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A company receiving separate orders from the Adani group for inverter duty transformers and supervision services is liable to pay the goods and services tax (GST) on the entire project, ruled Gujarat Appellate Authority for advance rulings (AAAR).
While goods will constitute 70 per cent of the order and attract 12 per cent GST, services will constitute 30 per cent of the order drawing an 18 per cent rate.
In this connection, the appellate authority upheld the order of the state AAR.
The applicant, Shilchar Technologies Limited, is a manufacturer of electronics, telecom, and power & distribution transformers. It received a purchase order from Adani Green Energy Limited for the supply of aluminium foil-type winding inverter duty transformers (IDT) along with the mandatory spares for transformers. Further, as per the technical specification for IDT, services are also included; therefore, they got a separate contract for service with regard to the supervision of the said project.
The appellant submitted that since two separate contracts had been issued to them and have separately been bid by them, these two should be separately taxed. If it is considered a single order, the value of the supply of goods shall be deemed as 70 per cent of the gross consideration charged for all such supplies, and the remaining 30 per cent of the gross consideration should be considered the value of the said taxable service. Goods are charged 12 per cent, while services draw 18 per cent GST.
However, the AAR ordered that the applicant be liable for GST on the total value of the purchase order -- the supply of goods and services. Out of the gross value of the supply, 70 per cent will be deemed to be on account of goods and 30 per cent deemed to be on account of service.
Aggrieved, the appellant approached the AAAR.
It was submitted during the hearing that the purchase order for the supply of IDT, along with their parts, was received from Adani Green Energy Limited. In contrast, another purchase order for supervision was received from Adani Solar Energy Chitrakoot One Limited.
The applicant argued that the AAR order interpreted the two separate contracts into one indivisible contract, resulting in treating the contract as a 'Composite Supply'.
AAAR held that the contracts had been artificially split into two separate contracts, one for the supply of material and the other for rendering services, but they are, in fact, one single contract.
It found that the appellant had been harping on the fact that they had received two separate purchase orders from two distinct entities.
The aforementioned artificial splitting of the contract into two separate orders being placed by two different entities is merely an afterthought to circumvent the GST on a single contract.
Therefore, based on the above discussion, it can be concluded that the activities relating to the supply of the transformers and the supervision of the erection, testing and commissioning of the transformers supplied by the appellant are inextricable for the supply of transformers.
Saurabh Agarwal, a tax partner at EY, said this is likely to be a landmark ruling under the GST regime for the entire EPC industry if not overruled by the higher judicial authorities.
"While the ruling is applicable to the applicant, it would have persuasive value for the industry and would likely be quoted by the authorities wherever artificial bifurcation of contracts can be established. The EPC industry should revisit their contracting structures to avoid any exposure arising on account of this ruling," he said.
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First Published: Wed, January 25 2023. 12:05 IST