In A.R. Com/09/2022- AAR- M/s. PES Engineers eligible for benefit of Notification No. 66/2017 for separate contracts of supply of services and goods; Tax liability on supply of goods arises at the time of supply, not on the date of receiving advance payments: Telangana AAR
Members S.V. Kasi Visweswara Rao (State Tax) & Sahil Inamdar (Central Tax) [13-04-2023]

Read Order: In Re: M/s. PES Engineers Private Limited

Chahat Varma

New Delhi, May 26, 2023: The Telangana bench of the Authority for Advance Rulings has ruled that that M/s. PES Engineers Private Limited (applicant) was eligible for the benefit of Notification No.66/2017 Central Tax, dated 15th November 2017, as they had entered into two separate contracts—one for the supply of services and the other for the supply/sale of goods and the tax liability on supply of goods, as per First Contract, would arise at the time of supply, which is the date of invoice issuance or the last date for invoice issuance as per section 31 of the Central Goods and Services Tax Act, 2017 (CGST Act), and not on the date of receiving advance payments.

In the present case, the applicant, involved in the construction of various power projects, had entered into agreements with Singarenni Collieries Company Limited (SCCL) for the design, manufacture, testing, delivery, installation, and commissioning of certain facilities, specifically the Fuel Gas de-sulphurisation (FGD) system package for Singareni TPS, stage-1 (2X600MW) at the Thermal Power Project. The applicant had signed two separate contracts for the execution of this project. The first contract involved the sale of goods from the manufacturer/ex-works. The second contract covered the inland transportation of the main equipment, inland transit insurance, unloading at the site, storage, erection, civil works, safety aspects, compliance to safety rules, other services insurance (excluding inland transit insurance), testing, commissioning, and conducting guarantee tests.

The applicant contended that based on the contracts, there was a clear distinction between the supply of goods and the supply of services. Therefore, they submitted that each contract should be assessed independently for the purpose of GST.

The Authority observed that the taxability of a supply should be determined on a case-by-case basis, taking into account various factors such as the context of the supply, the intent of the supply provider and recipient, the nature of agreements, the method of invoicing, and the payment terms.

The Authority noted that there have been several judgments by the Supreme Court where it was observed that there can be two separate contracts, one for sale and another for a works contract. The Authority observed that in the present case, the value of the goods sold, where the property has already been transferred, cannot be included in the value of the second contract, which was the works contract.

The Authority held that the scope of works/supply undertaken under the individual contracts were entirely independent and specific to that contract and were not associated with another contract. The mere fact that different tasks were entrusted to the applicant through a single contract agreement, for which separate invoices were issued to the recipient, did not make it a 'composite supply' as defined in section 2(30) of the CGST Act, 2017.