In re HYT Sam India (JV) (GST AAAR Tamilnadu)
Question Raised before AAAR
> Whether all the works awarded through the LOA together is a ‘Composite supply of Works Contract Service’ in as much as the tender floated is for “construction of shed, provision of M&Ps in ICF Shell / Furnishing Division, retro-fitment / re-conditioning / re-sitting / disposal of obsolete M&Ps of shell division including wet leasing of M&Ps and associated Electrical works on turn-key basis” and thereby the benefit of sl.No.3(v) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 is available to works under Schedule V and Schedule VI, for which separate agreements are entered into.
> If found that the works under LOA is not a ‘Composite supply of Works Contract’ whether the benefit of sl.No. 3(vi)(a) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 is available to them for the CAMC work under Schedule VI?
Held by AAAR
As per the contract agreement for wet-leasing, it is an activity consisting of leasing of M&Ps in working condition, providing skilled and unskilled manpower, spares, consumables for the entire period of leasing during which the leased goods are reflected in the books of the lessor. The lease charges are paid on a quarterly basis to the appellant based on the productivity. The M&Ps are transferred to ICF at the end of the lease period. Just because, there is a transfer of property in goods after the lease period, the activity is not a works contract. The activity of wet-leasing is squarely classifiable under SAC 9973 Leasing or rental services with or without operator as held by the LA and we uphold the same. Therefore the benefit of entry at 3(v)(a) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 is not applicable in respect of Wet-Leasing of the M&Ps.
The appellant has claimed that they are eligible for the benefit of entry SI.No. 3(vi)(a) of the Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended. The LA has rejected this claim for the reason that factory is meant for manufacture by ICF which is an activity of industry. The appellant claims that in the instant case, the Integrated Coach Factory is intended for the purposes of building coach which is not for commerce or industry or business since it is being done by Government of India for the purpose of Indian Railways whose predominant objective is to service general public and not business or commerce or industry or profession and Government cannot be said to be engaged in business or commerce when the President of India through its representative is signing the subject contract.
The above entry is applicable in the case of composite supply of works contract of maintenance of a civil structure or any other original works meant predominantly for use other than for commerce, industry or any other business or profession to the class of receivers specified. ICF is a ‘Production unit’ of Railways and belongs to ‘Central Government’ and manufacturing steel coaches is not an activity where the Government is engaged as public authorities. As per the Explanation to the said entry, it is evident that when the activity is not in the capacity of ‘Public authority’, then the activity is for ‘business’ only. ICF is putting up the said Plant to manufacture Stainless Steel coaches, which is not an activity undertaken as a `Public Authority’ and therefore, the benefit of the above entry is not applicable to the appellant in respect of CAMC as claimed by them and we hold so.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING,TAMILNADU
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
The subject appeal has been filed under Section 100(1) of the Tamilnadu Goods & Services Tax Act 2017/Central Goods & Services Tax Act 2017 (hereinafter referred to ‘the Act’) by The HYT-SAM India (JV) (hereinafter referred to as ‘Appellant’). The appellant is registered under GST vide GSTIN 33AABAH8574L1ZB. The appeal is filed against the Order No.8/AAR/2019 dated 22.01.2019 passed by the Tamilnadu State Authority for Advance ruling on the application for advance ruling filed by the appellant.
2.1 The Appellant, is assessed as Association of Persons under the Income Tax law. The constituent partners of the JV are as follows:
a. HYT Engineering Co Private Limited (Lead partner of JV);
b. SAM (India) Built well Private Limited
The appellant is engaged in construction of Shed, Provision of M&P’s in ICF Shell/ Furnishing Division/ retro-fitment/ re-conditioning/ re-sitting/ disposal of obsolete M&P’s of Shell division including wet leasing of M&P’s and associated Electrical Works on turn key basis at ICF Chennai.
2.2 The Integral Coach Factory (ICF for short) of Indian Railways, Government of India, located at Chennai is in the process of modernization of their activities wanted to put-up steel railway coach manufacturing set-up in place of existing setup. In the process, tender no. ICF/Complete Switchover Project Phase-II/T-1 dated 27.03.2017 was invited by Integral Coach Factory, Chennai for “construction of shed, provision of M&Ps in ICF Shell / Furnishing Division, retro-fitment / reconditioning / re-sitting / disposal of obsolete M&Ps of shell division including wet leasing of M&Ps and associated Electrical works on turn-key basis” The Appellant had bid for the tender and the tender is allotted to HYT- SAM India (JV), and the Letter of acceptance hereinafter referred to as LOA bearing LOA No. M/CPM/ICF/CSP—II/T-1, dated 29.06.2017 was issued to the Appellant. The Appellant has duly accepted the same and signed.
2.3 Based on the said LOA, contract bearing Contract No. ICF/Complete Switchover Project—II/T-1 dated 19.08.2017 was entered into between Integral Coach Factory, Chennai, Government of India, and the Appellant, describing the terms and conditions of the works awarded to the Appellant. Few supplemental agreements were entered as per the terms of the LOA and the main contract dated 19.08.2017. On introduction of Goods and Service Tax [GST] the rate of tax on goods and services are notified vide notification No. 1/2017-CT(R) dated 28th June 2017 and Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 [Similarly Notification No. G0.62 [rate of tax on goods), Notification No. G0.72 (rate of tax on services) of TN]]. The appellant claim that the nature of works awarded is that of works contract which in terms of Section 7 of CGST Act, 2017 read with Schedule II to the said Act, is supply of services. Accordingly, the rate of tax is to be determined in terms of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended.
2.4 The Appellant made an application to ORIGINAL AUTHORITY on the following questions:
1. Whether the works awarded to the applicant is composite supply of services?
2. Whether the benefit of sl.No.3(v) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 is applicable to subject works
3. Whether the applicant is required to raise invoice on completion of events/milestones and remit the tax
4. What is the value on which invoice has to be raised in case of event/milestone invoicing if required?
3. The original authority has ruled as follows:
a. With respect to supply of machine, plant and equipments including commissioning of spares in Schedule 1, erection and commissioning of all civil structures in Schedule II, supply of electrical equipment including commissioning of spares in Schedule III, the same is a composite supply of works contract for original works pertaining to railways and is taxable at 6% CGST as per sl. No. 3(v)k) of NNotification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended.
b. The supply in the agreement for wet leasing of Robotic spot welding machine and laser cutting and welding machine as per Schedule V(a) &V(b) are composite supply of services and not ‘Works Contract’ and therefore not eligible for serial no. 3(v)(a) of the notification.
c. The agreement for comprehensive Annual Maintenance Contract under Schedule VI(a) and VI(b) is not eligible for serial no. 3(v)(a).
d. The value of supply for each invoice raised should be as per section 15(2) of the CGST Act, 2017
e. For up-rooting and disposal of condemned M&Ps no advance ruling provided as the appellant is service receiver and not service provider.
f. Authority cannot provide advance ruling w.r.t time of raising of invoice by the Appellant.
4.1 Aggrieved to the extent of ruling that Scope of works in Schedule V and VI not being covered under SI.No. 3(v)(a), the appellant has filed the appeal on the following grounds:
> The issue to be decided/involved in the present appeal are:
a. Whether the activities under tender agreement for wet leasing of Robotic spot-welding machine and laser cutting and welding machine as per Schedule V(a) & V(b) is eligible for concessional rate under SI.No 3(v)(a) or 3(vi) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended and corresponding entry under state notification.
b. Whether the activities under tender agreement for comprehensive Annual Maintenance Contract under Schedule VI(a) and VI(b) is eligible for serial no. 3(v)(a) or 3(vi) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended and corresponding entry under state notification.
> The authority for advance ruling though clearly has recorded the fact that the LOA dated 29.06.2017 is one agreement and also agreed that it is composite supply, it has bifurcated LOA into four parts whereby from Schedule I, II and III as one part and Schedule IV, V and VI as separate parts. The impugned order has considered Schedule I, II and III of the LOA as composite supply works contract and ruled that it is eligible for the concessional rate as provided in Serial No. 3(vl(a) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017
> On the other hand, it is ruled that scope of works at Schedule V, though composite supply it is not works contract and thereby the benefit of concessional rate under Sl. No. 3(v)(a) is not eligible. The said ruling requires modification for the following reasons;
a. The scope of works under Schedule V is part of the same tender for works on turnkey basis;
b. The scope of works under Schedule V is part of the same LOA and part of total turnkey project;
c. Segregating a portion of the work and giving separate treatment is not in terms of Section 8 of CGST Act, 2017 and SGST Act,2017.
> Based on the above grounds the ruling denying the benefit of Sl. No. 3(v)(a) be modified extending the benefit of concessional rate of tax under the said Sl. No. Further The Integral Coach Factory (ICF for short] of Indian Railways, Government of India, located at Chennai allotted the tender to HYT-SAM India (JV), for “construction of shed, provision of M&Ps in ICF Shell / Furnishing Division, retro-fitment / re-conditioning / re-sitting / disposal of obsolete M&Ps of shell division including wet leasing of M&Ps and associated Electrical works on turn.-key basis”. The Indian railways in acceptance letter No. M/CPM/ICF/CSP-II/T-1 dated 29.06.2017, accepted the original offer and agreed for executing the subject work in Schedule I to Schedule VI. It means that the work allotted to the Appellant is composite service.
> The ruling is provided by considering each of the activity undertaken by them as separate and different. However, it is important to understand that the Appellant had quoted for one single tender and approval through LOA is given on consolidated basis. Only for convenience of execution, payment purpose and other conditions to be applied for different stages of the work, different schedules were provided under the same LOA for each of the activities. Merely providing different schedules for each activity cannot be the basis for vivisecting each activity to classify under different heads. The said approach is not legal and proper.
> Further as far as the scope of works covered under Schedule VI to the LOA, it is accepted and admitted that it is composite supply of works contract. However the benefit of entry in Si. No 3[v)(al is not extended to the Appellant on the ground that the said Sl. No. does not cover maintenance. In this regard it is submitted that —
a. The scope of works under Schedule V1 is part of the same tender for works on turnkey basis;
b. The scope of works under Schedule V1 is part of the same LOA and part of total turnkey project;
c. Segregating a portion of the work and giving separate treatment is not in terms of Section 8 of CGST Act, 2017 and SGST Act, 2017.
d. Assuming but not admitting the scope of activities can be segregated and separated from other schedules, it is submitted that SI. No. 3(vi)(a] of the above said notification read as follows:
“(vi) Composite supply of works contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, provided to the Central Government, State Government, Union Territory, a local authority, a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of —
(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession”
> As can be seen that the factory in question is that of Government of India, Department of Railways Further the annual maintenance is that of Schedule I and Schedule III of LOA items, Further the coach building factory is for internal consumption of Indian Railways it is not for any business or commerce or industry. Further the contract in the preamble it is said “the performance of the said works is an act in which the public are interested.” Which means said construction and setting of modernized factory is not for commerce, industry or any other business or profession. Thereby the appellant would alternatively be eligible for the benefit of concessional rate of tax under the SI. No, 3(vi)(a) of the said Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 and similar state notification.
> Based on the above grounds it is submitted before the appellate authority that the ruling denying the benefit of SI. No.3(v](a) or 3(vi)(a) be modified extending the benefit of concessional rate of tax under the said SI.No.
> Further the order in para 5.3 states that the Appellant is not eligible for the serial no. 3(vi)(a] for the reason that the factory is meant for manufacture by ICF which is an activity of industry, in this regard the Appellant submit as follows:
a. The contract in the preamble it is said “the performance of the said works is an act in which the public are interested.” Which means said construction and setting up of modernized factory is not for commerce, industry or any other business or profession.
b. Further, the Appellant satisfies the other conditions of serial no. 3Ivi)(a) and the same is explained below:
Not meant predominantly for commerce, industry or business or profession:
i. The civil structure or original works, should not be meant predominantly for commerce, industry or business or profession;
ii. In the instant case the Integrated Coach Factory is intended for the purposes of building coach which is not for commerce or industry or business since it is being done by Government of India for the purpose of Indian Railways whose predominant objective is to service general public and not business or commerce or industry or profession.
iii. Government cannot be said to be engaged in business or commerce or industry or profession especially when the President of India through its representative is signing the subject contract.
Hence, the Appellant contends that they are eligible for serial no. 3(vi)(a) of notification no. 11/2017-CT(R) as well.
PERSONAL HEARING:
5.1 Personal hearing was extended to the appellant to be held on 22.01.2020 and the appellant sought adjournment vide their letter dated 14.01.2020. Another opportunity was extended to the appellant to be heard on 12.02.2020 but the scheduled hearing was postponed due to administrative reasons. Due to the prevailing pandemic, the authority started to conduct the hearing in Virtual Mode and the willingness of the appellant was sought to participate in the Virtual Mode of hearing. The appellant vide their e-mail dated 27th July 2020 conveyed that the matter is little complex and requires detailed explanations to be provided, which would be little difficult to explain in case of a virtual personal hearing and requested to be heard in person. The appellant was addressed again seeking willingness to participate in Virtual hearing. The appellant vide their e-mail dated 9th September 2020 requested to be heard in person and also stated that since they would be required to travel from Pune, they requested to post the matter for hearing once the inter-state movement is relaxed. In view of the restrictions existed, the appellant was again asked to partake in virtual hearing which was again declined by the appellant. They requested to be heard in person and also requested to intimate the date of hearing well in advance, to plan their travel from Pune accordingly. In-person hearing was fixed to be heard on 03.02.2021 and the appellant was heard.
5.2 The Authorised representatives appeared for the in-person hearing. They stated that though the order of the Lower Authority is dated 22.01.2019, they received it late and they had filed the appeal within the Statutory time-limit. On merits of the case, they furnished as additional submission, which was taken on record. They reiterated their submissions.
5.3 In the additional submissions, they had inter-alia stated as follows:
> ruling is provided by considering each of the activity undertaken by them as separate and different. They had quoted for one single tender and approval through LOA is given on a consolidated basis. Only for convenience of execution, payment purpose and other conditions to be applied for different stages of the work, different schedules were provided under the same LOA for each of the activities. Merely providing different schedules for each activity cannot be the basis for vivisecting each activity to classify under different heads. The said approach is not legal and proper.
> scope of work under schedule V and VI is part of same tender, same LOA and part of total turnkey project. Further, segregating a portion of the work and giving separate treatment is not in terms of Section 8 of CGST Act, 2017 and SGST Act, 2017.
> the tender allotted and the contract entered between Integral Coach Factory, Chennai (Ministry of Railways), Government of India (ICF) and HYT SAM India (JV) is for the entire works covered under tender and LOA wherein the main objective is to construct modernized stainless-steel railway coaches manufacturing factory. This has been given on turnkey basis. Further, the contract has been given on lumpsum basis, though for the purpose of convenience different parts are defined for administrative and execution purposes.
> to fit in Sl. No. 3(v)(a) as well as Sl. No. 3(vi)(a) of Notification No. 11/2017-C.T.(Rate) dated 28.06.2017 as amended, the first and foremost condition is that the works should be a ‘composite supply’ and the following broad indicative parameters can be applied for determining whether supplies can be considered as being bundled naturally in the ordinary course of business or not:
