The Gujarat Appellate Authority for Advance Ruling (AAAR) has ruled that a firm supplying goods and services under two separate contracts will be required to pay GST on both.
The Gujarat Appellate Authority for Advance Rulings (AAAR) has ruled that a company that receives separate orders from the Adani group for inverter duty transformers and supervision services must pay the Goods and Services Tax (GST) on the entire project.
The ruling stated that 70% of the order, which consists of goods, will attract a 12% GST rate, while 30% of the order, consisting of services, will have an 18% GST rate.
Shilchar Technologies Limited, the applicant, is a manufacturer of electronics, telecom equipment, and power & distribution transformers. They received a purchase order from Adani Green Energy Limited for the supply of aluminium foil-type winding inverter duty transformers (IDT) along with the necessary spare parts.
Additionally, as per the technical specifications for IDT, services are also included; therefore, they received a separate contract for service supervision of the project. The applicant argued before the AAR that since two separate contracts were issued and bid on separately, they should also be separately taxed.
If it is considered a single order, 70% of the gross consideration charged would be considered the value of the supply of goods and the remaining 30% would be considered the value of the taxable service. Goods are subject to a 12% GST while services are subject to an 18% GST, the Advance Ruling authority bench observed.
During the hearing, it was stated that the applicant, Shilchar Technologies Limited, had received a purchase order for the supply of IDT and their parts from Adani Green Energy Limited, and another purchase order for supervision from Adani Solar Energy Chitrakoot One Limited. The applicant argued that the order from the Advance Ruling Authority (AAR) interpreted the two separate contracts as one indivisible contract, resulting in treating the contract as a ‘Composite Supply’.
The Appellate Authority for Advance Ruling (AAAR) determined 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.
In this likely-to-be a landmark ruling, for the EPC industry, it was observed 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.”
The AAAR bench, thus upheld the ruling of the Gujarat AAR, observing as above.