In a recent ruling, the Gujarat Authority for Advance Ruling ( AAR ) held that an Engineering, Procurement, and Construction ( EPC ) contract entered into by Thyssenkrupp Industrial Solutions (India) Private Limited (Thyssenkrupp) with the Indian Oil Corporation Limited ( IOCL ) constitutes a composite supply under the Goods and Services Tax ( GST ) regime and cannot be treated as a divisible contract.
IOCL had invited bids for execution of EPC Package (EPCC-09) for Catalytics De-Waxing Unit at their Gujarat Refinery with the successful bidder contractually obligated to execute the work on lump sum turnkey basis single point responsibility.
The contract included both imported goods (supplied under a High Seas Sale agreement) and services such as erection, commissioning, and installation.
The present Application for Advance Ruling has been sought for by Thyssenkrupp to determine whether the contract could be split into two separate supplies—one for the imported goods and another for the EPC services; and whether the value of imported goods, already taxed under Integrated Goods and Services Tax ( IGST ) at the time of import is to be excluded from the taxable value of the EPC contract.
CA S.L. Kapadia along with Rajesh and Lalitha Vishwanath appearing for Thyssenkrupp contended that the EPC contract should be deemed a divisible contract with the supply of imported goods under High Seas Sale (HSS) to be a separate transaction while the service component, including installation and commissioning of the goods to be taxed independently as a works contract service.
Furthermore, Thyssenkrupp submitted that IOCL had already paid requisite IGST at customs clearance, therefore the same goods may not be taxed again when used in the EPC project.
The two-member Bench of the Gujarat Authority for Advance Ruling constituted by SGST Member Kamal Shukla and CGST Member P.B. Meena observed that the EPC Contract cannot be split into separate supplies for goods and services since EPC contracts qualify as a works contract under Section 2(119) of the CGST Act, 2017 and are inherently turnkey in nature, requiring the contractor to deliver a fully functional project.
The Bench further clarified that the subject-matter contract is not a divisible contract but a single and composite contract, with the component of imported goods forming part of the transaction value for computation of value of worlds contract service.
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