TaxTMI 
TaxTMI 
2025 (2) TMI 59
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.....1 M/s. Indian Oil Corporation Limited (Refinery Division), P. O. Jawahar Nagar, Vadodara, Jawahar Nagar PIN 391320 [ for short - 'IOCL'] invited bids for execution of EPC package (EPCC-09) for Catalytic De-Waxing Unit ('CDWU') for its Petrochemical and Lube Integration Project ('LuPech') on open tender basis. The successful bidder is contractually obligated to execute the work on lump sum turnkey basis with single point responsibility. 2.2 The applicant submitted bid for the project, which after evaluation was accepted by IOCL and they were issued a letter of acceptance. The contract dated 6.9.2022 entered thereafter with IOCL comprises of the following documents viz: • Fax of acceptance No. RHQ/PJ/LUPECH (J18)/2020-21/ EPCC-09/ FOA-13 dated 30.06.2022 ('FOA'); • Work order No. 27984081 dated 15.07.2022; • Tender documents as defined in the General Instructions to the tenderers along with Addendums/Corrigendums; • The draft contract for sale of imported goods on a high seas sale basis. 2.3 The applicant's scope of work in terms of the tender states as follows viz • Supply of imported components on a high seas s....
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.... 2.4 Further, in the fax of acceptance, which forms part of the contract, it is stated as follows: YOUR BID AGAINST THE TENDER FOR THE SUBJECT WORK EPCC-09 (ENGINEERING, PROCUREMENT CONSTRUCTION, AND COMMISSIONING] PACKAGE FOR CATALYTIC DEWAXING UNIT FOR PETROCHEMICAL AND LUBE INTEGRATION PROJECT "LUPECH" (J-18) PROJECT AT IOCL GUJARAT REFINERY, INDIA [TENDER REFERENCE NUMBER 077154C/T/Lupech(J18)/LSTK-9 AND TENDER ID. 2021_REFHQ-145728-1] HAS BEEN ACCEPTED 1. THE TOTAL LUMP-SUM CONTRACT VALUE [SP-O] SHALL BE INR 587,55,48,702 [RUPEES FIVE HUNDRED EIGHTY-SEVEN CRORES FIFTY FIVE LAKHS FORTY EIGHT THOUSAND SEVEN HUNDRED AND TWO ONLY] & USD 734,934 [SEVEN HUNDRED AND THIRTY FOUR THOUSAND NINE HUNDRED AND THIRTY FOUR ONLY) THE TOTAL LUMP SUM CONTRACT VALUE SHALL BE INCLUSIVE OF ALL TAXES AND DUTIES EXCEPT QUOTED IN FORM SP-3 OF THE TENDER. TAXES AND DUTIES QUOTED IN SP-3 SHALL BE PAID AS PER THE TERMS AND CONDITIONS OF THE TENDER. 5. THE IMPORTED GOODS SHALL BE SOLD TO IOCL ON PRINCIPAL-TO-PRINCIPAL BASIS OUTSIDE INDIA AND BILL OF ENTRY SHALL BE FILED IN THE NAME OF IOCL UNDER MANUFACTURE AND OTHER OPERATION IN WAREHOUSE REGULATIONS, 2019. THE PAYMENT OF CUS....
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....ed to have been sold in the execution of works contract. 4. It is the applicant's case that in the GST regime, the two major deviations in the works contract is [a] that the works contract should result in an immovable property; that it is a sine qua non for supply to qualify as a works contract; & [b] that under the GST regime, the entire works contract, is treated as a supply of service in terms of para 6(a) of Schedule II of the CGST Act, 2017. The guiding principles however, for what will be considered as a part of supply under the works contract, remains the same. 5. The next argument is that a single document/instrument can contain multiple contracts and identical contracts; that it is a settled law that a single document/instrument may contain within it several contracts; that whether a single document/instrument contains one or more contracts or vice versa should be determined having regard to the terms and conditions stated therein & not by the fact that there is one document/instrument etc.. 6. The next averment is that in terms of section 19 of the Sale of Goods Act, 1930, when parties to a contract agree that the property in goods is transf....
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....her the component imported goods will be taxable as a supply of goods at the time of importation or as a service at the time of incorporation in the works contract i,e. when the erection, commission and installation of goods takes place 3. When imported goods are sold by the supplier to a recipient on a high seas sale basis and such goods are cleared from customs by the recipient (as the importer on record) on payment of duty & Integrated Goods and Service Tax (under Section 5 (1) of the Integrated Goods and Services Tax Act, 2017 read with Section 12 of the Customs Act and Section 3 of the Customs Tariff Act, and later such imported & duty paid goods are erected, commissioned and installed by the same supplier in such circumstances [a] Whether a supply of goods can be subjected to GST twice, first as supply of goods at the time of importation in the hands of the recipient / importer and a second time as a component of supply of service in the hands of the supplier of EPC contract service at the time of incorporation of the imported goods in a works contract by way of erection, commission and installation? [b] Whether the value of goods sold on a high sea....
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....e India and sold to IOCL on High Seas Sale basis before entering Indian tax territory, and 2) turnkey component within India. 12-02-2022 3. Tender filed by Thyssenkrupp Uhde India Private Limited (then Thyssenkrupp Industrial Solutions India Private Limited) 28-02-2022 Project Execution Stage 4. Tender awarded to thyssenkrupp Uhde India Private Limited vide Fax of Acceptance RHQ/PJ/LUPECH (J18y 2020-21/ EPCC-09/ FOA-13 30-06-2022 5. Work Order No. 27984081 (refers to tender conditions related to supply of imported material and the customers intention to avail benefit of MOOWR) 15-07-2022 6. IOCL entered into a contract with thyssenkrupp Uhde India Private Limited 06-09-2022 7. Work Order No. 27984081 (refers to tender conditions related to supply of imported material and the customers intention to avail benefit of MOOWR) 15-07-2022 8. Work Order no 18033064 (refers to tender conditions related to supply of imported material and the customers intention to avail benefit of MOOWR) 17-02-2023 9.1 Order placed for imported material no. 1 25-01-2023 9.2 Imported material sold on High Seas Sale basis vide ....
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...., the relevant point of time is when the goods are removed/made available to the recipient; that as per the terms of the contract this event occurs when the goods are placed on board a vessel (FOB) or by endorsing the bill of lading in favour of IOCL while the goods are on high seas; • that the imported component was purchased by the applicant and subsequently supplied to IOCL; that the cost of the same was paid by the applicant & not by IOCL; that the question of invoking clause (b) of section 15 (2), ibid, does not arise; • that section 15 (2) (b), can be invoked only if the supplier was liable to pay the amount but the same was paid for by the recipient; that in this case the applicant was never 'liable to pay the amount; that per the terms of the contract, the applicant had agreed to supply the imported component, the payment of which was made by the applicant to the foreign vendor; that IOCL has not paid directly to the vendor any money whatsoever; • that the two conditions i.e. supplier's liability to pay and recipient incurring the same, is not fulfilled for section 15 (2) (b) to apply in this present dispute; • that in res....
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....e when completely ready for occupancy or operation. Likewise, Turnkey contracts, places the responsibility for designing, engineering, procurement, and construction of the entire project on a single contractor. Such contracts further ensure that following completion, the client receives a ready-to-use facility. Further these contracts are usually 'fixed price' contracts. 17. To put things in perspective, we observe that IOCL had floated a tender for supply of catalytic dewaxing unit [CDWU] for petrochemical & Lube Integration Project 'LuPech" (J18) at IOCL Gujarat Refinery; that IOCL thereafter made an addendum to bidding document specifying that the imported goods are to be sold on HSS [high sea sale basis]; Work Order No. 27984081 is relating to work order amount of Rs. 5,87,55,48,702; Work order No. 18033064 dated 17.2.2023 is relating to work order amount of Rs. 565,23,773.94; that the total LSTK (lump sum turn key) value shall be Rs. 5,87,55,48,702 and USD 7,34,934, which when converted into INR (Indian Rupees) is Rs. 56523773.94 [ in terms of clause 2.2(i) of work order No. 18033064 dated 17.2.2023 is 01 USD INR 76.91 only]. 18. The applicant's contention primarily is t....
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....lling 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 be 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 Amendment by incorporating Clause (294) in Article 366 of the Constitution to undo the base of the Constitution Bench decision in Gannon Dunkerley's-I case. 42. At this juncture, it is condign to state that four concepts have clearly emerged. They are (i) the works contract is an indivisible contract but, by legal fiction, is divided into two p....
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....bay 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 building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms,....
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.... for Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. 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. Though they have entered into two different work orders, as listed above, ongoing through the workorders provided along with the application, we find that the work orders are similarly worded except for the amounts. It is an undisputed fact that IOCL, post issue of tender documents, had a re-think and issued an addendum by carving out the foreign supply of goods [HSS] as a separate work, primarily to avail the benefit of Manufacture and other Operations in Warehouse Regulation, 2019 [MOOWR] by fictionally dividing an otherwise single turnkey contract into [a] supply of goods and [b] supply of services. 22. Now, moving on to the first question on which the applicant has sought ruling as to whether the c....
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....or 6 (Six) months of operation, contract closure activities of the Catalytic de-waxing Unit (CDWU), Control room, Substation, Laboratory and interconnecting system as per Bidding documents, and Final invoice/billing and handing over of the facilities with Final and "As Built" drawing/documentation, supply of spars with necessary support and services during defect liability period and supply of Chemicals, desiccant/adsorbent, Catalysts (Other than free issue), Tool & Tackles, Consumables, Lubricants, Refrigerants, for initial charge and replenishment of any loss of these during Commissioning up to handing over after successful PGTR of the facilities. On going through the scope of work in respect of work order no. 18033064 dated 17.2.2023, we find it to be verbatim the afore-mentioned scope of work. 24. Further, under work order no. 27984081 dated 15.7.2022 for Rs. 5875548702/-, under the 'Header text' it is mentioned that single order 27984081 is placed to the applicant [including imported material]; that 10% milestone payment pertaining to foreign supply has already been released to party along with GST; that as per tender condition with reference to MOOWR, separate purchase ....
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.... 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 at 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, erection or otherwise prior to the issue of the Completion Certificate. (a) These General Conditions of Contract shall, on issue of the Letter of Acceptance to the CONTRACTOR, constitute a firm contract for the sale and supply to the OWNER of all materials as determined by the CONTRACTOR within the scope of services to be necessary to establish, commission and operate (so far as ....
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....ith the IOCL, is a works contract as defined u/s 2 (119) supra. Further, there is nothing on record either in the application or in the additional submission averring that the EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India, is not an immovable property. 28. The aforementioned view is also substantiated in the Constitution Bench judgement in the case of M/s. Kone Elevator India Pvt. Ltd., supra, wherein it was held as follows: 38. Reference to the aforesaid authorities is for the purpose that post the constitutional amendment, the Court has been interpreting a contract of work, i.e.. works contract in the constitutional backdrop. In certain cases, which involve transfer of property and also an element of service in the context of work rendered, it has been treated as works contract. 39. The essential characteristics have been elucidated by a three-Judge Bench in Larsen and Toubro (supra) thus:- ""As the very title of Article 366 shows, it is the definition clause. It starts by saying tha....
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....g given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present. It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has been further held that once the characteristics or elements of works contract are satisfied in a contract, then irrespective of additional obligations, such contract would be covered by the term "works contract" because nothing in Article 366(294) (b) limits the term "works contract" to contract for labour and service only. 42. At this juncture, it is condign to state that four concepts have clearly emerged. They are (i) the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (ii) the concept of "dominant nat....
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....he CGST Act, 2017: Sub section (2) of section 7[relevant extract] (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b)... ..... ...... ...... ...... ............ ...... ...... ...... ...... ...... ...... ...... shall be treated neither as a supply of goods nor a supply of services. SCHEDULE III Activities or transactions which shall be treated neither as a supply of goods nor a supply of services: [relevant extract] 1........................................... 2........................................... 8(a)......................................; 8(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption. 33.2. We find that in terms of Schedule III, read with section 7 (2) of the CGST Act, 2017, supply on HSS 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. ....
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.... who receives the subsidy. What will be included and excluded in the value of supply, is governed by sub-sections 15 (2) & (3) of the CGST Act, 2017. In terms of sub-section 15 (2), ibid, the value of supply shall include any amount that the supplier is liable to pay in relation to such supply 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. The EPC contract, we find, encompasses both the supply of goods and services. At the cost of repetition, the contract is for executing EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. Further, a-reading of the contract with the two work orders and amendment to the contract, depicts that the applicant, during the course of importation and 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. The applicant clears the imported goods for an on behalf of IOCL. This ....
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....uthority 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 of agreement, it was agreed that the petitioner would provide trucks/trailers along with driver for transportation of goods belonging to the service recipient on a day-to-day and non-exclusive basis and further as per Clause 2 of the draft agreement, the service recipient will be responsible for providing fuel in the trucks/trailers supplied by the petitioner on free of cost basis (FOC) thereby it was agreed that component of fuel would not be the responsibility of the petitioner, who is a GTA, in the scope of service recipient............ 2.2............ It is expressly clarified that the value of fuel which is in the scope of the Company shall by no means be interpreted as additional consideration payable for the transportation service provided by the Transporter or having been provid....
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.... 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 survival of a GTA. If the GTA has stitched up to provide service by obtaining fuel on FOC basis by contract with recipient Company, this phenomenon would transcend the activity which reflects a broader shift in name of contract, therefore, the revenue has power to remove the lid to find out the object and purpose. 22. In the instant case, the scope of supply as defined in section 7 of the GST Act purports "all forms of supply of services" made or agreed to be made for consideration "in the course" or "furtherance of business". The words used in Section 7 (1) (a), "in course" or "furtherance of business" would point out about service to be provided by the transporter as a GTA. The contention of petitioner that the "consideration" is required to be confined as per the terms....
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....acts by other angle, the expenses to fill the diesel in vehicle in furtherance of supply of service in normal condition was to be incurred by the GTA and it was his liability to fulfill such supply. However, in this issue, the expense of fuel has been agreed to be incurred by the recipient by agreement and value of diesel is excluded to evaluate the value of supply. The statutory provision of Section 15 (2) (b) takes within its sweep to value, which is incurred by recipient. Therefore even by agreement in between the GTA and service recipient, this statutory liability cannot be sidelined and the merited attention of the statute sets a red line. Therefore, in the instant case, the value of service agreed to be provided necessarily will depend on the nature of service and the nature of business. The petitioner who can survive to run the business of goods transport on fuel therefore cannot claim that the diesel is supplied by the service recipient free of cost, as such, it cannot be included as the fuel is an integral part used in providing the Transportation Service and is essential for GTA provider. Without fuel the entire business of GTA cannot survive. Therefore, fuel being an int....
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....tation. Since the transportation inter-alia is an inter-dependent on supply of fuel, it would be a crucial component to run the business of GTA. If such integral part of survival of reins are held by service recipient, in such a case, it would be actually doing the substance addition of GTA survival. Therefore, the Circular dated 8th June 2018 on which the petitioner tried to rely upon would not be of any help especially considering the nature of business and the provisions of Section 7(1) (a) and 15 (2) (b) of CGST Act. 31.. ..... ...... ...... ..... .... In view of the observations made in foregoing paragraphs the initial order passed by the AAR on 04.01.2021 shall revive and it is observed that though the diesel was provided free of cost by the service recipient, it would nevertheless be added to the value for the purpose of GST. In the aforementioned judgement, though the recipient of the supply was legally bound via the agreement to provide for free diesel, yet the Hon'ble High Court, held that the free supply would form part of the transaction value, for the purpose of GST. The judgement further holds that if consideration is shifted by entering into an agreement,....
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....me of supply in respect of imported goods is when the goods land in the customs frontier. 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-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. 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 twice first as supply of goods at the time of import & secondly as component of supply of service belies fact, since what is supplied under the works contract is not the imported goods but EPCC-09 [Engineering, Procurement, Construction and Commissioning) package for Catalytic De-waxing unit for "Petrochemical and Lube Integration Project "LuPech (J18)" at IOCL Gujarat Refinery, Vadodara Gujarat India. The argument, therefore, lacks merit. 42. Lastly, the appli....