In re BEML Limited (GST AAAR Karnataka)
In the instant case, there is no doubt that there are multiple supplies of both goods and services being undertaken as part of this contract. While the supply from Cost Centre C is a supply of goods i.e the Standard Gauge Intermediate Cars, the supply by Cost Centre D is primarily a service of commissioning and installation of the Cars supplied by Cost Centre C. Similarly, the supply from Cost Centre E is a service of joint inspection and completion of defects/deficiencies observed during integration test and joint inspection. The supply of spares from Cost Centre G is purely a supply of goods. We find that there is no dispute on the nature of supply by each of the above-mentioned Cost Centres. The bone of contention is whether the supplies by Cost Centres C, D. E and G are to be termed as a composite supply or not. For a supply to be consider as a composite supply, its constituent supplies should be so integrated with each other that one cannot be supplied in the ordinary course of business without or independent of the other. In other words, they are naturally bundled. The term ‘naturally bundled’ has not been defined in the GST Act. The concept of the “Naturally Bundled”, as used in Section 2(30) of the CGST Act, 2017, lays emphasis on the fact that the different elements in a composite supply are integral to the overall supply and if one of the elements is removed the nature of supply will be affected.We fail to see this concept in this contract. In this case, although there is only one contract, the different activities done by the Cost Centers C, D, E and G as part of the contract, are clearly specified and identifiable. The scope of works undertaken by each Cost Centre C, D, E and G are entirely independent and specific to that cost center and is not associated with any other Cost Centre. The work undertaken by the Cost Centre D commences only on completion of all the milestone activities of Cost Centre C. Similarly, the work undertaken by Cost Centre E and G commence only on completion of all the milestone activities of Cost Centers D and E respectively. Therefore, it is evident that each Cost Centre is independent and every milestone supply made from the Cost Centre is an independent transaction.,
Further, we also note that the contract has laid down the cost attributable to each milestone activity in each of the cost centers. The payment made by M/s BMRCL will be based on the invoices raised by M/s BEML on completion of each milestone in the Cost Centre. For example, as per the contract, the Cost Centre C will supply the Is1 indigenously manufactured 3 car unit (-MC+MC-TC-) along with dispatch documents, transit insurance and No Objection certificate from the Engineer within 65 weeks from the commencement date and the amount apportioned towards this supply is Rs 10, 33, 35, 703/-. Similarly, Cost Centre D will within 76 weeks from the commencement date, integrated the 1st 3 car unit into the existing 3 car train (DMC-TC-DMC) to form the 6-car train. Cost Centre D will also complete the functional tests of 6 car train and running of 6 car train in the depot and test track along with integrated testing and commissioning at the depot. The amount apportioned towards this supply is Rs 1,47,62,244/-. If there are any defects/deficiencies observed during main line type test and integration test or joint inspection of the 1st 3-car unit forming 3-car to 6 car train, the same will be attended to by Cost Centre E along with any other minor outstanding works, within a period of 78 weeks from the commencement date. The amount apportioned for this supply from Cost Centre E is Rs 36,90,561/-. Therefore, each supply by the Cost Centers C, D, E and G is clearly identifiable at the time of raising the invoice as to whether it is a supply of goods or a supply of service and the cost attributable to each supply is predetermined and laid down in the Pricing document which is part of the Contract. As such we agree with the Appellant’s contention that each transaction by the individual Cost Centers are to be assessed independently according to the nature of supply.
The lower Authority has erred in interpreting the creation of cost centres as per the contract as artificial creations to enable cash flow. When interpreting the nature of a contract, the form of the agreement is not important, it is rather the substance which has to be seen. The parties may use any words they like to suit their intention and it is therefore imperative that the agreement may not be taken as it is but its nature/substance has to be seen to arrive at the correct conclusions.In this case, although a single contract has been made for supply of Goods and services, the clear-cut demarcation of activities of supply of goods and supply of services to each Cost Centre clearly demonstrates the intention of the contracting parties that each of the cost centres C, D, E and G is an independent supply centre undertaking either a supply of goods or a supply of service. Hence, we are unable to subscribe to the views of the lower Authority and the Respondent that the supply of goods and services encompassed as per this contract are naturally bundled. The mere fact that a number of tasks have been entrusted to the Respondent through a single contract would not make it as ‘composite supply’ in terms of Section 2(30) of the CGST Act, 2017. We reiterate that the obligations of supplies envisaged in this contract are distinct and separable and hence the separate activities of supply of goods and supply of services have to be viewed independently on its own merits.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, KARNATAKA
1. At the outset we would like to make it clear that the provisions of CGST, Act 2017 and SGST, Act 2017 are in parimateriaand have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the KGST Act.
2. The present appeal has been filed under section 100 of the Central Goods and Service Tax Act, 2017 and Karnataka Goods and Service Tax Act 2017 (herein after referred to as CGST Act, 2017 and SGST Act, 2017) by the Assistant Commissioner of Central Tax, Bangalore South Division-1, South Commissionerate, (herein after referred to as Appellant/Appellant Department) against the advance Ruling No. KAR/ADRG 20/2021 dated 6th April 2021.
Brief Facts of the case:
3. M/s. BEML Limited, 23/1, 4th Main, BEML Soudha, SR Nagar, Bengaluru 560027 having GSTIN number-29AAACB8433DIZU (hereinafter referred to as “Respondent Company”) have entered into a contract with M/s BMRCL for the manufacture and supply of Standard Gauge Intermediate Cars. The activity of manufacture and supply of Standard Gauge Intermediate Cars involves the supply of both goods and services which is undertaken by Cost Centres A to H. The nature of supply undertaken by each of the Cost Centres of the Respondent Company is as under:
