The Authority for Advance Ruling (AAR), West Bengal held that the applicant supplying work contract services which include freight and transportation is liable to pay Goods & Services Tax ( GST ) at the rate of 18% on the entire value of the composite supply, including supply of materials, freight, and transportation, erection & commissioning.
The applicant, EMC Ltd., supplies materials and allied services or erection of towers, testing and commissioning of transmission lines and setting up sub-stations. He obtained contracts from M/s Power Grid Corporation of India. the contracts were divided into two- one for supply of materials at ex-factory price and other for supply of allied services like survey and erection of towers, testing and commissioning of transmission lines, which also included inland/local transportation, in-transit insurance, loading/unloading for delivery of materials and storage of them at the contractee’s site. The Contractee refused to pay GST on the price for inland/local transportation, in-transit insurance, and loading/unloading.
The applicant has sought a ruling from the Authority for Advance Ruling on whether he is liable to pay tax on such freight bills, raised on the Contractee as per the rate schedule annexed to the Second Contract.
The applicant claimed that he is not a Goods Transport Agency (GTA) or engage in the insurance business. He contended that he only arranges services pay the GST as applicable on the consideration paid to the suppliers of such services. He argued that his service to the Contractee for inland/local transportation, the applicant argues, was exempt under the GST Act and he referred Notification No. 9/2017 – IT (Rate) dated 28/06/2017, which, according to him, grants exemption on transportation service provided by an entity other than GTA.
The Authority comprising Members Vishwanath & Parthasarathi Dey found that the applicant was the recipient of transport & insurance services and not a supplier. It further noted that the First Contract could not be executed independently of the Second Contract. It found that there was interdependence of both the contracts.
The Authority observed that the composite nature of the contract was clear from the clause that defined the satisfactory performance of the First Contract (supply of goods) as the time when the goods so supplied were installed and finally commissioned in terms of the Second Contract. It clarified that the First Contract could not be performed satisfactorily unless the goods have been transported and delivered to the contractee’s site, applied for the erection of towers, the transmission lines laid, tested and commissioned in terms of the Second Contract. They concluded that the two promises – supply of the goods and the allied services – were not separately enforceable in the then context.
“The price components of both the First and the Second Contracts, including that for transportation, in-transit insurance etc. are to be clubbed together to arrive at the value of the composite supply of works contract service as discussed above and taxed at 18% in terms of Serial no. 3 (ii) of Notification No. 11/2017 – Central Tax (Rate) dated 28/06/2017 (1135 – FT dated 28/06/2017 under the State Tax).” observed the Members.