In re Hitachi Energy India Limited (GST AAR AAR Chhattisgarh)
(i) The supply of services made by the applicant under the Fifth Contract relating to construction, erection, civil works, testing, commissioning etc. of the said ± 800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh Which includes the services of transportation, freight and insurance, is a composite supply of works contract. As discussed, the instant activity of the applicant being composite works contract classifiable under construction services falling under SAC 9954, attracts GST @18% [CGST @9% + CGGST @9%] as provided under residual entry mentioned at Sr. no.3 (xii) of Notification no. 11/2017 Central Tax (Rate) dated 28.06.2017 as amended.
Since CGST Act, 2017 itself classifies the instant supply of composite supply of works contract as “supply of service”, which has been found exigible to tax @ 18% [CGST @9% + CGGST @9%] as above, there exist no-reason to identify the “principal supply” in the instant transaction.
(ii) As the supply of services made by the applicant under Fifth Contract relating to construction, erection, civil works, testing, commissioning etc. of the said ±800 KV, 6000 MW HVDC terminals at Raigarh, Chhattisgarh which includes the services of transportation, freight, and insurance, has been held to be a composite supply of Works contract, the alternate suggestion put forth by the applicant of the same being Business Support Service is not taken up for decision.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, CHHATTISGARH
M/s Hitachi Energy India Limited, 1st Floor, No. OP-05, C246/6, Vallabh Nagar, Near Sant Gyaneshwar School, Raipur, Chhattisgarh, 492001, a registered unit having GSTIN-22AARCA9513E1ZR has furnished an application in form ARA-01 under section 97 of the Chhattisgarh Goods & Services Tax Act, 2017 seeking advance ruling as to (i) Whether the supply of services made by the Applicant under Fifth Contract is composite supply with principal supply of goods under the Third Contract? (ii) Whether the supply of services of transportation, freight and insurance under the ‘Fifth Contract’ provided for the goods supplied by the Applicant is in the nature of Business Support Services and shall be chargeable to tax at specified rates?. The above said ARA-01 application dated 08.06.2023 complete in all respect along with the relevant challans was received
2. Facts of the case: –
2.1 . As informed by the applicant in the instant ARA-01 application, they are a company inter alia engaged in manufacture and supply of electrical equipment of various capacities depending on end use and application to specific industry. This Application for Advance Ruling (AAR) has been filed by Hitachi Energy India Limited (formerly part of ABB India Limited), a company registered under the Companies Act, 2013, having their registered office, at 8th floor, Brigade Opus, 70/401, Kodigehalli Main Road, Bengaluru -560 092 bearing Karnataka GSTIN 29AARCA9513E1 ZD. The applicant is also registered in the State of Chhattisgarh with GSTIN 22AARCA9513EIZRand is inter alia engaged in manufacture and supply of electrical equipment and have accordingly filed the Advance Ruling application from the GSTIN of Chhattisgarh.
2.2 The applicant is seeking a ruling on determination of tax liability on the supplies made vide one of the contracts entered into with Power Grid Corporation of India Ltd. (‘PGCIL’) for the supply of goods and services for setting up 800 KV, 6000 MW HVDC terminals at Raigarh and Pugalur. ,
2.3 The applicant seeks a ruling as to the applicability of SI. No. 18 of Notification No. 12/2017-CT (Rate) dated 28.06.2017 on the services of transportation, freight and insurance provided by the Applicant in terms of the Fifth Contact namely On Shore Services Contract Agreement (Reference No. CC-CS/651-SR2/HVDC-3063/7/G10/CA-V/5821) to PGCIL.
2.4 Alternatively, if the exemption under Notification is not applicable, the question as to whether the services are taxable for being in the nature of composite supply, with the principal supply being supply of goods is also to be examined.
2.5 .The applicant vide the instant ARA-01 has intimated that, a Joint Venture (‘JV’) of M/s. ABB AB, Sweden (‘ABBAB’) and M/s. Bharat Heavy Electricals Limited (BHEL) had entered into a contract dated 25.01.2017 with Power Grid Corporation of India Ltd. (‘PGCIL’) for setting up and delivering 800 KV, 6000 MW HVDC terminals for establishing the transmission link for transmitting electricity from Raigarh, Chhattisgarh to Pugalur, Tamil Nadu, covering 1800 Km link. Further, that the entire scope of work was split into five Contracts for supply of equipment and material offshore and onshore, and for supply of services. The JV has appointed the Applicant as their associate for executing the Third Contract, (on-shore supply of goods) and the Fifth Contract (providing services infer alia including local transportation, insurance and other incidental services in respect of the goods supplied under First Contract and Third Contract).
2.6. As per the Fifth Contract, the applicant has been entrusted with the responsibility of delivery of goods at the site of installation. For this, the applicant engaged transporters who issued consignment notes and raised invoices to the applicant for such transportation of goods. The applicant discharged the GST liability under reverse charge mechanism on the amounts paid by them to the transporters.
2.7. As per the terms of the Contract, the Applicant raised invoices on PGCIL for ‘F&l’ or ‘Freight and Insurance’ along with the taxes under SAC 996793.
2.9.However, the GST component of the said invoices was not reimbursed by PGCIL as they are of the view that the same is exempt in terms of SI. No. 18 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017. That, the applicant bore the cost of the differential GST on their own account and duly deposited the same to the Government in a timely manner.
2.10 PGCIL responded to the correspondences of the applicant vide letter dated 22.03.2018 wherein it was stated that PGCIL did not share the understanding of the applicant that supply of goods and Freight & Insurance are composite supply. It was however stated that the applicant may opt for Advance ruling in the matter to get clarity.
2.11 Further, that the applicant responded to the above letter vide their letter dated 18.05.2018 wherein the rulings of the West Bengal AAR in the matters of EMC Limited and Giriraj Renewables Private Limited were cited, wherein in similar circumstances GST was held to be payable on the freight and insurance component of the contract. It was informed that considering the rulings, the applicant shall raise the freight and insurance invoices with applicable GST. Thus, it was requested that the contract be amended suitably to allow for the reimbursement of GST paid on freight and insurance. It has further been informed that the Applicant did not receive any response from PGCIL agreeing to the interpretation as adopted by the applicant.
2.12 Thus under the circumstances, the applicant has sought ruling in the matter raising the following questions.
(i) Whether the supply of services made by the Applicant under Fifth Contract is composite supply with principal supply of goods under the Third Contract?
(ii) Whether the supply of services of transportation, freight and insurance under the ‘Fifth Contract’ provided for the goods supplied by the Applicant is in the nature of Business Support Services and shall be chargeable to tax at specified rates?
3.Contentions of the applicant: –
The applicant has in the instant application furnished the technical specification of the said product to be as under: –
A. SUPPLY OF SERVICES OF TRANSPORTATION, FREIGHT AND INSURANCE PROVIDED FOR THE GOODS SUPPLIED BY THE APPLICANT UNDER THE ‘FIFTH CONTRACT’ IS IN THE NATURE OF COMPOSITE SUPPLY UNDER SECTION 8 OF THE CGST ACT, 2017 WITH THE SUPPLY OF GOODS BEING THE PRINCIPAL SUPPLY
i. That, the applicant is providing the services of local transportation and allied services under the Fifth Contract, which is linked to the overall execution of the Project, which comprises of the other four contracts. The services of transportation are not being provided in isolation and are inextricably linked and in consonance with the ex-works supply of goods under the First and Third Contract.
ii. That, Section 2(30) of CGST Act provides that a supply shall be composite supply when two or more taxable supplies are provided, which are naturally bundled together in the ordinary course of business one of which is a principal supply. In the present case, it is clear that it is normal industry practice that the goods to be supplied are to be delivered at site and freight and insurance are to be paid as natural consequence. Thus, the supplies are bundled together and the services so performed are ancillary and necessary for the supply of goods, making the same the principal supply.
iii. That, since the applicant fulfils the conditions laid down by virtue of Section 2(30) of the CGST Act, 2017, the services of local transportation, insurance and freight for supplying goods, should be considered as a composite supply, with the principal supply being supply of goods.
iv. That, the rulings cited below are also squarely applicable wherein in similar circumstances, it has been held that incidental supplies of transportation, freight and insurance made by the applicant should be treated as being provided in conjunction with the principal supply of supply of goods, which was the intention of the parties of the Contract as well:
