In the case of M/s Vihan Enterprises, the Authority of Advance Ruling (AAR) has ruled that goods supplied under Turnkey Contract, where there are multiple independent contracts, of which some are not in the nature of Works Contract, shall not be included in the value of the contract in the nature of a works contract merely on account of the fact that goods are being supplied under Turnkey Contract, part of which is in the nature of a Works Contract unless such supply of all such goods is a part of and made in the execution of a works contract.
The applicant, M/s Vihan Enterprises is engaged in works contract. The applicant is engaged in inter alia, in construction of new 33 / 220 kV Pooling Substation at Badwar, REWA along with associated 220 kV DCDS Transmission line and associated feeder bay work on the total Turnkey basis under World Bank Financing for Rewa Ultra Mega Solar Limited.
The following questions were raised before the Authority in the application: Whether the explanation to Entry No. 234 of Schedule I to Notification No. 01/2017 – Central Tax (Rate), as amended from time to time, shall apply to the construction of new 33 / 220 kV Pooling Substation at Badwar, REWA along with associated 220 kV DCDS Transmission line and associated feeder bay work on total Turnkey basis under World Bank Financing? Whether in the facts and circumstances of the case, the value of all the goods supplied under the contract, independent of the Works Contract being executed in the contract shall form part of the Works Contract and taxed as service?
Currently, the rate for service by way of engineering or other technical services, provided in relation to setting up a solar power generating system is fixed at 9 percent. If the goods of a solar power generating system are supplied, by a supplier, along with supplies of other goods and services, one of which being a taxable service specified in the entry at S. No. 38 of notification No. 11/2017 Central Tax (Rate) value of supply of goods for its purposes stated that out of the gross value of the supply, 70% shall be deemed to be on account of goods and 30% was deemed to be on account of service in certain cases. This amendment brought the effective rate of tax on the supply to 8.9%.
Joint Commissioners Virendra Kumar Jain and Manoj Kumar Choubey observed that;
“……It is pertinent to note that the explanation which provides for splitting the value of the supply into goods and supplies is in Entry No. 234 and not in Entry No. 38. The contention that the supply of the goods in Entry No. 234 is essential is further supplanted by the inclusion of the explanation in Entry No. 234. 7.10 It, therefore, appears that in case of a Works Contract, the explanation to Entry No. 234 shall apply if and only if, the goods the title in which is/are being transferred during the execution of Works Contract find a place in Entry No. 234. Works Contract in relation to any of the goods listed in Entry No. 234, where such goods are not part of the Works Contract shall not merit taxation under Entry No. 234.
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