PES Engineers Pvt. Ltd. ("the Company") is a reputable firm specializing in the construction and maintenance of diverse power projects. Recently, they secured a significant contract from Singarenni Collieries Company Ltd. ("SCCL") through a competitive bidding process, with bid notifications issued on December 28, 2021.
Under this agreement, the Company entered into two distinct contracts with SCCL. The first contract focuses on the supply of various goods, including the Flue Gas Desulphurization (FGD) system, Limestone and gypsum handling system, chimney-related items, and associated spare parts. The second contract encompasses a range of services such as transportation, insurance, on-site unloading, storage, erection, civil works, adherence to safety regulations, testing, commissioning, and conducting guarantee tests for the goods supplied under the first contract.
The Company has received advance payments of 5% and 7.5% specifically allocated for the supply of goods under the first contract. They argue that since the activities and obligations of both contracts are clearly separated, each contract should be evaluated independently for GST (Goods and Services Tax) purposes. Therefore, they contend that GST should only be payable on the goods at the time of supply, i.e., when the invoice is issued, and not at the time of receiving advance payments.
The central issue at hand is whether the Company is eligible for exemption from tax payment on the advances received under the first contract, as per Notification No. 66/2017-Central Tax dated November 15, 2017.
In response to this query, the Telangana Authority for Advance Rulings (AAR) issued TSAAR Order No. 09/2023, rendering the following judgment:
Upon thorough examination, the AAR concluded that the supply of goods and services under the two contracts is entirely independent, with no interrelation between them.
Furthermore, it was observed that the contract agreement clearly stipulated the necessity of executing two separate agreements—one for the sale of goods and the other for the provision of services. Therefore, the AAR determined that these agreements remain distinct and cannot be treated as a single entity.
The AAR further noted that the supply under the first contract reaches completion at the point when the Company issues the tax invoice for the goods and endorses the related documentation.
Additionally, it was highlighted that the transfer of property in the goods supplied under the first contract does not take place during the execution of the works contract under the second contract. As a result, the value of the goods cannot be included in the works contract services.
Addressing the argument of the Company, the AAR emphasized that assigning different tasks through a single contract and issuing separate invoices for each task does not constitute a 'composite supply' under Section 2(30) of the CGST (Central Goods and Services Tax) Act.
Consequently, the AAR ruled in favor of the Company, affirming their eligibility for the benefits outlined in Notification No. 66/2017-Central Tax dated November 15, 2017. Accordingly, the tax liability on the sale of goods will arise as per Section 12(2)(a) of the CGST Act.
Team Taxonation
Comment: