In re Technip UK Limited (GST AAR Maharastra)
From a perusal of the provisions relating to Advance Ruling, it is seen that Advance Ruling means a decision provided by this authority to an applicant on specified questions and matters in relation to the supply of goods or services or both or being undertaken or proposed to be undertaken by the applicant. Thus the broad objective for setting up this mechanism is to –
i) . provide certainty in tax liability in advance, in relation to an activity proposed to be undertaken by the applicant;
ii) attract Foreign Direct Investment (FDI);
iii) reduce litigation;
iv) pronounce ruling expeditiously in transparent and inexpensive manner;
An Advance Ruling, thus helps the applicant in determining the liability to pay GST. It also brings certainty in determining the tax liability with no litigation as the ruling is binding on the Government authorities besides the applicant. On the contrary we find in the present case that the tender contract is awarded to a consortium other than the applicant and as such the possibility of supply of goods or services or both by the applicant pertaining to the said tender contract is no more available.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING MAHARASTRA
PROCEEDINGS
(Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as “the CGST Act and MGST Act”] by M/s. Technip UK Limited, seeking an advance ruling in respect of the following questions.-
(a) Whether the terms of the NIT, in particular its self-styled description as ‘lump sum turnkey’ contract, renders it as a ‘works contract as understood under the GST law?
(b) In the event the answer to (a) is in the affirmative, does it imply that each and every supply made to ONGC under the contract would he subject to rate of tax as applicable to a ‘works contract’ ?
(c) In the event the answer to (a) is in the affirmative;-
(A) Will the position change if the members of the consortium raise distinct invoices and ONGC also pays directly to the members?
(B) Can it be said that in such circumstances the individual invoices will not be affected by the overall description as a ‘works contract’ ?
(d) In the event the answer to (a) is in the affirmative and only one single rate of tax applies to the entire contract, can the members of the claim rate of tax in terms of Notification No. 39/2017 -Integrated Tax (Rate) dated 13.10.2017?
(e) In the given facts of the instant application, can the member of the consortium supplying goods alone claim concessional rate of tax of 5% in terms of Notification No. 3/2017-Integrated Tax (Rate) dated 28.06.2017?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act /MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
STATEMENT OF FACTS
The relevant facts leading to the application are set out as under:
1. We, M/s Technip UK Limited (hereinafter referred as ‘we’ /’Technip’ or ‘Applicant’) are making this application under the provisions of Section 97 of the Maharashtra Goods and Service Tax Act, 2017 (MGST Act’) read with (i) Section 97 of the Central Goods and Services Tax Act, 2017 (CGST Act’) and (ii) Section 20 of the Integrated Goods and Services Tax Act, 2017 (IGST Act’).
FACTUAL BACKGROUND
2. The present application has been filed before this Hon’ble Authority to seek clarity on the applicable rate of tax on the transaction proposed to be executed in relation to tenders issued by the Oil and Natural Gas Corporation of India Ltd. (‘ONGC’) for executing erection, commissioning and installation work on turnkey basis for petroleum operations.
3. In this regard, a sample Notice Inviting Tender (‘NIT’) issued by ONGC is enclosed with this application as ANNEXURE – 3. Further, the ‘General Conditions of Contract (GCC’) appended to the NIT is also enclosed herewith as ANNEXURE- 4. Bid Evaluation Criteria released by ONGC is enclosed as ANNEXURE-5.
4. For ease of reference of this Hon’ble Authority, in the following paragraphs the Applicant is herein summarizing the relevant clauses and also reproducing appropriate clauses of the NIT and BEC in so far as it is relevant for this application.
5. Tenders issued by ONGC normally relates to erection, commissioning and installation of plant and machinery for ONGC. In terms of the NIT, bids are invited for overall responsibility of entire project. Further, as per the NIT and its accompanying Annexures, the bidders are required to give an ‘overall lump sum price’ towards carrying out the obligations under the NIT. A detailed breakup of the price is also required by the ONGC.
6. It is also pertinent to point out that the NIT permits a consortium of members to bid as well. In this regard, the following may be noted:-
i) With respect to certain tenders, the Applicant would like to participate not individually but as part of a consortium. This consortium would comprise of the Applicant and another member, and there will be a joint bid.
ii) In the above scenario, the members of the consortium will separately supply the goods and services i.e. one member will supply the goods and other member will supply the service.
iii) In terms of the NIT, the members of the consortium are required to (i) make separate supplies to the ONGC and (ii) can raise invoices upon ONGC directly for their respective supplies.
iv) These invoices will be separately and directly paid by the ONGC to the respective member of the consortium.
7. In the aforesaid background a question has arisen as to the applicable rate of GST to be charged on the respective invoices of the members of the consortium which would be raised upon ONGC. The question has arisen inter alia in view of the characterization of the NIT in consideration. The precise issue is whether in the facts of the NIT described above and taking into account its relevant clauses the NIT (when it is eventually executed into a contract) render it into (i) a ‘works contract under GST law taking into consideration the supplies of both the members of the consortium conjointly, or (ii) the supplies made by the respective members would be treated as distinct supplies for GST purposes.
8. The reason for this confusion inter alia stems from the provisions of the GST laws which are discussed below.
RELEVANT PROVISIONS OF THE ‘GST’ LAW
9. The Applicant understands that certain provisions of the GST legislations may be relevant, though not conclusive, in respect of the inquiry at hand. These are discussed in conjunction with the relevant factual aspect of the NIT in the following paragraphs below.
10. The definition of ‘works contract under CGST Act, which corresponds to the definition under the MGST Act, is to the following effect;
“(119) “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract;”
11. The above definition may be relevant to determine whether the lump-sum-turnkey contract that will be executed by ONGC will be a works contract or not.
12. Schedule II to CGST Act, deems ‘works contract as defined in Section 2(119) as a ‘service’. We further understand that Notification No. 39/2017-Integrated Tax (Rate) dated 13.10.2017 ‘offshore works contract services’ for oil and gas exploration and production attract a GST rate of 12 percent. As per this Notification, ‘onshore works contract services’ for oil and gas exploration and production attract a GST rate of 18 percent. Entry no 3(viii) and 3(ix) of the Notification are to this effect.
13. Besides the above, it is also relevant to point out that Notification No. 3/2017 Integrated Tax (Rate) dated 28.06.2017 may also be applicable in the present case. The said Notification provides for a concessional rate of GST i.e. 5% on specified goods supplied in relation to petroleum projects. Relevant entry of the said Notification is extracted below:
