In re PES Engineers Pvt. Ltd. (GST AAR Telangana)
Supply of goods and services through separate contract will not be considered as composite supply when naturally not bundled
The AAR, Telangana in the case of M/s. PES Engineers Pvt. Ltd. [TSAAR Order No. 09/2023 dated April 13, 2023] held that where parties entered into 2 distinct and separate contracts, one for supply of goods and another for works contract services in such case both contracts will be considered as separate contracts and any advance received for supply of goods will be taxed as per Section 12(2)(a) of the Central Goods and Services Tax Act, 2017 (CGST Act).
Facts:
M/s. PES Engineers Pvt. Ltd. (“the Applicant”) is engaged in the construction and maintenance of various types of power projects.
The Applicant is awarded with 2 contracts by M/s. Singarenni Collieries Company Ltd. (“SCCL”) vide bid notifications dated December 28, 2021.
Accordingly, the Applicant entered into 2 agreements with SCCL. As per the scope of first contract is related to supply of goods i.e the Flue Gas Desulphurization (“FGD”) system, Limestone and gypsum handling system, items related to chimney and the spares related to above parts etc. The second contract is related to primarily to service of transportation, insurance, unloading at site, storage, erection, civil works, safety aspect to safety rules, testing, commission and conducting guarantee tests of the goods supplied under the first contract.
The Applicant further stated that it has received advance of 5% and 7.5% which is specifically for supply of goods under the first contract and
Accordingly, the Applicant claimed that since the activities of both contracts are properly demarcated thus, each contract has to be independently assessed for the purpose of GST.
The Applicant contended that he is liable to pay tax on goods at the time of supply, which is the date of issue of invoice and not on the date on which he receives advance payments goods under first contract.
Issue:
Whether the Applicant is exempt from payment of tax on advances received, as per Notification No. 66/2017-Central Tax dated November 15, 2017?
Held:
The AAR, Telangana in TSAAR Order No. 09/2023 held as under:
- Observed that, the scope of supply undertaken under the individual contracts are entirely independent and specific to that contract and are not associated with other contract.
- Further observed that, contract agreement document had put a condition that there are two separate contracts that need to be entered into i.e. one for sale of goods and the other for supply of service. Therefore, both the contracts are separate and cannot be clubbed together.
- Noted that, the supply undertaken under the first contact terminates with making goods available ex-works and loading such goods on to the mode of transport. The moment the Applicant raises tax invoice for the supply of goods and endorse the dispatch documents, the title of the goods passes on to SCCL.
- Further noted that, 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.
- Stated that, the mere fact that different tasks, i.e. two contracts for which separate invoices were issued by the Applicant to SCCL, 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.
- Ruled that, the applicant is eligible for the benefit of Notification No.66/2017 Central Tax dated November 15, 2017 and accordingly, the tax liability on sale of goods will arise as per Section 12(2)(a) of the CGST Act.
Relevant Provisions:
Section 12(2) of the CGST Act
“Time of supply of goods
The time of supply of goods shall be the earlier of the following dates, namely:-
(a) the date of issue of invoice by the supplier or the last date on which he is required, under section 31, to issue the invoice with respect to the supply;”
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TELANGANA
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