In re Hitachi Energy India Limited (GST AAR Tamilnadu)
Tamil Nadu Authority for Advance Rulings (AAR) has ruled on the GST classification of services provided by Hitachi Energy India Limited (Applicant) in relation to a large High Voltage Direct Current (HVDC) power transmission project for Power Grid Corporation of India Limited (PGCIL). The applicant sought clarity on whether its supply of services like transportation and insurance under one contract (‘Fifth Contract’) constituted a composite supply with goods supplied under another (‘Third Contract’) as the principal supply, or if these services were classifiable as ‘Business Support Services’. The query arose after PGCIL reportedly refused to reimburse GST charged by the applicant on transport and insurance services, claiming exemption applicable to Goods Transport Agency (GTA) services under Notification No.12/2017-CT (Rate).
Project Structure Involved Multiple Interlinked Contracts
The project involved setting up an HVDC system between Raigarh, Chhattisgarh, and Pugalur, Tamil Nadu, executed by a Joint Venture (JV) of ABB AB, Sweden, and BHEL. The applicant acted as an ‘associate’ of the JV, responsible for executing the Third Contract (onshore supply of goods) and the Fifth Contract (services). The entire project scope was divided into five distinct but interlinked contracts, covering offshore and onshore supply of equipment and various services. Crucially, these contracts were subject to a ‘cross-fall breach clause’, meaning a breach in one contract constituted a breach of the entire agreement, highlighting their interdependent nature.
Scope of Services Extended Beyond Transportation
The AAR examined the scope of the Fifth Contract awarded to the applicant. It noted that the applicant’s responsibilities were not limited to local transportation, insurance, and taking delivery of goods supplied under other contracts. The Fifth Contract explicitly included unloading, handling, storage, erection including civil works, testing, and commissioning of equipment supplied under the First, Second, and Third Contracts, along with training services. This comprehensive scope indicated that the transportation and insurance services were not provided in isolation but were inextricably linked to the overall execution of the project, which involved the complete installation and commissioning of the HVDC system.
Classification as Works Contract Under GST Law
Considering the extensive scope involving the supply of goods (under the Third Contract) combined with services like erection, installation, and commissioning of equipment leading to the creation of HVDC terminals (immovable property), the AAR concluded that the activities undertaken constituted a ‘Works Contract’ as defined under Section 2(119) of the CGST Act, 2017. The AAR referenced the definition, which covers contracts for building, construction, erection, installation, or commissioning of any immovable property involving the transfer of property in goods. Furthermore, citing Schedule II of the CGST Act, the AAR noted that a Works Contract is treated as a supply of ‘service’.
Final Ruling: 18% GST Applicable on Works Contract Service
Based on this analysis, the AAR ruled that the applicant’s supply is a composite supply of ‘Works Contract Service’, classifiable under SAC 9954 (‘Construction Services’). Consequently, the entire service, including the components of transportation, freight, and insurance provided under the Fifth Contract, is subject to GST at 18% (CGST 9% + SGST 9%). This classification overrides the need to determine a ‘principal supply’ as posed in the applicant’s first query. It also renders the exemption for GTA services inapplicable and dismisses the alternative classification as ‘Business Support Services’. The ruling effectively supports the applicant’s stance that GST is applicable on the invoiced services, contrary to PGCIL’s view.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, TAMILNADU
