorically enve....
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....f all Equipment. O Materials, items and other Construction Materials at yard/site, Fabrication. Assembly O Construction, Erection, common control room & substation, interconnection systems, Installation of all plant machinery including civil, Structural. Mechanical, Piping, Electrical and Instrumentation including tie-ins, spares tall type) handed over to IOCL store duly codified, as per IOCL requirement. O Testing, Insulation. Painting, first fill of chemicals and lubricants, obtaining all Statutory Approvals (except for Environment Clearance which will be obtained by M/s IOCL), pre-commissioning Mechanical Completion of Plant, Preparation of plant specific operating manuals. Start-up. Commissioning and Performance Guarantee Test Runs (PGTR), O Training of Owner's OLM personnel, consumables (Chemicals & Lubricants) for 6 (six) months operation. Contract closure activities * in terms of para 3.2 & 3.3 under the heading Price Schedule in the detailed letter of acceptance, reproduced supra', * as per the General Conditions of Lumpsum Turnkey (LSTK) contract, under para 3.0.2.0 Materials, wherein it is clearly mentioned tha....
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....s a part of the works contract service. The averment raised is not tenable owing to the fact that in terms of section 12 of the CGST Act, 2017, the liability to pay tax shall arise at the time of supply of goods. In this case the time of supply in respect of imported goods is when the goods land in the customs frontier, primarily owing to the carving out the supply from the contract on account of the minutes. However, as per the turnkey EPC contract, the applicant is providing a works contract service which encompasses the supply of goods and the service in setting up the EPCC-1 Package for Acrylic Acid & Butyl Acrylate Unit of Acrylic /Oxo-Alcohol Project at IOCL Dumad Complex. The liability of the applicant to pay tax on works contract service in respect of this supply of service, shall arise at the time of supply in terms of section 13, ibid. Therefore, the argument that the imported goods supplied on HSS basis are subject to tax as intra state supply belies fact, what is supplied under the works contract is not the imported goods but Acrylic Acid & Butyl Acrylate Unit of Acrylic /Oxo-Alcohol Project. The argument therefore lacks merit. 33. The applicant has further stated th....
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....dents regarding the impugned notifications amounting to double taxation. The respondents have submitted before this Court that the transaction between the foreign exporter and the respondents is already subject to IGST under Sections 5 of the IGST Act read with Sections 3(7) and 3(8) of the Customs Tariff Act as "supply of goods". An additional levy of IGST on imported goods, that is on the supply of transportation service, by designating the importer as the recipient would amount to double taxation. 145. This Court is bound by the confines of the IGST and CGST Act to determine if this is a composite supply. It would not be permissible to ignore the text of Section 8 of the CGST Act and treat the two transactions as standalone agreements. In a CIF contract, the supply of goods is accompanied by the supply of services of transportation and insurance, the responsibility for which lies on the seller (the foreign exporter in this case). The supply of service of transportation by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, on which the IGST is payable under Section 5(1) of the IGST Act read with Section 20 of ....
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....o be manifestly arbitrary. Therefore, the submission of treating both the domestically procured goods and imported goods on different footing, is legally incorrect and fails on merit too. 37. The second question on which the applicant has sought a ruling is whether the transaction of sale of goods on high seas sale basis by the Applicant to IOCL in terms of Contract No. 44AC9100-EPCC-1 would be treated as works contract and whether Applicant is liable to charge GST on the goods sold on high seas sale basis to IOCL? If yes, what will be the applicable rate of tax on such goods supplied? We find that the question stands answered. The transaction of sale of goods on high sea sale basis by the applicant to IOCL in terms of contract No. 44AC9100-EPCC-1 would fall under schedule -III, as mentioned supra, at the time of supply of imported goods which as we have already held is not leviable to GST. 38. In the light of the above, we rule as under: RULING 1. The transaction of sale of goods by Tecnimont Pvt. Ltd. (TCMPL) to Indian Oil Corporation Ltd. (IOCL) on High Seas Sale [HSS] basis in terms of Contract No. 44AC9100-EPCC-1 is covered under Entry 8(b) of Schedule III of the C....