In re Vijai Electricals Limited (GST AAR Gujarat)
The Gujarat Authority for Advance Ruling (AAR) recently addressed a significant query regarding the applicability of Goods and Services Tax (GST) on advance payments and the divisibility of turnkey contracts in the case of M/s Vijai Electricals Limited. The applicant, engaged in EPC contracts with various distribution companies, sought clarification on several points, including the applicability of GST on advances received for supply portions under turnkey contracts and the divisibility of such contracts.
Background of the Applicant
M/s Vijai Electricals Limited, based in Ahmedabad, Gujarat, operates in the EPC (Engineering, Procurement, and Construction) contract business with several distribution companies (DISCOMS) such as Paschim Gujarat Vij Company Ltd (PGVCL). The company is registered under GST with GSTIN 24AAACV7259B1ZI.
Nature of the Contract
Vijai Electricals entered into a turnkey contract with PGVCL, which includes:
- Part I: Supply of plant
- Part II: Supply of installation services
The contract specified a single agreement, dividing the work into two distinct parts but under one overarching contract. They received 7.5% advance payments against both parts, with separate billing for supply and erection, which they argued constituted a divisible contract.
Applicant’s Contentions
The applicant argued that:
1. The turnkey contract should be treated as two distinct contracts (supply and installation).
2. As per Notification No. 66/2017-CT dated 15.11.2017, GST is not payable at the time of receipt of advances for goods.
3. The advance received against the supply portion should be exempt from GST based on the above notification.
They sought clarity on:
1. Whether Notification No. 66/2017 applies to turnkey contracts.
2. Whether GST is payable on advances received against the supply portion.
3. Whether the contract can be read as a divisible contract.
